Australian investment firm HEAL Partners, which is in the midst of closing its debut fund, has already set its target to raise $300-500 million for its second fund.
“The first close of the fundraising [for Fund 1] was in April 2021. While we technically have 18 months for the final close, we are likely to close Fund 1 early as we commence discussions for a larger Fund 2,” the firm’s partner Martin Robinson told DealStreetAsia in an interview.
“We’ve just started some initial conversations with potential anchors for Fund 2. We’re targeting a larger fund than Fund 1,” he said.
HEAL Partners launched its first fund in August last year, seeking to raise a total corpus of A$100 million ($71.7 million). As of May, the firm has raised A$90 million ($69.9 million) and is targeting the final close later this year at a higher amount of A$120 million ($93.2 million) to A$140 million ($108.7 million), Robinson said.
So far, it has made as many as five investments and its portfolio companies are Canada’s largest corporatised IVF platform The Fertility Partners, tattoo removal business Removery, and Montessori education and tech group Higher Ground (both based in the US) and Australian early learning education centre Edge Early Learning.
In Indonesia, it has an investment in telemedicine and drug delivery health platform Halodoc.
The second fund will aim for more institutional investors and target an internal rate of return (IRR) of 20% as compared to the targeted IRR of 30% (net of fees) for its debut fund.
HEAL Partners is an early-to-mid-stage follow-on fund and growth acceleration investment vehicle that invests in health, education and lifestyle sectors in Asia, Australia, the US and Canada.
“We think health and education really go hand-in-hand. So, in an Asian context, there is obviously a huge emerging middle class and after everyone gets this smartphone, the next thing they care about is health and education,” said Robinson. “With a huge population and different demographics, there are great sectors in the developed markets like the US and Canada. It is the niche specialties that the firm looks to invest in such as In-vitro fertilisation (IVF).”
HEAL plans to tap the mass market in emerging economies, while in developed countries it could investment in “things like pain treatment, allergies and niche specialties,” said Robinson.
HEAL Partners seeks to rope in new investors and more institutional investors for its second fund. Its debut fund saw mostly investors from family offices, multifamily offices and high-net-worth individuals from Australia, Asia, Europe and America.
“For Fund 1, roughly 70% is from Australia and the rest is offshore. We’ve got a couple of institutions in Fund 1, as we look for a larger fund in Fund 2, we’ll expect that they’re more institutional investors,” he added.
HEAL Partners will adopt different strategies for different countries as it plans to invest between $50 million and $100 million in each company from its second fund.
“That’s the kind of range that we want to get to and where we see the real opportunity… one sector that we like in one country won’t necessarily apply to another,” said Robinson.
So far, HEAL Partners’s investment ticket size per company varied from $5-30 million.
The firm has so far deployed close to $30 million to date and “with the imminent new and follow-on investments in front of us, we expect to have deployed $60-70 million by the end of June,” said Robinson.
HEAL Partners is currently watching out for trends thrown up by the COVID-19 crisis and has taken a conscious approach to stay away from businesses thriving on the pandemic.
“The one thing that we are cautious about is investing in companies that are massive beneficiaries of COVID…in a post-COVID world, they may not be growing the same way as they are now. They’ll be normalising,” he said, highlighting the firm’s investment in Halodoc that was clocked first in 2020 with a follow-on investment in 2021.
“With COVID, everyone thinks that the telemedicine business is the place to invest in. But it’s not quite as simple. We invested in Halodoc but there’s more to highlight than just the telemedicine play. There’s a whole drug delivery play and e-pharmacy, Amazon-type warehouse model,” he explained. “You have to assess every situation, every individual investment on its merits.”
The Indonesian health-tech platform recently made headlines when it shut down one of its business units failing to cope up with the onslaught of the COVID-19 pandemic.
As a growth-stage fund, HEAL is looking to invest in companies that have a proven business model and are already revenue-generating.
“HEAL is a growth-stage fund…we’re not doing early-stage businesses that are yet to prove their business model….a big part of our investment is about taking businesses across geographies,” he said.
Cashing out profitably
On the exit horizon, Robinson said HEAL is looking at three-to-six years on average.
“It’s a different situation for different companies. We will look to optimise value creation for our investors, but as a general rule, we would look to start exiting our portfolio companies between year three and year six,” Robinson said.
“That may be by way of IPO and maybe trade sale, we will choose whichever option gives us the best return. But that said, if we are on a real winner, a company that’s having compounding topline growth year-on-year, a company that can become the next unicorn, we will look to hold on to our investment longer for maybe seven or eight years,” he added.