The $108 million, 2014-vintage Global Health Investment Fund, the first investment vehicle of its kind, has already deployed half its capital, and aims to invest another $20 million by the end of the year, managing partner Curt LaBelle told Private Equity International.
Backed by the Bill and Melinda Gates Foundation, the GHIF is a social impact investment fund, meaning it invests in projects that produce positive outcomes for society while generating financial returns for the fund’s investors.
The GHIF is the first investment fund structured to offer investors the opportunity to finance the development of late-stage health innovations – including vaccines, drugs, and medical devices – that can prevent, diagnose, or treat diseases such as malaria, cholera, HIV and river blindness, which disproportionately affect low-income and middle-income countries.
It looks for health technologies that have a high probability of reaching commercial markets within two to three years, and is particularly interested in products that have value for high-income as well as developing countries.
LaBelle, who earned an MD and MBA at Columbia University, has spent more than 16 years investing in healthcare companies. Before joining the GHIF in 2015, he served as a managing director at US-based Tullis Health Investors, a firm which manages private equity funds focused exclusively on healthcare.
In his role as an investor LaBelle went on medical missions around the world, which in turn sparked his interest in finding ways to ensure healthcare innovations used in high-income countries can reach patients in the developing world.
“Based on what I wanted to do with impact investing in healthcare for both the developed and developing markets, something like traditional venture capital would’ve offered limited resources for that,” LaBelle said.
Investing in life-saving medical technologies
The GHIF announced its final close in September 2013. It raised $108 million from 30 investors, LaBelle said.
The fund provides mezzanine debt, convertible debt, preferred equity and project financing, and is looking to put between $5 million and $15 million to work per investment, for a total of 10 to 12 investments.
In January, the GHIF announced an investment of $6 million in debt and $2 million in preferred equity in Australia-based Atomo Diagnostics, maker of medical devices that employ rapid diagnostic test technology to identify certain infectious diseases, such as malaria. The company’s AtomoRapid HIV test, intended for clinical use, was launched in early 2014; the GHIF’s investment will be partly used to commercialise a self-test solution for HIV.
The fund is about halfway, or $50 million, deployed, with two more investments in the near-term pipeline, according to LaBelle, who said he is hoping to have a total of $70 million invested by the end of 2016.
The GHIF currently has six portfolio companies, based in the US, South Korea, Australia; their products reach patients in India, sub-Saharan Africa, and Southeast Asia, LaBelle said.
LaBelle declined to comment on future fundraising plans. A person familiar with the matter told PEI that once the current fund is 75 percent committed, possibly in mid- to late-2017, the GHIF will look to raise more than $200 million for its second fund.
Structuring a fund to make an impact
The GHIF has what it calls a Charitability Oversight Committee, made up of seven members from outside the fund, whose sole responsibility it is to measure the impact of the fund’s investments.
Committee members don’t look at financial statements or performance, but focus solely on gauging the impact delivered to end-users of the GHIF’s portfolio companies.
The committee, along with the four investment professionals at GHIF, analyse data on the lives affected by particular products to measure their impact. Concerning Atomo, the GHIF counts 600,000 lives improved and 47,000 lives saved per annum, according to the fund’s website.
There’s another way the GHIF tries to maximise the fund’s positive impact. It requires its portfolio companies to sign the Global Access Commitment, which is a legal document committing them to mark an affordable price for patients in the developing world. For example, Atomo Diagnostics’s device sells at a steep discount in sub-Saharan Africa.
“We carefully consider how to deliver these products to these markets and how to make them affordable,” LaBelle said, adding that the same product may be priced differently in a developed market.
While the GHIF employs private equity’s traditional 80/20 split of the profits, with 80 percent returned to investors, the 20 percent carried interest is “recycled” into the next fund, LaBelle said.
The GHIF also offers a lower-than-average management fee, which is typically about 2 percent for private equity funds. And in case one or more of the fund’s portfolio products fail, the Gates Foundation offers downside protection, to partially compensate for the losses to investors.
When asked whether he finds healthcare impact investing competitive, LaBelle said “definitely not.”
“I would actually like to see some competitors,” LaBelle laughed, “so we can combine resources and capital for bigger investments.”
In addition to JPMorgan, which structured the fund, the GPIF’s backers include the Pfizer Foundation, Grand Challenge Canada, and the International Finance Corporation.