What are the typical returns and performance metrics for search funds?

Search funds have demonstrated strong historical performance, making them an attractive asset class for investors. According to Stanford's 2024 study analyzing 681 qualifying search funds in the United States and Canada, the aggregate pre-tax internal rate of return (IRR) was 35.1%, with an aggregate pre-tax return on invested capital of 4.5 times. This means that for every dollar invested, investors received $4.50 back before taxes. These returns compare favorably with traditional private equity, which typically targets IRRs of 20-25%. The promise made to search fund investors is generally to triple their investment over the holding period. However, it's important to note that approximately 20% of search funds fail to complete an acquisition, resulting in a total loss of the initial search capital for investors. Of those that do acquire companies, historical data shows that about 7-8 out of 10 searches result in an acquisition, and 5-6 of these perform successfully. The strong performance is attributed to several factors: searchers are highly motivated as they have significant equity stakes, investors provide active mentorship and strategic guidance, target companies are often overlooked by larger private equity funds creating less competitive acquisition processes, and the long-term holding period allows for meaningful operational improvements. International search funds, tracked by IESE Business School, show similar performance trends, though the European market is less mature with the first French search fund completing only in 2018.