Frank Yu, a former Och-Ziff Capital Management Group head of China investments, has started an Asian health-care hedge fund.
The Ally Bridge LB Healthcare Fund began trading on July 15, targeting buying opportunities created by Chinese reforms since 2007. It is led by Chief Investment Officer and Chief Executive Officer Li Bin, a former Merck & Co. scientist who until May was Morgan Stanley’s head of Greater China health-care research.
Money managers like Yu’s Ally Bridge Group, which focuses on global health-care investments, are lining up as China expands health insurance coverage and makes medical care more affordable. Health-care spending in the world’s second-largest economy is projected to grow almost 12 percent a year to $892 billion by 2018, according to Deloitte Touche Tohmatsu Ltd.
Greenwoods Asset Management, a Shanghai-based hedge-fund manager overseeing about $7 billion of assets, is also marketing a China health-care fund, while Hillhouse Capital Management, the Yale University endowment-backed manager of $20 billion of assets, earlier this year partnered with Mayo Clinic for a China venture.
“It’s becoming an irreversible trend,” said Hong Kong-based Yu in an interview, declining to specify how much money the fund raised. “Chinese patients, doctors, companies, government and hospitals are in search of the most effective, safest and most affordable devices and drugs.”
Ally Bridge and its predecessor Themes Investment Partners have made more than 30 health-care investments globally, generating an internal rate of return of about 60 percent, Yu said. Themes was an investor in the 2011 Hong Kong initial public offering of Shenzhen-based LifeTech Scientific Corp. and helped negotiate its 2013 partnership with Medtronic Plc, the world’s largest maker of heart-rhythm devices.
Ally Bridge worked on the $3.3 billion privatization of Chinese biotechnology company WuXi PharmaTech Cayman Inc. in April.
It is adding the hedge fund to enable investments in health-care companies in different stages of business development, Yu said. Its existing venture capital fund targets companies without revenue, while its growth and private-equity pool specialize in those that do.
The hedge fund will mainly invest in listed companies, including those traded in Hong Kong and China, said Li.
About 278 China-based health-care companies are listed on its domestic and international stock exchanges, according to data compiled by Bloomberg. An index tracking 52 such companies listed in Shanghai and Shenzhen surged about 50 percent this year, double the gain of the benchmark Shanghai Composite Index.
While Ally Bridge’s U.S. and European investments tend to target companies with cutting-edge technologies, in China, it will focus on drug and medical device makers and distributors.
“Over the last couple of years, devices and services providers, such as hospital operators, have become more attractive,” Li said. “Over the past year, a new sector emerged, which is health-care information technology.”
Yu, also a former Goldman Sachs Group Inc. investment banking managing director, started Themes in 2010 after leaving Och-Ziff and created Ally Bridge two years ago, he said.
Li has a doctor’s degree in biochemistry and covered U.S. pharmaceutical companies for Merrill Lynch in New York before moving to Hong Kong in 2007 to start China health-care research coverage for the investment bank. He joined Morgan Stanley the following year.