San Diego commits more to drug royalties

The San Diego County Employees' Retirement Association has committed $25m to DRI Capital’s Drug Royalty II Co-Investment Fund. The $7 bn pension previously committed $25m to Drug Royalty II.

The $7 billion San Diego County Employees' Retirement Association has approved a commitment of $25 million to DRI Capital’s Drug Royalty II Co-Investment Fund, which will invest alongside DRI's second drug royalties fund.

Drug Royalty II Co-Invest, targeting $225 million, will invest in pharmaceutical royalty streams in transactions too large to fit entirely in Drug Royalty II due to “portfolio concentration or similar considerations,” according to pension documents.

DRI Capital contributed $30 million to Drug Royalty II and $1 million to Drug Royalty II Co-Invest. The firm will charge a 1 percent management fee on invested capital in the co-investment fund. Management fees will be offset by 100 percent of transaction and similar fees, according to pension documents. Carried interest will be 10 percent after a 10 percent return to investors.

Atlantic-Pacific Capital is the fund’s placement agent.

San Diego previously committed $25 million to Drug Royalty II in February 2010. That fund closed on $701 million in April, beating its initial target of $500 million. Drug Royalty II has a diversification guideline that no more than 20 percent of the fund can be invested in royalty assets related to a single pharmaceutical product.

DRI raised $240 million for its first drug royalty fund in 2006.

DRI, which focuses on the healthcare sector, has more than $2 billion under management that is used to buy royalties from pharmaceutical and biotechnology companies, research institutes, universities and inventors.

Drug royalties remains a relatively obscure investment area for private equity firms. Paul Capital, the noted secondaries investor, has a fairly robust drug royalties team.