Large Cap vs. Middle Market Investing
Heading to PE after I finish my two years in IB, and have a few things I'm curious about what people think:
- The associate experience variance between LMM/MM/UMM/MF has been covered ad nauseum, but I'm curious what people think of the return profile of large cap vs. mid-cap investing? As in, are LPs expecting the same type of returns from these firms nowadays, or is a large cap strategy seen as inherently different from mid-cap?
- I've been told that MM is generally more operationally / financial engineering-focused in terms of driving value (cost-cutting, levering up a business that hasn't historically for funding growth), whereas large cap is more strategy-focused (the management teams should already know what they're doing so there's not as much the PE firm necessarily brings to the table operationally, but rather the PE firm is thematically betting on a certain area and picking the right company as a proxy of that theses). Is this generally true?
- How do the economics differ as AUM changes? It seems like the large cap funds don't necessarily have more associates / principals as the more reputable MM firms. At first glance that implies there are just more carry dollars available per professional at a firm with larger fund sizes (assuming similar MOIC). How do MM firms compensate for that? Or is the fact that the spots at large cap firms are just that much harder to get / keep?