2025 Trends Show Search Funds Outperform in a Consolidating PE Market

Why Smart LPs Are Doubling Down on Operator-Led Acquisition Models in a Shifting Private Equity Landscape

The private equity industry is entering a consolidation phase. With rising capital concentration among megafunds, a squeeze on exits, and LP skepticism toward long-dated blind pools, smaller, operator-led models like search funds are outperforming and gaining traction. In 2025, the case for investing in a search fund entrepreneur is stronger than ever.

This blog explores how structural shifts in private markets, reinforced by performance data from Stanford, IESE, McKinsey, and Bain & Company, make search funds the most promising lower mid-market vehicle for investors seeking transparency, DPI, and operational alpha.

I. The Private Equity Landscape Is Consolidating

According to McKinsey’s 2025 Global Private Markets Report, the top 100 GPs have acquired three times more competitors in the last five years than in the prior five[^1^]. Bain & Company confirms this trend, noting that the top 10 funds captured 36% of all capital raised, resulting in an environment where only the largest or most differentiated players thrive[^5^].

Other key trends noted in the reports:

• Fundraising for commingled funds declined for a third consecutive year (–24% YoY)[^1^][^5^]

• DPI has surpassed IRR as the most critical LP metric, with distributions dropping to a 10-year low of 11%[^5^]

• Deal count is down, but larger deals ($500M+) are rising[^1^]

• Continuation funds and NAV loans increasingly mask illiquidity[^5^]

The result: a bifurcation of the market. Mega-cap funds are hoarding capital and crowding out smaller players, while mid-market and lower mid-market assets remain underserved.

II. Search Funds Are Beating the Market

While traditional funds struggle, search funds are thriving:

• Stanford (2024): 681 funds tracked, with a 35.1% IRR and 4.5x ROI overall[^2^]

• Exited search fund deals: 42.9% IRR and 6.6x ROI

• IESE (2024): International search funds delivered an 18.1% IRR and 2.0x ROI, with a 79% acquisition success rate[^3^]

Compare this to buyout fund benchmarks:

• Global PE median IRR (2000–2021): 14%[^1^]

• Average deal multiple in traditional PE: 11.9x in North America, 12.1x in Europe[^5^]

Search funds not only outperform on returns, but also on alignment and transparency. LPs back an entrepreneur, not a blind pool. They know the deal, the plan, and the leader.

III. The Consolidation Advantage: Where Search Funds Win

In a consolidating PE market, searchers gain advantage in three ways:

1. Access to Quality Targets: With PE focusing upstream, founder-led companies in the $1–15M EBITDA range are overlooked. These firms want succession, not spreadsheets.

2. Favorable Valuations: Stanford reports median acquisition prices declined from $16.5M to $14.4M between 2021 and 2023, with median multiples at 7.0x EBITDA[^2^]. Meanwhile, Bain notes traditional buyout multiples have surged to record highs: 11.9x in NA and 12.1x in Europe[^5^].

3. Operational Value Creation: TTCER’s research into 25 high-performing companies showed 18.1x of MOIC came from revenue growth, not leverage[^4^]. Searchers win by executing, not engineering.

IV. The LP Perspective: Search Funds Offer What PE Can’t

As LPs reevaluate allocation models, search funds check every box:

• DPI-first Model: Distributions begin with one company, not a fund lifecycle

• Governance: LPs often serve on boards or act as mentors

• Transparency: Full visibility into the search, acquisition, and operation

• Pro-rata Rights: Follow-on equity without GP gatekeeping

• Alignment: Operators only win when investors win

Bain's 2025 report reveals that $3.6 trillion in buyout capital remains locked across 29,000 unsold companies[^5^]. Many LPs face illiquidity and NAV loan distortions, while search funds offer a clean path to DPI.

V. Belegaer Capital’s Strategy: Built for This Market

As a solo searcher at Belegaer Capital, I am executing a focused thesis:

• Acquire a tech-enabled services or recurring-revenue business with $2M–10M EBITDA

• Geographies: United States, Canada, Australia, Europe, and Southest Asia

• Sectors: B2B SaaS & Vertical Software, Tech-Enabled Business Services, Healthcare Services & Platforms, Niche Fintech & B2B Financial Infrastructure, and Marketing Infrastructure & Digital Agencies (With IP or Automation)

  
  
  
  

Why now?

• Aging founders want succession

• Valuations are rationalizing

• Competition is moving upstream

• LPs want DPI, not excuses

I bring 15+ years of global operating experience in growth, RevOps, and digital transformation—skills not common in traditional PE deal teams. Post-acquisition, I step in as CEO to lead day-to-day transformation.

VI. What LPs Gain

Through Belegaer Capital, LPs get:

• Search Capital Exposure: $25k–50k per LP in a 24-month dedicated search

• Deal-by-Deal Equity: $100k–500k+ per LP, post-diligence

• Board Participation: For investors who want a seat at the table

• DPI-first Reporting: Quarterly capital flow updates, not just marks

• Direct CEO Access: No layers between you and the operator

You don’t have to commit $5M to a blind pool. You can back one deal, one leader, and one opportunity—with full visibility.

VII. 2025 Trends Reinforce the Model

Let’s revisit the 2025 macro data:

• PE fundraising down 24% YoY[^1^][^5^]

• LP priority: DPI > IRR > TVPI[^5^]

• Search fund exits delivering 6.6x ROI[^2^]

• Buyout deal volume consolidating in $500M+ space[^1^][^5^]

• 24% of PE dry powder is now 4+ years old, causing deployment friction[^5^]

The lower mid-market is wide open. Searchers aren’t competing with megafunds—they’re unlocking value others don’t even see.

VIII. The Execution Playbook

TTCER, Stanford, and IESE highlight a simple formula for outsized returns:

1. Revenue Growth: Primary driver of MOIC (18.1x out of 31x)[^4^]

2. Leadership Transformation: From achiever to strategist

3. Business Model Upgrade: Pricing, tech, sales efficiency

4. Buy-and-Build: Tuck-in acquisitions post-stabilization

This is the playbook I’ll execute—not theoretical, but repeatable.

Conclusion: A Model Whose Time Has Come

In a PE market where scale, fees, and complexity dilute returns, search funds offer clarity. One entrepreneur. One business. One clear mission: grow enterprise value, distribute real capital, and build something enduring.

As LPs seek exposure to the lower mid-market without the overhead of a PE fund, the search model offers a high-conviction answer.

Belegaer Capital is built for this moment.

Let’s do one great deal, together.

References

1. Edlich, A., Croke, C., Dahlqvist, F., & Teichner, W. (2025). Global Private Markets Report 2025: Private Equity Emerging from the Fog. McKinsey & Company. https://www.mckinsey.com

2. Kelly, P., & Heston, S. (2024). 2024 Search Fund Study. Stanford Graduate School of Business. https://www.gsb.stanford.edu/faculty-research/centers-initiatives/ces/research/search-funds

3. Kowalewski, A.-S., Kelly, P., Simon, J., & Johnson, R. (2024). International Search Funds 2024. IESE Business School. https://www.iese.edu/entrepreneurship/search-funds

4. Rosenthal, S., & Simon, J. (2024). Search Fund Transformations: A Path to Excellence. IESE Business School. https://www.iese.edu

5. Bain & Company. (2025). Global Private Equity Report 2025. https://www.bain.com/global-private-equity-report-2025