Fund focus: LPs flock to Lake Bleu’s late show
Lake Bleu Capital leveraged a lift in Chinese healthcare sentiment to raise $560 million for a fund that will target late-stage healthcare investments
More than 40 Chinese biotech and medtech companies have gone public in the last two years. Only five opted for NASDAQ. The rest headed for Hong Kong, most taking advantage of a regulatory provision that permits listings by pre-revenue innovative drug developers. It has been transformative not only for the companies but also for their financial backers.
China healthcare investor Lake Bleu Capital raised $141 million for its debut private equity fund in 2019. It made late-stage investments in 10 companies, of which two, Akeso Biopharma and RemeGen, have already listed in Hong Kong. MicroPort CardioFlow is on track to do the same.
This gave Lake Bleu the impetus to launch a second fund towards the end of last year, with a final close of $560 million reached within six weeks. While the bulk of LPs in Fund I come from Greater China, Lake Bleu sought and achieved greater diversification with the successor vehicle. Endowments, foundations, pension funds, corporates, family offices, and asset managers from the US and Europe committed capital.
The firm was helped by its existing hedge fund business, which was established in 2015 as part of the Ally Bridge Group platform but is now an independent operator with more than $1.5 billion in assets under management. Lake Bleu relied on its hedge fund investors when raising the first private equity vehicle. This trend continued with Fund II, although the hedge fund investor base has also widened and become more international in the past 12 months.
“When we started in 2015, we were one of the first healthcare specialist funds focusing on the Greater China healthcare public market,” says Bin Li, founder and CIO of Lake Bleu. “As China healthcare is getting more mature, and COVID-19 serves as a catalyst, now we see more people entering the space. The government has been encouraging innovations and is investing more in healthcare infrastructure, which is a huge boost to biotech and medtech. We see a lot of opportunities.”
Li began his career as a scientist working for Merck in the US, but then switched to finance, working for a string of investment banks. Expanding into private equity necessitated the recruitment of a dedicated team at Lake Bleu, but a lot of deals are sourced through Li’s networks.
“We are a recognized healthcare specialist, so companies often get in touch with us when they are looking for investors ahead of an IPO,” Li explains. “Some venture capital firms that invest a bit earlier also advise us to join later-stage rounds for their companies.”
With increased competition for pre-IPO deals, Lake Bleu expects more earlier-stage exposure in Fund II, with growth rounds accounting for 20% of the corpus. And while there will be no change in what the firm looks at – biotech, medical technology, and healthcare services – the balance may shift.
“Biotech is probably close to half of our portfolio, but medtech and medical devices are on the rise,” Li adds. “We’ve seen many Chinese biotech companies emerge in the past few years and we believe medtech can be the next biotech. We see a lot of momentum.”
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