Why Even Large Investors Turn to Small Private Market Funds

By: Gridline Team | Published: 06/15/2022
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3 minutes

Large investors have no problem overcoming the $25 million minimums common to PE funds, but they face other challenges when it comes to private markets.

For one, large VC funds tend to underperform smaller funds. According to an Invesco study, the average IRR for funds under $400 million was 19 to 20%, as compared to funds of $400 million to $1 billion with an IRR of 7.2%, and funds above $1 billion with an IRR of 2.4%.

Not only that, but large investors still need to diversify their portfolios to manage risk. The challenge, then, is expanding one's relationships to find high-quality small and medium-sized private market funds. Often overlooked, these firms are hungry to succeed, more nimble than their larger counterparts, and can provide excellent returns.

Finding overlooked funds

New fund managers may be overlooked for a variety of reasons: they don't have the same name recognition, they don't have as much money under management, or they're not in the same networks as larger firms.

That said, emerging fund managers consistently outperform large firms. In fact, PitchBook research finds that "nearly 18% of first-time funds nab an internal rate of return (IRR) of 25% while later funds only exceed that number about 12% of the time."

A multitude of factors plays into these outperformance numbers. For one, funds with a high number of simultaneous investments underperform, due to diseconomies of scale. Additionally, smaller firms are often more nimble and have lower overhead costs. They're also generally more attuned to the latest trends and technologies.

But it's not just about numbers and efficiency; emerging managers also bring a more diverse set of perspectives and experiences to the table. This can lead to better decision-making and a greater ability to identify opportunities. It's no surprise, then, that the NAIC found that firms with diverse ownership generate superior returns. These advantages explain why the likes of Reddit's co-founder Alexis Ohanian have announced new VC funds focused on emerging managers.

So, if you're looking for the best chance of finding and investing in the most promising companies, don't overlook the new kids on the block. Emerging managers may just be the best positioned to deliver superior returns.

Finding these overlooked funds presents an opportunity to augment your portfolio with higher-performing assets. After all, large endowments ($3B+) work with an average of 136 different private managers.

Achieving endowment-level portfolio construction presents an enormous administrative challenge, both in terms of due diligence and management. This limits the ability of most investors to take advantage of this opportunity.

Gridline's solution

Gridline is a platform that provides access to a broad cross-section of the private markets. Having recently brought on a senior investment advisor who was CIO for a multi-billion SFO, we're well-positioned to provide endowment-level portfolio construction for everyone.

We handle the administrative burden of investing in private markets, from fund selection and due diligence to performance reporting and tax management. We believe that our net returns will beat the market, making us a valuable partner for large investors looking to take advantage of the opportunities in the private markets.


While large investors have the access and resources to write large checks to private market funds, they may be overlooking the best opportunity for realizing superior returns: smaller private market funds and emerging managers, which are often nimble, efficient, and more in touch with the latest trends. Gridline can help large investors take advantage of these opportunities, without the administrative burden.

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