Dr. Mitchell Blutt Plots PE Return, Plans $400M Fund

You could say Dr. Mitchell Blutt is getting the old band back together again.

A medical doctor who was an early pioneer in health care buyouts when he formed the health care private equity practice at Chemical Ventures Partners, Blutt has spent the last six years investing in public health care companies through a hedge fund he established in 2005.

But now he is teaming again with Benjamin Edmands, a member of his team at Chemical Ventures Partners, to launch a buyout fund, Consonance Capital Partners, that will target privately owned companies that are similar in character to the public companies that Blutt invests in now.

Consonance Capital Partners will complement the existing Consonance Capital Fund, a health care-focused hedge fund. Although the firm is not formally in the market yet, executives anticipate a first close on the buyout fund in early 2012 and an eventual tally of $350 million to $400 million.

“Now we can go back to our roots, not only my JPMorgan roots but Ben’s and my roots, and build the private equity component of it,” Blutt told Buyouts.

Blutt joined Chemical Ventures Partners as a senior associate in 1986, while he was studying business at Wharton and launching his medical practice (he said he saw patients one day a week until 1999, in addition to his investing work). He remained with the firm through its various incarnations, as Chemical Ventures Partners became Chase Capital Partners and then JPMorgan Partners but left in 2004 as the bank began to spin off the buyout shop to form CCMP Capital Advisors LLC.

Edmands, who had joined Chemical Venture Partners in 1993, became head of its health care team on Blutt’s departure.

Consonance Capital took flight in 2005, as Blutt invested first his own money, then attracted investor cash, to invest in the stocks of small public health care companies. He described himself as a buy-and-hold investor who would often but not always take a seat on the board of the companies whose stock he bought. The firm now has grown to four investing pros on his public market team and eight employees total, Blutt said.

Edmands rejoined Blutt this year, and now the firm plans to expand its investments into private equity as well as public markets.

And while this might seem a particularly parlous time for health care investing, given the nascent Obama administration health care reform law and the Republican determination to overturn it, the situation actually opens up the market, Edmands said. “We think it’s going to be a very fluid environment. Reform creates a lot of opportunities. It creates a lot of pressures. But it creates a lot of change.”

One area of opportunity is likely to be Medicaid managed care, in which third parties provide management of medical service delivery to the poor, Edmands said. “The government is going to be under a lot of pressure to deal with the costs of this reform bill,” he said. “A lot of providers already don’t make money on Medicare and Medicaid.”

Consonance Capital anticipates writing equity checks of $20 million to $45 million, 2x to 3x EBITDA. The buyout fund will be larger than the fund that invests in public companies, Blutt said.

“It’s very unusual to have scale in both the public and private sides of health care,” Blutt said. “That’s not been done before.”