(May 9, 2011) — New research by Preqin shows that North America-focused funds with a minimum of $1 billion in commitments are being outperformed by funds of less than $500 million in size for their more focused strategies and superior returns.

The research indicates a reversal of the trend in the years leading up to the financial crisis of 2008, when large property funds dominated the space.

“Given that many larger funds appear to have under-performed in recent years, investors might be expected to focus on the small to mid-size funds; the size of the funds which have been successful in raising capital in 2010 and 2011 certainly suggests that this is the case,” Preqin’s Andrew Moylan, manager of real estate data, says in a release.

The research firm’s findings reveals that 54% of small funds — or firms less than $500 million — are outperforming the median. Meanwhile, only 23% of $1 billion-plus funds are producing top quartile returns, and 60% are producing returns below the median. Preqin data shows 60% of the $8.2 billion capital raised in the first four months of 2011 was by funds managing less than $1 billion of assets. In 2010, these funds accounted for 53% of the $43 billion capital raised.

Furthermore, the report asserts that although several $1 billion-plus property funds were brought to market in Q1 2011, there has been a general decline in their number since September 2008.

The study also found several established firms launched new funds between January to April 2011, indicating that the fundraising market may be heading toward a recovery. “A number of mega funds were launched in Q1 2011, so these managers clearly feel that investor confidence is returning, but while Preqin’s conversations with investors do indicate that they are more likely to make new commitments, fundraising will remain challenging given the number of funds on the road.”