Sagard jumps into healthcare with royalty investment team

The firm has tapped a CPPIB veteran to lead that effort who previously worked with Sagard CIO Adam Vigna.

Sagard Holdings has added a three-person team to launch its healthcare royalties lending strategy – investments that would be secured by intellectual property.

The firm has brought on David MacNaughtan to lead the effort, who will be joined by Ali Alagheband and Raja Manchanda, according to a statement. The three men will be based in Sagard’s Toronto headquarters.

“Healthcare royalties are uncorrelated with the markets,” Sagard chief investment officer Adam Vigna told Private Debt Investor. “It is an interesting opportunity for us now and will be an attractive way to generate low to mid-teens returns.”

The initial money for investments will be funded through Sagard’s balance sheet, and then raise a third-party capital for a vehicle that will be a “nine-figure fund”, he explained. Deal sourcing will come through the new team’s network as well as the broader Sagard and Power Corporation of Canada platforms.

MacNaughtan previously headed the intellectual property investment strategy at Canada Pension Plan Investment Board, where he worked alongside Vigna.

Alagheband and Manchanda are both formerly of DRI Capital, a healthcare specialist investment firm. Alagheband was managing director who oversaw three healthcare royalty monetisation funds, which together raised $2.73 billion, while Manchanda worked on sourcing and evaluating transactions. Before CPPIB, MacNaughtan also held a role at DRI.

Some firms have collected large pools of capital focused on healthcare royalty investments in recent years.

In September, Oberland Capital closed Oberland Capital Healthcare II at its $800 million hard-cap to make commitments of $20 million-$150 million. Athyrium Capital Management closed its Athyrium Opportunities Fund III in December 2017 at $2.03 billion to fund investments of $20 million-$300 million.

In 2016, Deerfield Management closed its fourth healthcare fund on $2.4 billion. Healthcare Royalty Partners is also back in market with its fourth fund, after closing on its prior vehicle at $1.5 billion in October 2014.

A Marathon Asset Management white paper on healthcare financing released in the first quarter of last year estimated that life sciences debt, royalty-backed credit and royalty opportunities represent $25 billion of possible dealflow annually. The strategies can deliver a 10-15 percent gross unlevered internal rate of return with a cash-on-cash multiple of 1.5x or more.

A separate white paper from the Massachusetts Biotechnology Council estimated that $4.6 billion of royalty financing deals were closed in 2016. Since 2000, the market has posted a compounded annual growth rate of 23 percent.

Sagard also launched a debt investment platform, Sagard Credit Partners, which had raised more than $545 million as of October, surpassing its $500 million goal. The firm planned to keep the fund open to the end of 2018, meaning the vehicle could have marched even closer to its $600 million hard-cap. It focuses on non-sponsored businesses.