Search Investment Group establishes fund of private equity funds

Squadron Asia-Pacific Fund takes to the skies launched by the Miller familyÆs investment firm.
Search Investment Group, via its subsidiary Squadron Capital, is setting up a private-equity fund of funds named Squadron Asia Pacific. Search Group is the Hong Kong investment arm of the Robert Miller family of Duty Free Shoppers fame. The family will kick in an initial $40 million. This should be 10-20% of the fund size, which is targeted initially at $200 million and capped at $400 million.

Management fees are likely to be 1%, with back-end performance fees of approximately 10%. The tenor of the fund will be commensurate with the lifecycle of private-equity deals and funds, and should extend to 12 years in duration. The target IRR is 30% gross per year.

Minimum investment will be around $5 million. The fund will not invest in deals but in the private-equity funds, which in turn will invest in deals. The typical commitments to funds will be in the $20 million range.

Portfolio construction will cap individual fund placements to 10% of the fund size, and will strive to avoid placing funds into rival firms that then may enter into bidding wars; a current example being Newbridge, Macquarie and others squabbling over PCCW.

ôIn constructing a portfolio, we typically wouldnÆt invest in two funds following the same strategy in the same geography,ö says David Pierce, senior managing director of Search.

The scope of the fund is wide but Search sees opportunities in Australian, Japanese and Korean buyouts, and in Indian and Chinese expansion capital. It is also interested in special situations/distressed debt, where it has had some good results in the past. Search is more wary of heavily borrowed funds.

ôThe easy debt of recent years is like a drug and we are cautious about funds that over-leverage their portfolio companies,ö adds Pierce. ôSo we are cautious about private-equity funds with large external borrowing liabilities.ö

The track record of candidate private-equity houses will be under SearchÆs magnifying glass together with the staying power of the individuals in the management teams.

Search has been investing in private-equity funds and direct private-equity deals on a proprietary basis for 20 years. In addition to its private equity activities Search is well known for its funds of hedge funds, which operate under the Sail brand. This new private equity fund does emulate the fund-of-funds style of Sail, and whilst that operational facet of the business is complementary in some senses, this offering may appeal to a different investor classification by virtue of the more illiquid aspect of the private-equity product.

Search Investment is the private investment firm of Robert Miller, who co-owns Duty Free Shoppers with LVMH. Search Investment was established in the early 1970s.
¬ Haymarket Media Limited. All rights reserved.