Data sourced from Dakota Private Markets, the private fund performance platform powered by Dakota. Learn More | Request Access
At the median, yes. Across 2010 to 2020 vintage buyout funds in Dakota Private Markets, lower middle market funds posted the highest median net IRR (16.1%) and the highest median TVPI (1.80x) of any size segment. But the answer gets more complicated one level down: middle market funds beat large funds on IRR and trail them on TVPI, and the smaller segments produce both more of the best funds and more of the worst.
For allocators, that makes fund size a starting point rather than a conclusion. The segment sets the range of likely outcomes. The manager determines where in that range a fund lands.
Median Buyout Returns by Fund Size
|
Segment
|
Median Net IRR
|
Median TVPI
|
|
Lower Middle Market Buyout
|
16.1%
|
1.80x
|
|
Middle Market Buyout
|
15.0%
|
1.63x
|
|
Large Market Buyout
|
14.2%
|
1.74x
|
Source: Dakota Private Markets, 2010 to 2020 vintages
Lower middle market funds lead on both measures, finishing 1.9 percentage points ahead of large funds on median IRR and 0.06x ahead on median TVPI. The middle market is the mixed result. It beats large funds by 0.8 points on IRR but trails them by 0.11x on TVPI, the lowest median multiple of the three segments.
The gap between the two metrics comes down to what each one measures. IRR rewards how quickly capital comes back, while TVPI measures how much total value a fund creates relative to what investors paid in. A segment can rank higher on one and lower on the other, which is why a single headline number rarely settles the size question.
Why Smaller Funds Can Lead at the Median
Dakota's research team points to two advantages in the lower middle market: lower entry multiples and more hands-on value creation. Smaller companies typically change hands at lower valuations, and lower middle market managers tend to work closely with founder-led and family-owned businesses on operations, add-on acquisitions, and professionalization.
In the middle market, results depend heavily on operator quality, sourcing advantages, and sector specialization. Large buyout funds benefit from scale, deal access, and institutional processes, which support steady performance but rarely produce the very highest return outcomes.
The Catch: Wider Dispersion
The same Dakota analysis found that the lower and middle market produce many of the top-performing buyout funds on a TVPI basis, but also many of the worst. The large-cap segment shows more consistency and less dispersion. In practice, the higher median comes with a wider spread between winners and losers.
Even across buyout as a whole, that spread is wide. Across more than 1,600 buyout fund records with 2010 to 2022 vintages in Dakota Private Markets, the quartile breakpoints look like this:
|
Metric
|
Bottom Quartile Breakpoint
|
Median
|
Top Quartile Breakpoint
|
|
Net IRR
|
8.3%
|
13.8%
|
19.5%
|
|
TVPI
|
1.28x
|
1.57x
|
1.99x
|
Source: Dakota Private Markets, 2010 to 2022 vintages, all buyout segments
That is an 11.2 percentage point gap in net IRR between the top and bottom quartile breakpoints. In the smaller segments, where dispersion runs wider, choosing the wrong manager can easily cost more than choosing the right segment adds.
What This Means for Allocators
The data points to manager selection, not segment selection, as the decision that matters most. An allocator who moves into the lower middle market for its higher median takes on more dispersion along with it, so the payoff depends on picking managers from the top of the range.
That also means benchmarking at the right level. A lower middle market fund should be compared against other lower middle market buyout funds from the same vintage, not against private equity broadly. As Dakota's guide to strategy-level vs. asset-class-level benchmarks explains, a fund can look top quartile against all of private equity while sitting in the middle of its true peer group.
Where the Next Generation of Smaller Managers Is Coming From
Capital has not followed the median returns down market. Dakota Marketplace tracked more than $446B raised across private equity in 2025, and the roughly 13% of funds with $500M or more in commitments took in about 81% of LP dollars. At the same time, new fund formation has accelerated: Dakota tracked 2,644 new private equity strategies with a 2025 vintage, up from 1,003 in 2023.
Dakota defines emerging managers as younger firms on their first to fourth institutional fund, usually with a fund size of $1B or smaller, which places most of them in the lower and middle market. Dakota's 2026 emerging manager watchlist highlights several buyout firms launched by senior investors from larger platforms:
|
Manager
|
Founder Background
|
Debut Fund
|
Focus
|
|
154 Partners
|
Blackstone Tactical Opportunities
|
Closed at $400M hard cap
|
Lower middle market services
|
|
Awani Capital
|
GenNx360 (Daphne Dufresne)
|
Targeting $500M; about $250M raised in its first four months
|
Lower middle and middle market business and industrial services
|
|
A3/C Partners
|
Warburg Pincus (Adarsh Sarma)
|
Targeting up to $700M
|
European technology buyout
|
|
Invidia Capital Management
|
Goldman Sachs (Jo Natauri)
|
Targeting $850M
|
Upper middle market healthcare services
|
|
Aphias Capital
|
H.I.G. Capital (Rob Wolfson)
|
Targeting $900M
|
Lower middle market healthcare and essential services
|
Source: Dakota Marketplace
For a performance-based view, Dakota's Emerging Buyout GPs to Watch in 2025 report evaluated more than 650 buyout firms using 2014 to 2022 vintage funds, scoring managers on consistency, IRR, TVPI, DPI, and AUM growth alongside qualitative factors such as value creation process and team tenure.
The Bottom Line
Smaller buyout funds have outperformed larger ones at the median, led by the lower middle market. But the advantage is modest, it does not hold across every metric, and it comes with wider dispersion. The question for allocators is less whether to go smaller and more whether they can identify which smaller managers will land in the top of the range.
Dakota Private Markets gives allocators and GPs fund-level performance data (Net IRR, TVPI, DPI, RVPI) benchmarked at the strategy, sub-strategy, and vintage-year level, so lower middle market managers can be compared against true peers rather than the asset class as a whole. Request Access to Dakota Private Markets.
