Mega-funds continued to dominate the private funding space for PE firms in 2021, and all signs are pointing toward the trend progressing this year.

Mega-funds—those with over $5 billion—made up 44% of fundraising totals among PE firms and accounted for $143.4 billion last year, boosting dry power to record levels as a result, according to our latest Private Fund Strategies Report. Analysts expect a positive outlook for PE mega-funds going forward.

Funds of all sizes have recorded strong performance, driven by the economic recovery since pandemic-induced lows, abundantly available capital and elevated investor confidence. 

LPs have prioritized re-ups with experienced and established GPs, allowing mega-funds to flourish. For example, Clayton, Dubilier & Rice raised $16 billion for its eleventh buyout fund, 60% larger than its 10th fund, in part because of an 80% re-up rate. This dynamic has rocketed the median and average PE fund sizes to their highest figures in over a decade.

LPs have also focused on both consolidating and deepening their relationships with investment managers to ease portfolio management and gain co-investment opportunities. This has benefited big shops that can both take in additional capital with ease and house multiple fund strategies that LPs desire under one roof.

Further, large, diversified managers that have established their core strategies far above the $5 billion level have also been able to easily cross the mega-fund threshold when expanding into new strategies, in turn further increasing the PE mega-fund count. 

It's worth noting that while mega-funds have shown strong returns—a 59.3% rolling one-year IRR in Q1 2021—large funds do not always guarantee the biggest returns. And the gap between mega-funds and sub-$1 billion funds' performance narrows with time, according to our report.

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