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?
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I have, I liked it a lot. In my experience, it was a lot more prop research and finding unlisted businesses. Zero cold calling on my end, did a good bit of outreach to CEOs and brokers/I bankers. By the second month in, I ran a couple calls with bankers and it was based on entirely my own research. I signed the NDA, analyzed the CIM, and then asked the relevant investment bank all of the questions I came up with. I didn't crush it, but it was an awesome feeling to be given that much responsibility during my initial internship in finance. When we found our acquisition target, I was involved (to a much lesser extent, granted) in the due diligence when it came to financial statement analysis. My background is accounting, and we had a JD MBA intern on our team who actually was super involved in constructing the first drafts of some of the legal documents. The managing partner of our fund was a huge mentor, and was one of the people who advised me quite a bit moving forward. One of the other interns transitioned to another search fund and told me it was entirely cold calling and quit after almost a week. I guess it really depends on who you work for.
Oh so it’s actually more modeling and valuation perhaps. Does the experience get asked in PE interviews?
Not a whole lot of modeling, but a search fund internship is sort of the type of thing where you get what you put into it. I worked very hard early on, and with this came more responsibility quickly. I could have probably asked to construct models for my managing partner, but he wouldn't have used them in the end. He did show me his models and valuation techniques, and if I could do things over, I would have asked to attempt to build an LBO for him. I was young and learning, but maybe you can pass along this advice to your friend. Again, if he is working for the right guy (s), he will have an opportunity to really learn a lot. That is a huge if though
I worked at a search fund my freshman year, and my friend did it during his sophomore summer. I'd say it's valuable as an introduction to the buyout process, but seldom do interns get to actually get to touch the LBO. It's also highly dependent on the searcher's pipeline -- if they don't already have a few LOI's lined up and the top of the funnel is dry, expect to do a lot of industry research and list-building.
I'd say it's a decent learning experience for underclassmen, but only if you're willing to be proactive with the searcher about taking on responsibility (and if you have decent accounting knowledge and/or interest in the PE space already). The usefulness decreases a ton as you become a sophomore, and then a junior.
Did it help or come up in interview for hedge fund at all?
To be honest, my search fund internship was around 2 years ago, so none of the skills I picked up there /directly/ translated to what I know now. The biggest draw was that it introduced me to Excel, I learned basic valuation multiples, and learned how to do research.
Most of the things I've picked up more recently are due to trading my own portfolio, running an investment vehicle with friends, and entering lots of pitch competitions. Though whether or not I would've come to love doing research for investment (public or private) had I not worked at a search fund as an informal introduction to finance, I'm not sure. I'm sure working at the search fund played a part in that.
All depends of the fund and the trust your fund managers are willing to extend. Also depends if the fund is looking for proprietary deals or for companies currently in the market (represented by IB's). The fund I interned did not pursue proprietary deals so I can't speak much to that side of the spectrum.
I took on a search fund SA gig and did exactly what a regular PE associates would do. Modeling is less intensive in PE in general because you only start the models once you've decided the CIM was solid and the company is worth pursing an IOI on. And in the PE world, you'll analyze around 50 companies before actually pursing advanced initiatives. 10/10 will get asked questions on this experience when interviewing. I'd personally say the experience/responsibility you get at a search fund, granted the fund managers trust you, is unmatched.
search fund = can't raise a fund / no track record, hoping to have a few investments as a fundless sponsor
Fundless sponsor does not = search fund, and mine was backed by a 2 BN family office. Some of the other searchers were looking for companies with 200MM in rev. May not be much compared to your fund but it is hardly fundless....
I don't think that's fair as a blanket statement. Sure, there are guys trying to skip steps on the ladder and become a 30-year-old CEO who try the search fund route, but I know some family offices who are less and less interested in the time horizon constraints of committing capital to funds and would rather invest in private assets through alternative routes.
This is true and i do know a few exceptional groups out there but imo, majority, 99% are trying to fund raise hoping to jump start w/ search fund.
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.
Exactly what I was trying to articulate, although you clearly have a far greater grasp of the history behind them. Glad you stepped in to help explain
I have a part-time internship with a search fund. In my opinion, the work is not the most stimulating, but it is definitely nice to have. My job is to basically find potential acquisition targets in the insurance industry.
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