What is considered a small fund size?
small-cap: market value between $250 million and $2 billion; and. micro-cap: market value of less than $250 million.
Small-cap stocks are the stocks of companies whose market capitalization is roughly between $300 million and $2 billion.
| Size | AuM | Total Number of Funds |
|---|---|---|
| Small | US$10-100m (average US$37m) | 4,654 |
| Mid-sized | US$101-500m (average US$232m) | 2,004 |
| Large | >US$500m (average US$693m) | 787 |
| Super-large | 10 largest hedge funds (average US$7,721m) | 10 |
Small and mid-cap funds have higher growth potential than large-cap funds. Large-cap funds are good for conservative investors. Mid and small-cap funds are suitable for medium-risk takers to aggressive investors.
Mid-cap stocks generally fall between large caps and small caps on the risk/return spectrum. Mid caps may offer more growth potential than large caps, and possibly less risk than small caps. Small-cap stocks tend to be, on average, least developed publicly traded companies, although there are exceptions.
Depending on the issuing company's market capitalization — the total dollar value of its outstanding shares — penny stocks can be referred to as small-cap, micro-cap, or nano-cap stocks.
Big-cap (large-cap) stocks have a market cap of $10 billion or more. Small-cap stocks generally have a market cap of $250 million to $2 billion. Small-cap stocks shouldn't be overlooked when putting together a diverse portfolio. Big-cap stocks don't always mean larger returns on investment.
Below the category of mega funds is the Upper Middle Market, which is a broad range that typically refers to fund sizes >$5B. This would include funds like Berkshire Partners, American Securities, and ABRY. Most of these funds would typically deploy $200-$500mm per investment.
Most people would say that the private equity mega-funds do deals with an average size of $1 billion+ and have individual funds that are ~$10-15 billion+ in size. Based on that, the most commonly cited names in this category are Blackstone, KKR, Carlyle, Apollo, and TPG.
The categorisation of funds in India, into large cap, mid cap, and small cap is based on market capitalisation. Large cap funds have the highest market capitalisation company stocks, mid cap funds fall in the mid range company, and small cap funds have the lowest market capitalisation.
How do you determine fund size?
- First, evaluate the size of your network and your fundraising experience to see if you fall within the small, large, or exceptional categories.
- Next, based on your region and network size, select the baseline fund size from the table on this page for Fund I of $2 MM, $5 MM, or $10 MM.
Small-cap mutual funds are very risky. This means that in the short term, investing in them could lead to short-term losses. If you cannot tolerate seeing negative returns on your investments at specific periods, you should stay away from small-cap funds.
The per-share or per-unit value of a fund is calculated by dividing the total value of assets minus liabilities by the number of outstanding shares or units. The sum of the market values of all the assets in the fund's portfolio. (Total Assets – Total Liabilities) / Number of Outstanding Shares or Units.
mid-cap: market value between $2 billion and $10 billion; small-cap: market value between $250 million and $2 billion; and.
Investment return: Small-cap mutual funds tend to yield high returns and can be a great addition to your portfolio. With a significant bit of risk, you can ensure that these funds act as buffers in your portfolio that provide high value if things work out in the market for them.
Because small-caps are just companies with low total values, they can grow in ways that are simply impossible for large companies. A large company, one with a market cap in the $1 trillion range, doesn't have the same potential to grow as a company with a $1 billion market cap.
What is a penny stock? The exact definition of a penny stock varies, but typically they include stocks trading for less than $5 per share all the way down to even fractions of a penny. But usually when people say penny stocks, they're talking about those that trade for less than a dollar.
Although there is nothing inherently wrong with low-priced stocks, they are considered speculative, high-risk investments because they experience higher volatility and lower liquidity.
Penny stocks refer to shares in companies with a low price and low trading volume. Because these markets have low liquidity, there is also high volatility.
Small-cap stocks are riskier and more volatile investments, as they do not have the same financial resources large-caps do and are still developing their businesses.
How do I choose a small-cap?
Normally, the choice of small cap stocks is limited that is why small cap funds will struggle once their AUM crosses a certain limit. Hence it has been seen that the small cap funds with middle of the road AUMs generally do better.
The bottom line is that companies that comprise small-cap indices collectively present higher risks than the companies that make up large-cap indices. But this doesn't mean that small-cap companies can't be a valuable part of an investment portfolio.
Aggressive investors: An aggressive investor can consider about 50-60 percent allocation to largecaps, 15-25 percent to midcaps and the remaining 15-25 percent to smallcaps. This can be achieved by having a mix of largecap funds, flexicap/large&midcap funds, midcap funds and smallcap funds.
According to these sections, UMM firms are largely for mega deals. The private equity mega funds mean doing $1 billion+ deals and having individual funds of around $10 billion. The companies that may be included in this category are Carlyle, Apollo, Blackstone, Warburg Pincus, Advent, etc.
Lower middle market PE firms typically invest in companies valued between $10 million and $100 million. The sweet spot for mid-market private equity transactions is typically between $100 million and $500 million.
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