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Overview
It’s relatively easy to categorize who the top investment banks in the world are. There are roughly 10 or so banks that consistently dominate the M&A and IPO market share. All of the leading bulge brackets and even many of the elite boutiques are enormous, worldwide, financial giants. These 10 or so banks consistently attract the brightest minds out of college and there’s little reason for a top finance prospect to go work for a meaningfully smaller bank.
The world of private equity (and hedge funds) is not quite as simple.
Private equity firms are relatively lean companies, which can make it difficult to climb the ranks at a well-established, traditional firm. Above the junior level, a lot of your compensation is going to be tied to how well your specific fund is doing, which can make recent fund performance much more important than brand name.
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Candidates with top investment banking experience and strong resumes will often be motivated to work for the mega funds. If you’re in college or not on the buyside, it’s unlikely that you can distinguish between, let alone name, more than five or so private equity firms.
The opacity and secretive nature of private equity leads a lot of people to gravitate to the names they do know: the mega funds.
I think it’s a little taboo to try and demarcate who the mega funds are, but in this article, we’re going to do so. We’re also going to talk about the key characteristics and considerations of working for a mega fund.
For reference, our advisor Patrick Fong worked at TPG Capital, which per our below guidelines, we’d refer to as a mega fund. I’ve worked at Providence Equity and Silver Lake Partners, and despite them being some of the largest private equity firms in the industry, I would classify them more as tech / media specialist funds.
Characteristics of Mega Funds
It can be hard to set definitive parameters to define what a mega fund is, because it will invariably change over time. But over the past few decades, the mega funds have generally shared these traits:
Mega Funds have the Most Amount of Money: The most obvious quantitative metric is perhaps the easiest to rely on. When discussing funds, we frequently use the metric Assets Under Management, which refers to the total amount of capital a private equity fund has raised since its inception. Assets Under Management is a cumulative figure, including all money raised by the firm. Mega funds have raised the most amount of money over time and have the most amount of capital to deploy.
Mega Funds Invest in the Largest Companies and Assets: As a result, the main funds of private equity firms will typically buy the largest assets on the market. These private equity firms have the firepower to do deals that no one else can. They can purchase whole public companies and deploy billions of dollars at a time.
Act as Diversified One-Stop Shop for LPs: One other defining trait of mega funds is that the firms invest in many different kinds of asset classes. The biggest funds don’t just invest in private equity, they invest in real estate, infrastructure, venture capital, etc. Part of the lifecycle of all asset managers is to keep raising more money and offering your investors every kind of investment opportunity. Asset managers generate a fee based on the size of their assets managed, so they are compelled to continue accumulating assets. For LPs, the idea is that instead of going to many different investment managers, you can just go to a single mega fund.
Historically Receive Best Recruiting Options: In my opinion – from my mostly anecdotal observation – mega funds typically have better recruiting options than other firms. It’s not a surefire thing, but I think the combination of stronger brand, worldwide network, and institutional relationships will generally get you better recruiting options. For example, HBS and Stanford GSB will send MBA representatives to mega funds every single year, a luxury that many middle market firms do not have.
It's hard to say that mega funds decisively have better recruiting options across the board though. There are other pure private equity firms that only invest in private equity (e.g. Hellman & Friedman, Advent International) that also have amazing recruiting options.
Assets Under Management as a Filter
To better categorize who the mega funds are, I filtered a list of private equity firms using two criteria:
1. Which firms have the most assets under management (i.e. who has raised the most amount of money over time)?
Below is a rough list of the 20 largest private equity firms based on a Pitchbook screen conducted in 2019.
This is not perfect data, but I think it’s sufficient for our purposes. I scrubbed the list for investment managers that barely focus on private equity and I know that some firms are out of order (e.g. TPG and Bain Capital are definitely higher because their credit firms were grouped under separate entities).
From this list, it’s extremely clear who the biggest players are.
There’s a huge AUM gap below $200B and there’s a huge gap below $80B.
2. Which firms are raising the most money in private equity?
After our Pitchbook screen, I did a manual search of each firm to see how big the latest funds were being raised at. I did this because AUM includes all money raised since inception and across all asset classes. That is potentially overly favorable to older firms and firms that focus more on other asset classes. I looked at the firms’ latest “flagship funds”, i.e. the main vehicle that these firms would be investing out of.
The largest players in private equity today have at least $15B in their flagship fund.
This gives a sense for how the mega funds have been doing lately and helps us arrive at a truer definition for private equity mega funds. I used this filter as a reason to exclude asset managers that focus more on other asset classes, including Brookfield Asset Management (more focused on real estate and infrastructure) and Ares Management (more focused on credit).
Here’s who I would personally categorize as mega funds:
One thing to realize is that there are actually a handful of firms that have raised in excess of >$15B. I think it’s extremely impressive that an industry-focused fund like Silver Lake Partners can raise $18B, more than many of the mega funds. But alas, many of these firms stick to what they know and focus on private equity. These players don't act as one-stop yield shops, which I think is a defining characteristic of mega funds.
One-Stop Yield Shops
BCG published an article discussing the rise of “One-Stop Yield Shops”. Their list of the biggest firms is quite similar to who I just mentioned as mega funds.
The notable difference is Bain Capital, who I’ve decided to exclude, as their AUM is meaningfully lower than the others and their latest private equity fund is quite a bit smaller.
Considerations of Mega Funds
There are a number of reasons to not want to work for a private equity mega fund. Despite having the biggest worldwide brand recognition and generally having better recruiting options, there are some things for you to consider before signing with one:
Large Organizations Don’t Always Have Clear Advancement Opportunity: Many of the mega funds have been around for decades and have extremely crowded mid and upper-level leadership structures. As an associate at one of the biggest firms, you might have to work for several years before getting a title promotion (Blackstone notoriously has firm-wide title deflation). Many large organizations make you go to business school before even considering a promotion for you. Private equity jobs are extremely desirable and there is good reason for top leadership to never leave their spots.
Firms Tend to be Slightly Older and More Traditional: Culturally speaking, these mega funds tend to be slightly more old school. Many require you to dress up in a suit and tie and consistently dress formally.
Private Equity Practice May Not Always be the Firm’s Main Focus: At a mega fund, the CEO has to balance the growth and success of many different geographies and asset classes. It’s not just about private equity, it’s also about real estate, emerging markets, etc. As a result, private equity is not always in the strategic direction of the firm. The mega funds also do not necessarily have the highest returns.
Correlation Between Fund Size and Grindy-Ness: I would say that mega funds typically have grindier cultures and environments. I’ve witnessed this while in investment banking staffed on private equity deals, while working at different private equity firms, and it seems to be an accepted consensus when talking to my peers. The large firms tend to attract (even more) intense people who have accepted a culture of extreme hard work.
All things considered, there are great reasons why people end up coveting mega funds. They’re consistently great for your career and it’s unlikely any of them will be displaced any time soon. That being said, if you want to remain in private equity or want to work in a specific specialization, there are many more pure-play firms that could open more relevant doors.
I also think that this career decision is quite different if you’re contemplating whether to just be an associate, or if you’re interested in climbing the ranks. A mega fund is even less attractive for someone who is trying to quickly advance to the MD or Partner level.