Schroder GAIA II Global Private Equity

Next application deadline 10 February 2022

Note: the Schroder GAIA II Global Private Equity fund is the new name for the Schroder GAIA II Specialist Private Equity Fund. 

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 £50.2 billion specialist private assets and alternatives division within Schroders Plc. 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 $436 million in assets and generated a total return of 42.2% (September 2021, 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 17.3% and 48.6% on investments made in each of the past 10 years (as at June 2021). Past performance is not a guide to the future. 

Since making its first direct co-investment in April 2013, the team has backed 167 companies and achieved an average IRR of 26%, or 1.9x cost. Of these, 44 investments have been realised, generating 3.3x multiple on cost, or 34% IRR (Jun 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.

The next subscription deadline is 10 February 2022 (5pm, cleared funds). The minimum investment is £25,000. 

Important: The information on this website is for experienced investors. It is not advice nor a personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.

Read important documents and apply

Highlights

  • Global private equity fund from Schroders Capital
  • A diversified portfolio of management buyouts, venture capital, and fund investments
  • Large investment team in London, New York, Zurich, Beijing, and Shanghai facilitates local access to deal flow and on-the-ground expertise 
  • Strong long term performance track record
  • Fund size $436 million
  • Innovative structure makes the fund more liquid compared to traditional private equity funds
  • Access to world-leading private equity funds and co-investment opportunities 
  • Minimum investment: £25,000 – you can apply online

The manager

Schroders Plc is a global asset management business founded in 1804. The group manages £716.9 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 £9.5 billion (Sep 2021). 

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 £50.2 billion under management (Sep 2021) 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:

 

Investment strategy

The Schroder GAIA II Global Private Equity fund (previously Schroder GAIA II Specialist Private Equity) 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 bias towards China, as well as the potential to opportunistically invest elsewhere in Asia. The strategy is expected to have a bias towards 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. 

Fund structure

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. 

Portfolio

The fund size is currently $436 million. Due to large inflows over the summer, the portfolio held 31% of its net assets in cash (September 2021). New investments are expected to reduce cash to 10% of net assets in the coming months. Over the long term, the team expects to maintain a cash balance of 10-20% of net assets. 

The investment portfolio has exposure to 31 direct co-investments, nine secondary funds, and seven late primary funds. A further three co-investments, four secondaries, and three primaries are pending investment committee approval.

68% of the investment portfolio is invested in small to medium-sized management buyouts, 28% is in growth capital and 4% in venture capital. There is a bias towards Europe (55%) and the US (32%). Sector exposure is focused on healthcare (36%), technology (30%) and consumer (19%). 

The top 5 co-investments account for 25.2% of the investment portfolio. The top 5 fund investments account for 19.5%.

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

Init – Schroder Gaia]Init[ – largest investment, European direct co-investment 

]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 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. Today, the holding is the largest position within the fund, accounting for 6.8% of the investment portfolio. 

Ampersand – Schroder GAIAAmpersand Continuation Fund – largest secondary investment 

The Ampersand Continuation Fund is managed by Ampersand Capital Partners, a Boston-based middle-market private equity firm with more than $2 billion under management. It is dedicated to making growth-orientated investments in the healthcare sector. Ampersand has a strong track record, each of its previous five funds has achieved top-quartile (over 2.5x invested capital) performance since 1999. 

In November 2020, the fund raised $670 million to acquire the equity interests of three portfolio company positions held in previous funds: Confluent Medical Technologies (“Confluent”), a provider of precision contract design and manufacturing services to the medical device industry; Bioventus, a NASDAQ-listed medical technology company developing minimally invasive medical treatments that stimulate the body’s natural healing process; and LakePharma, which specialises in the production and evaluation of antibodies, DNA vectors, viral vectors, cell lines, proteins and conjugates. 

At the time of the investment, Confluent accounted for almost 90% of the total fair market value of the fund. Schroders was attracted to its strong growth outlook, both organically and via M&A. In September 2021, LakePharma was acquired by Curia Global Inc, a contract research, development, and manufacturing organisation for pharma and biopharma organisations. 

Hony Capital - Schroder GAIAHony Capital Venture I – late primary fund investment

The Hony Capital Venture I fund is the first venture fund to be launched by Hony Capital, one of China’s leading private equity firms in China, with $13 billion under management. The fund targets investments in early-stage consumer, internet, and digital enterprise service sectors in China. 

The Schroder GAIA II Global Private Equity fund invested $10 million into the fund in November 2020, at which point it had visibility of the portfolio underlying holdings. A core asset, Perfect Diary, then valued at $2.5 billion, was identified as having the potential to return on its own the fund value of the whole venture fund. Schroder GAIA II’s exposure to Perfect Diary was $4.5 million. 

Founded in 2017, Perfect Diary is now a leading Chinese make-up brand. Its innovative use of digital marketing via chat groups, video streams, and social media has propelled the brand into a leading position within China, the world’s second-largest market for cosmetics. 

In December 2020, Perfect Diary’s parent company, Yatsen Holding Ltd, raised $617 million in an initial public offering, by year-end the business had a market cap of at $11.3 billion giving the fund a 4x return on its investment. 

POP MART – Schroder GAIAPOP MART –recent partial exit

POP MART International Group, based in China, sells collectable toys in ‘blind boxes’, a practice of packaging figurines in a way that obscures the contents. The toys have become highly collectable, and POP MART has built a large and loyal customer base. 

Since its founding in 2010, POP MART has partnered with well known artists and brands such as Disney, to produce unique figurines. POP MART currently operates over 200 stores and 1,500 ‘robo shops’ (i.e. automated vending machines). In 2020, POP MART reported annual revenues of RMB 2.5 billion (c.$390 million), up from RMB 1.7 billion (c.$27 million) in 2019. 

Schroder GAIA II Global Private Equity Fund first invested $5 million into the business in September 2020 at a $2.5 billion valuation, alongside Loyal Valley Capital, a Chinese private equity firm. POP MART raised $676 million in an initial public offering on the Hong Kong stock market just three months later at a $7 billion valuation. In June 2021, the fund sold 40% of its position for a 3.4x gross return. 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. 

Performance

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 and Perfect Diary, 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 30/09/2021. 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 by the team in each year between December 2010 and December 2020 to June 2021.

Since making its first direct co-investment in April 2013, the team has backed 167 companies and achieved an average IRR of 26%, or 1.9x cost. Of these, 44 investments have been realised, generating 3.3x multiple on cost, or 34% IRR. (June 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 of June 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 €.

Tax treatment

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.

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. 

Charges 

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%
Dealing fee
Performance fee
Redemption fee See details
Please note: the initial charge will be deducted from your subscription; the annual custody fee will be collected by Direct Debit twice a year in arrears, so as part of your online investment application you will be asked to set up the Direct Debit instructions.
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. 

Subscriptions

The next subscription deadline is 10 February 2022 (5pm, cleared funds). Settlement, as outlined in the offer documents, will take place 22 business days after the dealing date (the next dealing date is 28 February)

Redemptions 

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.

Our view

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 £50.2 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 – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

The details

Type
Private equity fund
Manager
Schroders Capital
Fund assets
$454 million
Strategy
Western buyout / Asian growth
Subscriptions
Available monthly
Redemptions
Available quarterly (by request)
Next subscription deadline
10 February 2022
Last updated: 30 November 2021