CalPERS launches private equity firm

The US’ largest pension fund has committed $500 million to Health Evolution Partners, a new private equity firm it created in part to lower the cost of enrollee health benefits. An additional $200 million has been allocated for similarly health-oriented fund of funds.

California Public Employees’ Retirement System has created a new, healthcare efficiency-focused private equity firm, to which it will commit up to $700 million (€520 million).

Health Evolution Partners is the “brainchild” of California Public Employees’ Retirement System CEO Fred Buenrostro, the pension fund said in a statement. The new firm was created in order to back innovative healthcare companies that will ultimately lower the billions CalPERS spends in health benefits for enrollees, while at the same time bolstering returns.

“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,” said Buenrostro in a statement. “Our new innovative approach will enable us to invest more efficiently by identifying needs based on our own experience in spending nearly $5 billion 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.”

To be led by David Brailer, an entrepreneur, physician and former National Coordinator for Health Information Technology under President George W. Bush, Health Evolution Partners will target companies working in sectors such as disease management, telemedicine, remote and in-home patient monitoring, and chronic care improvement. Examples of possible investments include technology to enable electronic medical record-keeping, improve quality and patient safety, and to integrate the systems of various clinics and departments, or home health services that would allow patients to avoid more acute settings, reduce costs and enhance the quality of life, CalPERS said in a statement.

“Of the $700 million we would commit, $500 million will go directly into companies through Brailer’s group but then there’s up to $200 million that would be a fund of funds vehicle – they could even be funds that we have now in our private equity portfolio, but they would have to be aligned with the direction we’re taking in this joint enterprise,” said CalPERS spokesperson Clark McKinley.

CalPERS has more than $1.7 billion in healthcare-related private equity investments, “but that money is with partners, outfits like Carlyle who have segments of their total funds in various sectors, so it’s not targeted in the same way this would be”, McKinley said.

“At least initially, this is a CalPERS-only synergy with Healthcare Evolution Partners,” he added. McKinley was unable to address questions as to related fee structures, citing a confidentiality agreement with Brailer.

Health Evolution Partners’ investments will be reviewed by a committee comprised of its own staff, CalPERS investment and health programme staff, and representatives of health care plans with which the pension fund frequently works, McKinley said. “All these people really have their pulse on the market and will be able to assess where to get the best bang for the buck,” he said.