LPs Investing in Biotechnology-Focused Private Equity Funds.

by Bogusia Glowacz

  • 02 Aug 2011
  • PE

One might argue that there has never been a better time to invest in private equity funds focused on biotechnology. Aging population, growing need for innovative drugs and new medical devices to prevent and treat various medical conditions continue to attract interest from both private equity firms and LPs.

Preqin’s Investor Intelligence database currently tracks 523 LPs (excluding fund of funds managers) investing in or with a preference for funds focused on biotechnology. 52% of LPs, which have previously invested in or have shown an interest in vehicles targeting the industry, are based in North America, followed by 30% in Europe and the remaining 18% in rest of world. This indicates that biotechnology funds attract interest from LPs on a global scale. Reports have suggested that there has been an increase in the number of biotech funds investing in China and India in recent years, which may attract more local investors. Preqin’s Funds in Market shows that of the 92 funds that include biotechnology in their scope either currently raising or closed in the last 12 months, 25 are focused on investing in India and greater China, representing 27% of funds.

A number of investors in biotechnology are approaching investments in the private equity asset class on opportunistic basis. One US-based government agency invests both directly and via venture funds in the biotechnology sector in the US. It only invests opportunistically in private equity whenever an attractive new offering comes to the market and therefore has no target allocation to the asset class.

Another India-headquartered corporate investor, which has previously invested in a private equity vehicle focused on the biotechnology and life sciences sectors across the globe, is now looking to allocate capital to investments in biotechnology in India. It also approaches investments in the private equity asset class very opportunistically.

Although the biotechnology industry was not immune to the effects of financial crisis, it is likely to continue to generate LP interest in the coming years. Growing demand for medical research into complex diseases of the aging population across the globe are set to present attractive investment opportunities and promising investment returns going forwards.

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