Schroder GAIA II Global Private Equity
The Schroder GAIA II Global Private Equity Fund (C Acc GBP Share Class) is an opportunity to access private equity within an innovative, simpler, more flexible and more liquid structure than normally associated with traditional private equity funds.
The fund is managed by the 50-strong Private Equity team of Schroders Capital, a $86 billion specialist private assets and alternatives division within Schroders Plc (March 2022). It gives investors exposure to a portfolio of small and medium-sized private companies in the US and Europe, as well as growth opportunities in Asia (predominantly China).
Since launch in September 2019, the fund has attracted $723.8 million in assets and generated a total return of 49.8% (March 2022, in sterling). This is in line with what the investment team has achieved across all the private equity strategies it manages: an average annual return of between 17.0% and 45.6% on investments made between 2010 - 2020 (as at December 2021). Past performance is not a guide to the future.
Since making its first direct co-investment in April 2013, the team has backed 191 companies and achieved an average IRR of 25 %, or 1.8x cost. Of these, 49 investments have been realised, generating 2.9x multiple on cost, or 30% IRR (December 2021).
Unlike most traditional private equity funds, the Schroder GAIA II Global Private Equity fund has a semi-liquid structure. Investors can make a lump sum investment and get exposure to the whole existing portfolio from the start; they can also request redemptions once a quarter – although a long-term investment horizon is still encouraged.
- Minimum investment: £35,000 – you can apply online
- Next subscription deadline: 13 July 2022 (5pm, cleared funds)
Read important documents and then apply
Schroders Plc is a global asset management business founded in 1804. The group manages £731.6 billion within its wealth management, mutual funds, institutional funds, asset management solutions, and private assets divisions. Schroders Plc is listed in London and has a market capitalisation of £7.8 billion (May 2022).
In June 2021, Schroders grouped its private-assets investments business – private equity, real estate, private and structured credit, infrastructure, insurance-linked and impact investments – under a new, single brand, Schroders Capital. Schroders Capital has $86 billion under management (March 2022) and over 250 investment professionals.
The Schroders Capital Private Equity team manages the Schroder GAIA II Global Private Equity fund. The team includes more than 50 investment professionals located in five offices across the globe: New York, covering US investments, Zurich and London, covering European investments, Beijing and Shanghai covering investments across Asia. The team believes local investment professionals should manage local investment strategies.
The investment committee is made up of four senior members of Schroders Capital including Chief Investment Officer, Nils Rode, Global Head of Private Equity, Rainer Ender, Head of Private Equity Investments, Tim Creed, and Head of Private Equity North America, Lee Gardella. Each investment recommendation must receive unanimous approval from the investment committee to make it into the portfolio.
Portfolio allocations and risk management within the fund are overseen by Benjamin Alt, Global Head of Private Equity Portfolios. Benjamin joined Schroders in 2008 as a senior member of the European private equity team.
Meet the manager: watch a video interview with Benjamin Alt from Schroders:
The Schroder GAIA II Global Private Equity fund aims to provide investors with a diversified global best ideas portfolio of private equity investments.
The fund operates two distinct investment strategies: Western Buyouts and Asian Growth.
1. Western buyout strategy (70-90% of investment portfolio)
The fund seeks to invest in small and medium-sized businesses (enterprise values of €0-500 million) in Europe and the US, taking advantage of what Schroders believes are more attractive valuations within smaller private companies compared with larger ones.
Schroders will look to invest in businesses where it sees an opportunity to add value through transformational improvements, investing alongside specialist managers. Deals are typically sourced from entrepreneurs and families, and exit routes are expected to be to secondary buyers and consolidators.
The fund expects to invest 70-90% of its portfolio in the Western buyout strategy.
2. Asian growth strategy (10-30% of investment portfolio)
Schroders seeks to use its on-the-ground expertise to find and invest in fast-growing private companies benefitting from domestic demand growth across Asia.
There is a focus on China and India, as well as the potential to opportunistically invest elsewhere in Asia. The strategy is expected to emphasise the technology, healthcare and consumer sectors, areas that can be hard to access within public markets.
The fund expects to invest 10-30% of its portfolio in Asia via venture capital and growth capital investments.
Types of investment
To execute its strategies, and gain exposure to these areas, the fund will make three types of investment:
- Primaries (0-20% of portfolio) – Primary private equity funds are newly created funds which invest capital over a period of time, typically 3 to 4 years.
