Question about the beta of search funds
June 08, 2021
by an investor from University of Delaware in Boca Raton, FL, USA
I am new to the search fund space. My colleagues and I are very interested in learning more, and potentially investing in some funds. As we were discussing search funds, we were trying to determine the best way to think about the beta of them. Some of my colleagues tended to lean toward assigning a beta close to 1.0, figuring that they are in essence equity and are therefore likely closely correlated to the overall economy. I tend to agree with that, but think it might be closer to 0.8 or so, giving some credence to them having a lower correlation due to their idiosyncratic nature. I welcome thoughts on it though, and am happy to be convinced otherwise. Any advice is appreciated. Thank you.
from Harvard University in Vancouver, BC, Canada
I would agree with your view that beta is generally < 1, by virtue of the fact typical Search targets are often so small to start that a few big wins can dramatically influence returns regardless of broader economic cycles.
If you’re new to the asset class, you may find this thought piece by my partner Andrew Locke useful - https://www.linkedin.com/pulse/draft/AgEntJO1pH_gwQAAAXi3sJQaV8woTjowO42_Q_8fTUwDfTZ_sNGRrU1ZhOp76K-qJhdOaOk
from The University of Chicago in Chicago, IL, USA