Boutique financial services firm Cowen and Company’s healthcare-focussed private equity practice has hit the hard cap on its debut fund on more than $500 million (€314 million).
Cowen Healthcare Royalty Partners (CHRP) exceeded its initial target of $350 million on its first fundraising effort since its launch in January 2007. The firm has already sunk $80 million of the fund in two deals made earlier this year: a $60 million deal with an undisclosed company and a roughly $23 million financing package with San Diego dermal filler developer Artes Medical.
Based in Connecticut, CHRP occupies a unique niche of healthcare investing focusing on the monetisation of royalties in commercial and near-commercial stage healthcare products.
“The ultimate power of this investment style is the fund is very flexible about the structure of the investment or the security,” CHRP co-founder Todd Davis told PEO.
Roughly half of CHRP’s capital will be deployed towards traditional “passive” royalty investments, in which the firm monetises licensing contracts between original product developers – usually biopharmaceutical companies or academic institutions – and the marketing companies that ultimately test, package and sell the product.
The other half will be devoted towards “synthetic “ royalties, an alternative financing model that Davis and CHRP co-founders Gregory Brown and Clarke Futch helped pioneer when the trio were partners as Paul Royalty Funds, the healthcare unit at Paul Capital Partners.
“Synthetic” royalties are contractual agreements between a financial sponsor such as CHRP and a healthcare product developer or marketer in which the financial sponsor pays an upfront cash payment in exchange for a percentage cut of future revenues. Davis says that “synthetic” royalties are a burgeoning substitute for traditional equity and debt investments.
“It allows us to customise based on the company’s needs,” he said. “It’s a very good form of alternative financing if companies are concerned about dilution of equity or the restrictions of debt.”
Davis launched CHRP with an anchor investment of $25 million from New York-based Cowen and Company in January 2007. However, Davis says that the firm did not actively begin fundraising until last November.
The fund’s limited partner bases consist of several prominent public and corporate pension funds, financial institutions, insurance companies, funds of funds and university endowments. Disclosed investors include OMERS Capital Partners, Scandanavian investment bank Nordea, international fund of funds Strategic Investment Group, New York Life Insurance Company and the Travelers Companies.