Schroders addresses liquidity constraint in latest PE offering

Schroder GAIA II Specialist Private Equity Fund will allow LPs with a minimum investment of $50,000 to back PE investments in small and mid-sized businesses.

Schroders Investment Management is offering its first specialist private equity vehicle that will provide better liquidity management for investors.

Schroder GAIA II Specialist Private Equity Fund, an open-ended vehicle that will invest in primaries, secondaries and co-investments, allows investors with a minimum of $50,000 to gain exposure to private equity investments in small and medium-sized companies in the US and Europe. “Subscription is on a monthly basis, redemptions are on quarterly basis, and all underlying investment proceeds are re-invested,” Tim Boole, head of product management at Schroder Adveq, told Private Equity International.

“After the investment strategy the most important thing of a fund of this type is liquidity management. We approach it from two angles: the portfolio design and fund design. Diversification in the type of investments is key, and subscriptions and redemptions are carefully managed so we make sure we are able to provide liquidity which investors require. A lot of effort has been put in in making sure the fund is designed around that.”

GAIA II can be accessed by private investors, via their wealth managers or advisory channels.

The first GAIA vehicle gave investors exposure to hedge funds.

“Private investors / high-net-worth investors is one of the fastest growing parts of the private capital market. What’s interesting for GAIA II Fund is that it’s giving private investors access to this specialist PE market – small and medium-sized companies which are the backbone to many European economies – which at the moment is typically much harder for them to access,” said Boole. He added that the firm aims to market the fund via Schroders’ network, tapping clients in Europe as well as in Asia.

Capital raised for the fund will be invested in SMEs in the US and Europe with enterprise values of less than $250 million. The fund will also allocate capital to companies in Asia that are positioned to benefit from domestic demand growth and the growing middle class in China and India.

Roughly 40 percent in the build-up phase will be in secondary deals and between 30-50 percent in co-investments, said Benjamin Alt, head of investment, DACH, Nordics and CEE for Schroder Adveq.

The firm is targeting between 3-5 percent exposure to a single company, with ticket sizes of $3 million-$5 million, which can scale up to $10 million or more over time, Alt added.

“What we plan to have is a broadly diversified portfolio by strategies and geographies, with approximately 200-300 companies in our first year of investing. We plan to invest in up to 400 companies and go for bigger tickets as the fund grows over time.”

He added that a priority for GAIA II is to follow the same strategy the firm has focused on, investing in the smaller end of the market in the US and Europe, as well as growth equity in Asia.

Schroders Private Assets and Alternatives business manages £39.3 billion ($48.3 billion; €44.1 billion) in assets, including private equity, hedge funds, infrastructure finance, insurance-linked securities, commodities, real estate and securitised credit, as of end-June 2019.

The fund will be managed by Schroder Adveq, Schroders’ specialist private equity team offering a range of funds that have primarily been marketed at institutional investors.