- Secondaries (30-50% of portfolio) – Secondaries are transactions where the fund acquires a stake in an existing private equity fund or portfolio from an existing investor. Secondary transactions allow the fund to deploy capital faster than through primary investments.
- Direct co-investments (30-50% of portfolio) – Direct co-investments are transactions where the fund invests directly in a company alongside a larger investment from a private equity or VC fund. These transactions have the advantage of not incurring additional annual management fees.
The fund has an innovative fund structure (it is a Luxembourg collective fund or “SICAV”) which can provide more liquidity and flexibility than a traditional closed-end private equity fund and less volatility than a private equity investment trust.
Schroder GAIA II Global Private Equity fund (‘Schroder GAIA II’) vs. most traditional closed-end private equity funds (‘PE funds’)
- One-off investment: You can invest a lump sum (Schroder GAIA II) – the fund will deploy investor capital once a month (on the "dealing date"). This compares to capital being drawn down over an investment period of typically 3-4 years (traditional PE funds).
- Faster capital deployment: Immediate exposure to an existing well diversified private equity portfolio after each fund dealing date (Schroder GAIA II) compared with capital being deployed over an investment period of 3-4 years (traditional PE funds).
- Greater liquidity: Quarterly opportunities for redemptions (Schroder GAIA II) compared with typically no access to capital until the fund’s termination date, usually c.10 years (traditional PE funds). That said, this should still be considered a long-term investment.
Please note: redemption requests are capped at 5% of the net assets of the fund per quarter, to allow the fund to manage its liquidity.
Schroder GAIA II vs. private equity investment trusts
- Less volatility: Investors enter and exit the fund based on its net asset value (Schroder GAIA II) and do not suffer the volatility associated with the discount/premiums applied to the share price of private equity investment trusts, which can be severe during periods of market stress. Equally, investors do not pay the high premiums associated with some venture capital focused investment trusts.
The fund size is currently $723.8 million. Recent inflows mean the portfolio held 30% of its net assets in cash (March 2022) following significant inflows and a more cautious investment approach given recent macroeconomic uncertainty. Over the long term, the team expects to maintain a cash balance of 10-20% of net assets.
The investment portfolio has exposure to 33 direct co-investments, 17 secondary funds, and seven late primary funds. A further three co-investments, two secondaries and two late primaries are pending investment committee approval.
75% of the investment portfolio is invested in small to medium-sized management buyouts, 19% is in growth capital and 6% in venture capital. There is a bias towards Europe (49%), with the remainder split between North America (38%) and Asia (13%). Sector exposure is focused on healthcare (38%), technology (30%) and consumer (14%).
The top 5 co-investments account for 16.5 % of the investment portfolio. The top 5 fund investments account for 16.7%.
See investment portfolio breakdown by strategy (%)
See investment portfolio breakdown by region (%)
See investment portfolio breakdown by investment type (%)
See investment portfolio breakdown by sector (%)
Examples of portfolio holdings
Pete and Gerry’s – US direct/co-investment
Pete and Gerry’s is a leading premium egg producer in the US. The company has three core product lines: Pete & Gerry’s organic free-range eggs, Nellie’s free-range eggs and Consider Pastures pasture-raised eggs. Eggs are distributed from a variety of family farms across the US, helping keep the company asset-light and insulate it from agricultural risk.
The business benefits from attractive end markets – the premium egg category grew 22% from 2017 to 2020. Pete and Gerry’s hopes to capitalise on that by growing market share, and delivering operational improvements to expand margins and vertical integration. Schroders invested in the business alongside Butterfly Equity, a specialist agriculture and food investor, which bought a majority stake in the business in May 2021.
Legend IV, Project Kavalan – secondary investment
Legend Capital is a leading Chinese venture capital firm with close links to the Lenovo group and one of Schroders’ core relationships in China. The firm manages 28 funds, with RMB 60 billion (c. £7 billion) of assets under management (June 2021).
Legend Capital IV was approaching the end of its life in 2019 but still retained 13 assets in the portfolio with scope for further upside. 12 of those were transferred into a new vehicle with additional follow-on capital. Schroders followed the deal from the beginning and secured allocation as the only other party alongside a lead investor. Of the 12 companies, Schroders identified four it believes have “the potential to more than double in value”– although this is not guaranteed.
