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CalPERS launches USD700m healthcare investment plan with private equity firm

The California Public Employees’ Retirement System has announced a USD700m effort to generate superior portfolio returns and improve quality and efficiency in the US healthcare market toge

The California Public Employees’ Retirement System has announced a USD700m effort to generate superior portfolio returns and improve quality and efficiency in the US healthcare market together with Health Evolution Partners, a new private equity firm headed by Dr David J Brailer, a former US national co-ordinator for health information technology.

CalPERS will commit up to USD500m to a healthcare investment initiative for co-investments and direct investments in healthcare companies, and up to USD200m to healthcare-focused private equity funds and strategic joint ventures. The largest US pension scheme says it selected Health Evolution Partners based on its knowledge and experience in healthcare, finance and business development, and its approach to private equity investment.

‘This initiative represents a significant opportunity to leverage our twin roles as a leading health benefits purchaser and investor to bolster our market returns while addressing severe inefficiencies in the healthcare sector,’ says CalPERS board president Rob Feckner. ‘The need is urgent since the fragmented, inefficient healthcare market has hit our health program members with double-digit premium increases the past five years.’

Adds investment committee chairman Charles Valdes: ‘There are many creative solutions to our healthcare cost and quality challenges that are working successfully on the local level today. Our goal is to generate returns by providing innovators with the financial resources and expertise they need to extend their solutions across the US.’

CalPERS attributes the initiative for the new programme to chief executive Fred Buenrostro, who says: ‘Billions of investment dollars are already in the healthcare market, but what’s missing is the focused investment of those dollars to specifically address the needs of purchasers.

‘Our new innovative approach will enable us to invest more efficiently by identifying needs based on our own experience in spending nearly USD5bn a year to provide health benefits to 1.2 million enrollees. We plan to be a catalyst for companies to come up with new solutions to the health care crisis.’

‘For example, urgent care facilities are needed in rural areas to improve access and lower costs. Companies haven’t built such facilities because of the lack of capital and a scattered patient population.’

CalPERS says other new investment might go to hospitals that excel in certain specialties or other providers that can reduce costs and improve performance, retail or work site clinics that are staffed with nurses and other practitioners to enhance access to care, especially basic preventive health services.

The programme is also targeting technology to enable electronic medical record-keeping, improve quality and patient safety, and to integrate the systems of various clinics and departments, home health services that would allow patients to avoid more acute settings, reduce costs and enhance the quality of life, and technology and services that improve the management of acute and chronic diseases, including home- and hospital-based heart rate monitoring devices from remote locations.

‘We selected Dr. Brailer to help us find new opportunities because of his unique capabilities, and his in-depth knowledge of regulations, macro-trends, and the healthcare industry,’ Buenrostro adds. ‘He also has years of investing in biotechnology, significant experience in business, a strategic vision, and healthcare experience.’

The AIM Program has investments in more than 800 healthcare companies through private equity funds that channel money to biotechnology and other sectors. CalPERS also owns several billion dollars in public equity stocks in pharmaceutical, hospital, and other healthcare industry companies. The healthcare investment initiative is the latest of several new AIM programmes in recent months, including commitments to venture capital, underserved California markets, emerging managers and markets, and clean technology.

Since 1990, CalPERS has invested in private companies primarily through limited partnerships or funds, typically with managers or general partners acting as third parties that invest the pension fund’s capital. The AIM Program has more than USD15.4 billion in the market. The largest US pension fund with assets totalling more than USD245bn, CalPERS administers retirement and health benefits for approximately 1.5 million current and retired public employees and their families, and 2,600 California public employers.

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