US healthcare funds target changing sector

SV Life Sciences and Linden have closed funds totaling some $900m to target a sector bracing for big regulatory changes.

Two healthcare funds have closed in the last week, both exceeding their initial target amounts for investments into a historically defensive sector that will see significant regulatory reforms.

Linden, a Chicago-based healthcare private equity firm, closed its second fund on $375 million – above its state goal of $300 million – on 25 June for investments in healthcare and life science. Linden closed its first healthcare fund on $200 million in 2006. Linden used placement agent Park Hill Group for the fundraise.

SV Life Sciences closed a fund this week, its fifth, with total commitments of more than $523 million, exceeding its target of $400 million. SV closed its first fund in 1994 and has more than $1.4 billion in committed capital. SV focuses investments in biotechnology and pharmaceuticals, medical devices, healthcare services and healthcare information technology. SV did not use a placement agent.

It's a change you can live with and probably find opportunities in.

James Garvey

Both firms were able to enter the market in a tough fundraising environment and attract new limited partners. LPs were attracted to the funds because of the firms’ track records, but also the resiliency of the healthcare sector to the financial downturn.

According to Tony Davis, managing partner with Linden, institutional investors recognised that changes wrought by healthcare reform in the US will present opportunities for investors in the sector.

In March, US President Barack Obama signed a sweeping healthcare reform bill into law that mandates that every person in the US must have healthcare insurance. The law is expected to eventually bring in 30 million new entrants into the US healthcare system.

“I think a lot of institutional investors recognise that with any major legislative change comes a lot of investment opportunity to those who are specialised,” Davis said. “We believe Linden will benefit from the changes.”

Linden and SV Life Sciences attracted new investors into the funds. SV attracted 22 new investors, including “private and public pension funds, fund of funds investors, and foundations, endowments and family offices”, the firm said in a statement. About 60 percent of SV’s capital came from US investors, while 40 percent came from Europe and the rest of the world.

With Linden, 100 percent of the firm’s existing investors re-upped with the firm, along with the new LPs the


firm brought on board.

“Healthcare is the largest industry in the US, and probably in the world, and it’s growing,” James Garvey, chairman and managing partner of SV, told PEO in an interview. “The technology is continuing to solve problems, or make problems more livable. Healthcare is always defensive, healthcare stocks generally do well because there’s built-in demand. People get sick, go to the hospital, take medications, have procedures.”

Healthcare reform will make some areas of healthcare less attracted because of higher taxes, but turn other areas into great investment opportunities, Garvey said. The effects of the changes will not be felt right away as the reforms are staggered over the next few years.

“It’s change you can live with and probably find opportunities in,” Garvey said.