Overall Schroders invested $24.5 million in the transaction in December 2019 at a 13% discount, with low fees and tiered carry.
ArchiMed MED Platform I – Primary investment
Founded in 2014, Archimed is one of Europe’ most active investments firm focused exclusively on the healthcare industry.
It has offices in the US and Europe and over 70 employees – over half of whom are healthcare industry insiders. ArchiMed currently manages a portfolio of more than €5 billion.
Schroders first invested with Archimed in 2020 as part of the €1 billion MED Platform I fund. The fund will operate a “buy-and-build” strategy focused on Europe and the US. It seeks to acquire six mid-cap companies with the aim of creating a platform to then acquire and consolidate smaller rivals, forming global leaders in niche sub-sectors. The fund’s first acquisitions include BOMI Group, a leading healthcare logistics provider in Italy and Latin America, and DHG (Direct Healthcare Group), a UK-headquartered specialist manufacturer of pressure and mobility equipment.
]Init[ – recent exit
]Init[ is a leading German digital transformation agency founded in 1995. The business has three divisions: digital communications, IT services and hosting. It helps organisations digitise their processes. The business serves small and medium-sized companies as well as the German state and federal governments and institutions in the German public sector. In 2019, 60% of its revenues were generated from the German government.
2020 was the strongest year in the company’s history. The pandemic acted as a catalyst for many businesses and public sector departments to digitise their processes. This led to organic growth within the business of 63% to €89 million. Past performance is not a guide to the future.
The Schroder GAIA II Global Private Equity fund backed the company in Q4 2019 as a direct co-investment alongside EMERAM, a German private equity firm investing in small-cap companies in Germany, Austria and Switzerland.
In December 2021, Rivean Capital agreed to take a minority stake in the business, including a portion of the Schroders holding, resulting in a realised multiple of 3.4x on the fund’s investment. The remaining stake is now expected to be sold to a continuation vehicle, leading to a full exit at 5.4x (rising to 6.2x if earn-out criteria are met, not guaranteed). Past performance is not a guide to the future.
Mobylife – example of previous failure
As is to be expected, not all investments work out. Mobylife is one such example.
Schroders Capital initially invested in the business in 2014 to finance the merger of three mobile phone repair companies expected to form the Nordics’ leading business in the sector. The plan was to strengthen the management team over time whilst continuing to expand the business.
However, in 2015, evidence of fraud was found within one of the three original companies. This held back progress, with both Schroders Capital and the lead private equity investor having to support the business with capital injections in the period 2015 – 2019. In March 2020, the business filed for bankruptcy, resulting in the loss of Schroders Capital’s entire initial investment. Lessons to be learnt were that a three-way merger is a highly complex transaction, and a strong management team needs to be in place from the outset.
The fund launched in September 2019. The track record of the fund is shown below.
The fund’s venture capital investments in China – notably POP MART (partial exit in June 2021, 3.4x gross return) and Perfect Diary (IPO in December 2020, 4x return) – were key drivers of returns in 2020. Past performance is not a guide to the future.
Schroder GAIA II Global Private Equity – Performance since inception
Source: Schroders Capital, Morningstar. Performance is shown in sterling, net of fees, for the period 30/09/2019 to 31/03/2022. The Schroder GAIA II Global Private Equity C Acc USD share class has been used to calculate performance prior to the launch of the C Acc GBP share class in June 2021. The USD share class returns have been converted to GBP.
The longer-term track record of the Schroders Capital Private Equity team is shown below. The chart shows the performance of all the investments made between December 2010 and December 2020, with performance as at December 2021.
Since making its first direct co-investment in April 2013, the team has backed 191 companies and achieved an average IRR of 25%, or 1.8x cost. Of these, 49 investments have been realised, generating 2.9x multiple on cost, or 30% IRR. (December 2021).
Schroders Capital Gross IRR of all investments across strategies, by vintage year
Source: Schroders Capital. The chart shows the performance of all investments made by Schroders Capital Private Equity team between 2010 – 2020, as at December 2021, net of underlying fund fees, expenses, and performance fees and gross of Schroders Capital Private Equity’s fund fees, expenses and performance fees, as calculated in €.
There are no tax reliefs associated with this investment.
