Norman has secured backing from four major financial institutions to provide£500 million a year to buy struggling businesses. He will be able to invest in companies with an enterprise value of up to£2.5 billion. Lord Jacob Rothschild is among his backers.
Norman said that the company will not act like a typical private equity firm, but will instead focus on intensively managing its acquisitions, with him usually acting as executive chairman.
He forecast that Aurigo would manage one or two businesses at a time, saying he would be happy to deal with four or five over the next three years.
Norman, who transformed the fortunes of Asda in the 1990s alongside Allan Leighton, was elected as a Conservative MP in 1997, although he eventually quit politics.
Of the new fund, he said: 'We are happy to acquire businesses that are performing OK, but we go right through to businesses that are toxic'.