Sagard Holdings, the private investment arm of Power Corp, has collected an initial $475 million for its inaugural healthcare royalty fund.
Sagard Healthcare Royalty Partners, launched for fundraising last spring, held a first close in December, Partner and Head David MacNaughtan told Buyouts. It will remain open for additional commitments until December 2020.
MacNaughtan declined to disclose the vehicle’s target and hard cap.
The fund was anchored by several “large institutional investors,” MacNaughtan said. It also secured a $75 million commitment from Sagard. Power Corp, a holding company, is controlled by Canada’s billionaire Desmarais family, with Paul Desmarais III serving as Sagard’s chairman and CEO.
Park Hill Group is the placement agent for the next round of global fundraising.
Sagard’s healthcare royalty platform was created early last year by MacNaughtan, who joined in 2018 from Canada Pension Plan Investment Board. He worked with CPPIB Credit Investments for more than seven years, leading a team focused on buying or securitizing royalty streams underpinned by intellectual property.
MacNaughtan said Sagard’s fund will follow a similar strategy, making royalty or credit-like investments protected by IP in the global life sciences sector.
The fund will acquire patent royalty entitlements from inventors, research institutions and companies – mostly medical drug and device makers – helping them monetize royalties generated on sales of approved products. In addition, it will provide financing to commercial-stage biopharmaceutical companies, extending the scope of opportunities, MacNaughtan said.
Unlike CPPIB, whose strategy often emphasizes large-cap transactions, Sagard’s fund will target deal flow at the small and mid-sized end of the market, MacNaughtan said. For dollars-intensive activity, it will draw on the co-investment capital of limited partners.
The vehicle is expected to make up to a dozen investments in all.
Prior to launching the fund, Sagard’s healthcare royalty platform did a debut deal capitalized through the group’s balance sheet. Last April, it said it acquired a portion of a royalty interest in Rubraca, an ovarian cancer drug, for $31 million. The seller was Britain’s University of Newcastle upon Tyne, which developed Rubraca in partnership with Cancer Research UK and Pfizer.
MacNaughtan said the investment “helped to illustrate” the nature of the strategy.
The fund will typically source deal opportunities directly, MacNaughtan said, utilizing networks developed by him and Partners Ali Alagheband and Raja Manchanda, who joined Sagard last year from DRI Capital, a Canadian healthcare royalty investment firm. MacNaughtan worked with Alagheband and Manchanda while co-heading DRI’s Royalty Monetization Fund from 2002 to 2010.
With the fund’s initial close, the Toronto-based team will devote time to executing the strategy, MacNaughtan said. “Our pipeline is full and deal flow is robust,” he said. Sagard estimated more than $3.5 billion of patent royalty entitlement acquisitions were made globally in 2019, based on disclosed transactions.
Sagard’s healthcare royalty platform will also focus on expanding the team, recruiting both junior and senior personnel, including at the associate level.
Sagard’s leadership includes Managing Partner and CIO Adam Vigna. Vigna, who leads Sagard Credit Partners – which in 2018 secured $545 million for its inaugural fund – also joined from CPPIB, where he worked with MacNaughtan.
Along with investing in private credit and healthcare royalties, Sagard has a private equity operation, Sagard Capital and Sagard Capital Partners. In addition, it backs two venture capital funds, Portag3 Ventures and Diagram Ventures.
Along with its Toronto office, Sagard has locations in Montreal and New York.
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