Schroders intend to generate the bulk of any returns from the fund via capital growth. For UK taxpayers, any realised gains from the fund should be subject to Capital Gains Tax. Any income generated by the fund (whether distributed or not) will, however, be subject to income tax. Schroders will publish the amount of income earned within the fund within ten months of its annual reporting period. This should then be reported on your self-assessment return.
Remember, tax rules can change and tax benefits depend on your circumstances.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
Private equity investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose.
Investments in private equity are sensitive to changes in the global economic outlook. An economic slowdown or a drop in investor confidence is likely to have an impact on the value of private market investments.
Private equity investments are long-term and should not be considered as readily realisable. The fund invests in companies or instruments which are denominated in currencies other than the fund’s respective currency – such investments are exposed to currency fluctuations.
Unlisted investments can be difficult to price and value. Certain investments are valued based on estimated prices and therefore subject to potentially greater pricing uncertainties than listed securities.
Redemptions are available on a quarterly basis, however, these may be limited to 5% of NAV, to manage liquidity in the fund. The manager reserves the right to charge a 5% redemption fee in periods of market stress and may suspend all redemptions for up to 12 months.
Before investing, you must be an elective professional client of Wealth Club. You must be able to understand the fund’s strategy, characteristics and liquidity profile. You must also be comfortable with the potential for periods of illiquidity.
Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
A summary of the main charges is shown below – Wealth Club investors will invest using a nominee structure. This service is provided by Wealth Club’s subsidiary companies Wealth Club Asset Management Limited (authorised and regulated by the FCA) and Wealth Club Nominees Limited and is governed by the Terms and Conditions of the Wealth Club Services. Please refer to the schedule of Wealth Club charges for more detail on fees paid by investors to Wealth Club, and the Prospectus and Key Information Document for more details on the product charges.
|Initial charge||0.5%||Annual investment charge||1.45%|
|Wealth Club annual custody fee (payable by Direct Debit)||0.5%|
|Redemption fee||See details|
All fees and charges are stated exclusive of VAT, which may be applicable in some cases.
More detail on the charges
Deadlines and dealing process
The fund accepts investor subscriptions once per month and withdrawal requests once per quarter.
The next subscription deadline is 13 July 2022 (5pm, cleared funds). Settlement, as outlined in the offer documents, will take place 22 business days after the dealing date.
Investors can request redemptions once per quarter. Redemptions are processed on the last dealing day in the quarter and settled 22 business days later. Redemption instructions must be submitted by the end of the preceding quarter.
For instance, an investor that wished to redeem units in Q4 (dealing day 31 December) would need to submit an instruction by the end of Q3 (30 September).
Investors will be able to submit redemption instructions by using the Wealth Club secure message portal.
5% of NAV net redemption cap
Net redemptions (redemption requests received for a given quarter minus subscriptions received over that same quarter) on any one dealing day will be limited to 5% of the fund’s Net Asset Value as at the relevant calculation day at the end of the preceding quarter.
If redemptions are above 5% on any dealing day, these will be processed on a pro-rata basis. Investors will be informed of any redemption amount not processed on the relevant settlement date. Any redemption amount not processed on any dealing day will be deferred until the next dealing day unless cancelled by the Investor.
The fund offers investors exposure to a global best ideas private equity portfolio focused on two well defined investment strategies: Western Buyouts, which invests in small to medium-sized management buyouts in Europe and the US, and Asian Growth, which invests in venture and growth capital opportunities in Asia, targeting domestic demand growth. Both areas may be underrepresented within a private investor’s wider investment portfolio.
The fund structure is a compelling feature of the fund, in our view. It provides a number of benefits to long-term investors over traditional closed-end private equity funds and private equity investment trusts.
The fund is managed by Schroders Capital, a £86 billion division within Schroders Plc. Schroders Capital has an enviable long-term track record. The scale of Schroders Capital should provide the fund with a ready supply of deal flow, sourced from its large investment team located in five offices across the globe, not guaranteed.
Please note, the fund offers a quarterly redemption facility, with redemptions capped at a maximum 5% of the net assets of the fund per quarter. Investors should be prepared to hold the fund for the long term.
In our view this is a compelling opportunity to gain exposure to private equity – you should form your own view.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Private equity fund
- Schroders Capital
- Fund assets
- $550.6 million
- Western buyout / Asian growth
- Available monthly
- Available quarterly (by request)
- Next subscription deadline
- 13 July 2022