Point of a Search Fund?
My friend just took a search fund internship and I have no idea what they do. I’m guessing they do a lot of cold calling?
He wants to get into private equity and I told him to apply for IB internships since that might help. He didn’t and live and learn, 0 private equity interviews.
Does anyone or has anyone done search Fund? Is it helpful? Valuable?
search fund = can't raise a fund / no track record, hoping to have a few investments as a fundless sponsor
This is wrong and unnecessarily pejorative.
Search funds and fundless sponsors are not one and the same.
Historically, search funds were run by a team of 1-3 MBAs nearing graduation or recently out of school. They were backed by the narrow set of institutional LPs that support the asset class, HNWIs, and more recently, family offices. The generic target was a business with $2m+ EBITDA and $15m+ revenue. Buy it, improve it, exit it. Leverage was often obtained very favorably thanks to the contacts of your LPs, so 8x leverage was not unheard of. (There's a great primer from the GSB on this strategy.)
Fundless sponsors can sometimes be people without a track record strong enough to raise a fund, yes, and that's the basis for the stereotype. There are, however, numerous high-quality GPs who for whatever reason simply prefer to avoid the headache of operating a firm.
Within that there's a subset of GPs who know they could never get away with a 30% performance fee on a blind pool of capital, but if they show what they intend to buy, they can convince an equity partner to accept a higher-than-standard promote given the merits of the individual deal.
I know a set of three guys who are on their fourth successful deal in the fundless sponsor model. Their pedigree is superb: one is ex-Apollo, for instance. Their first deal was over 8x net MOIC in 4 years. They printed almost $125 for themselves to split on that.
Yes, they waited around for that first one to exit before they were able to increase the pace of deal execution, but now they have three active deals (one actively in auction to exit, another one they may never exit because it steadily throws off cash like Birdman in a "Cash Money takin' over for the 99 and 2000s"-era music vid, and a third they just closed on earlier this year). They don't need a management fee (hello, previous earnings), and after the absolute homer the first one was, they're able to charge a 35% promote now. Theirs is a good life.