Smart Capital, Strategic Returns: The Case for Middle Market Private Equity

September 23, 2025 | 3 Min Read
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Key Points

Private equity middle market deals offer distinct advantages: 

  • Compelling risk/return profile: Companies with a total enterprise value (TEV) of $1–3 billion USD often maintain low leverage and offer multiple avenues for value creation, contributing to consistent performance across market cycles¹. 
  • Flexible liquidity options: Middle market investments provide fund managers with a broad range of exit strategies, enhancing overall fund flexibility.
  • Robust, diversified deal flow: A high-volume middle market strategy reduces concentration risk and enables agile, opportunistic investing. 

Private Equity Deal Size

SizeTotal Enterprise Value (TEV)Characteristics
Mega/Large$3-10 billion USD
Involves the largest companies and most established sponsors, often relying on strategic buyers or IPOs as exit paths.
Middle Market

$1-3 billion USD

Serves as a “sweet spot” for diversification, moderate risk, and upside potential.

Small

$1 billion USD

Associated with higher growth potential, but less scale and greater dispersion in performance.

Source: Hamilton Lane Data, January 2025. Note: Other data providers use slightly different segment bands, such as a broader “middle market” up to $5 billion EV. This is Hamilton Lane’s standard.

Unlike public markets dominated by a few headline-grabbing tech giants, private equity is not shaped by a handful of outsized players. Private equity deals tend to be smaller than large-cap public stocks, but they span a broad spectrum of sizes. These deals are typically classified as small, middle, large, or mega, with each category offering its own unique opportunities, risks, and return profiles. 

At Hamilton Lane, we believe deal size is a critical factor in shaping a fund’s risk, performance, and liquidity. While our fund portfolios span all market sizes, our primary focus is on the middle market: deals with TEV of $1–3 billion USD. We view this smaller middle market range as the “sweet spot” for balancing growth potential, stability, and diverse deal flow. 

Here are the benefits of vetting deals with a focus on the middle market:  

1. Attractive risk/return profile 

Historical data suggests that middle market private equity can demonstrate attractive performance characteristics relative to large and mega deals, with some top-quartile managers achieving notable upside potential and consistent performance across varying market cycles.

Deal Size and Performance
Buyout Spread of Gross IRR by EV
Deal Vintages: 2023-2024

Here’s what’s behind this attractive risk/return profile:  

  • Operational agility: Middle market companies are often more nimble than mega or large companies. As a result, they’re able to quickly implement strategic initiatives. 
  • Lower leverage: Middle market businesses typically favor balanced capital structures and organic growth, providing greater flexibility in uncertain markets. 
  • Varied growth levers: Middle market companies can drive expansion through product innovation, geographic reach, and operational efficiency. 

2. Liquidity opportunities 

“Is quarterly liquidity guaranteed?” It’s a common question, especially from investors new to private markets. Semi-liquid evergreen funds are built to offer regular access to capital, but this access is generally not guaranteed. Liquidity depends on both the fund’s design and the nature of its underlying assets—and middle market deals can play a key role in enhancing that liquidity2. 

That’s because middle market investments give fund managers access to a wider range of exit options, not available to mega deals that often depend on IPOs and a limited number of strategic buyers. Potential exits in the middle market include a much larger set of strategic and financial buyers, including sales to larger GPs, yet these investments are still sizable enough to consider IPOs as well.  

3. Diverse deal flow 

The middle market encompasses a significantly larger universe of companies compared to the large-cap space. This allows fund managers to be selective in choosing deals. For example, Hamilton Lane sources deals from an active universe of over 500 general partners, creating a broad and dynamic deal funnel3. In contrast, mega or large platforms often focus on a smaller pool of proprietary, large-cap deals, which can limit opportunities and increase concentration risk.

The benefits of this diverse deal flow include:  

  • Robust portfolio diversification: High deal volume in the middle market allows fund managers to build portfolios diversified across sectors, geographies, and investment strategies, reducing reliance on any single market or trend. 
  • Reduced concentration risk: High deal volume in the middle market allows allocators to diversify across transactions, limiting exposure to any single deal—unlike large funds with fewer, high-stakes deals. 
  • Strategic and opportunistic investment approaches: Diverse deal flow allows allocators to pivot quickly to high-potential sectors or niches, offering flexibility that a large, highly-focused strategy cannot match.

The Hamilton Lane Approach 

For over 30 years, Hamilton Lane has invested in the middle market. Our expansive multi-manager platform complements this focus, providing access and visibility across a wide range of opportunities. Over time, we’ve built deep expertise and strong relationships, enabling informed investment decisions and access to high-potential deals spanning sectors and geographies. 

While many private markets firms claim to target middle market deals, few possess the capabilities or relationships required to access this segment effectively.  

Hamilton Lane leverages its unique access to construct portfolios that are well-balanced, provide liquidity, and aim to deliver compelling risk-adjusted returns. 

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