Why Private Equity Pros Are Fleeing Big Firms for Smaller, Specialized Funds

The Wall Street Journal article “The ‘Golden Handcuffs’ Are Off” highlights a notable shift in the private equity labor market: mid-level professionals are defecting from blue-chip, large funds to smaller or more nimble firms. These individuals are doing a cost-benefit calculation: leaving behind potentially high but uncertain future payoffs—in particular, carried interest that often vests only after many years and may never be realized—versus more reliable, quicker ownership upside at smaller funds. [1]

In larger PE firms, compensation remains high in base and bonus, especially for vice presidents and principals. For instance, in 2023, principals at >US$10B funds in the top pay quartile earned average base/bonus of US$955,000, and those at US$750-999M funds earned ~US$600,000. But the delayed vesting of carry (often 6-8 years), hurdles, unvested carry forfeiture on exit, and carry clawbacks all make the value subjective and risky. [1]

The exodus is not purely about money: the inability to see clear promotion—especially with senior roles occupied long term in large funds—magnifies the appeal of smaller / specialist firms where mid-levels can reach partner/principal faster and meaningfully participate in decision-making and carry. [1]

Broader data reinforce that smaller and sector-oriented funds have performance advantages. Studies by Cambridge Associates and others find that smaller and lower-middle market buyout funds often generate higher IRRs and MOICs, especially during stressed market environments with reduced exit activity. [3][4] Sector specialists similarly tend to outperform generalist larger funds on multiples; these structures can offer both accelerated upside and more predictable paths to carry. [4]

Strategic implications include increased competition for talent by smaller firms, downward pressure on retention models at large PE shops, and a possible shift in how LPs evaluate fund managers—placing more weight on vintage, fund size, and sector focus. For large funds, this could force reconsideration of compensation design (e.g., carry vesting, clawbacks), internal mobility, and greater transparency of payout prospects. LPs may also see more capital flowing toward high-performing smaller managers. Yet, there are open questions about whether all smaller firms can consistently deliver, the sustainability of these performance gaps, and how LPs will balance size, track record, and operational risk when allocating to smaller funds.