CalPERS-backed Health Evolution plans NY office

The San Francisco-based firm, launched by CalPERS last year, has hired former Goldman Sachs healthcare specialist Christopher McFadden to head its first East Coast presence. Health Evolution has already invested and exited one portfolio company with a markup 'north of 25%'.

Health Evolution Partners, a healthcare growth investor launched by the California Public Employees’ Retirement System, will open an office in New York.

The San Francisco-based firm has hired former Goldman Sachs healthcare specialist Christopher McFadden to head its first presence on the East Coast. McFadden will join the firm as a managing director for its growth investment fund, according to a statement from the firm.

“Given the focus that we have, there are a lot of companies on the East Coast, and we want to be out in the 

Brailer: looking

field where the companies are,” David Brailer, Health Evolution chairman, told PEO. “Secondly, we have certain significant activities in Europe and it’s a closer point to that. It’s really geography and being able to tap into a market that’s very important in the healthcare community.”  

McFadden was a managing director at Goldman Sachs, where he directed debt and equity investments in private and public North America-based health care companies. Prior to joining the investment bank, McFadden worked as a senior research analyst at Wheat First Securities, now Wachovia Securities.

Brailer, former National Coordinator for Health Information Technology under the Bush administration, said that McFadden would likely manage the staffing of the New York office, which will eventually house approximately two to four investment professionals.

Given the focus that we have, there are a lot of companies on the East Coast, and we want to be out in the field where the companies are.

David Brailer

Health Evolution is the “brainchild” of former CalPERS chief executive Fred Buenrostro, who while at the $179 billion pensions’ helm last year pushed for the creation of a healthcare efficiency-focused private equity firm whose investments would ultimately help lower the billions CalPERS spends in health benefits for its enrollees.

Last year, CalPERS said it would commit up to $700 million in the firm, $500 million of which would go directly into Health Evolution’s principal investment vehicle, and another $200 million that would be invested in a fund of funds vehicle.

Buenrostro resigned his post at CalPERS earlier this year to pursue opportunities in the private sector.

The firm manages two healthcare-focused private equity vehicles:  a $500 million growth fund that invests between $20 million and $80 million in late stage companies, and a $200 million fund that makes principal investments in early stage companies as well as several healthcare-focused venture capital funds.

Four other limited partners besides CalPERS have invested in the growth fund, according to Brailer. The firm may also receive commitments from other investors, mostly major pensions, pushing the final fund total to $800 million.

The growth fund has already invested and exited one long-term care portfolio company which generated a markup “north of 25 percent” within six months, said Brailer.

“It was an opportunistic investment and an opportunistic exit, which I guess isn’t the way it’s supposed to happen for a strategic firm but we sure enjoyed it.” The firm has declined to disclose the identity of the portfolio company.

CalPERS is the sole investor in the venture fund, which has invested in funds managed by Cardinal Partners, Chrysalis Ventures, Physic Ventures and Psilos Group.

Although much of Health Evolution’s dry powder remains uninvested, the firm currently has no portfolio companies or fund stakes that target companies in California.

Brailer said he saw no signs of CalPERS struggling to make its capital calls to Health Evolution despite reports that the pension was hard up for liquidity in its alternatives programme.