Fund focus: Long Hill burns the midnight oil

China's Long Hill Capital launched its third US dollar-denominated healthcare fund in September last year and closed mid-March slightly above the $300 million target. This was achieved 100% virtually while navigating the usual disruptions that come with Thanksgiving, Christmas, New Year's Day, and Lunar New Year.

"The more important holidays are all in those six months, so it's not a very cooperative environment, and we've never done a Zoom fundraise before," says Xiaodong Jiang, founding managing partner at Long Hill, stressing that this was the firm's third fundraising cycle in a mere 4.5 years. "It has been burning a lot of midnight oil."

The result was another uptick in fund size and an accumulation of RMB6 billion ($917 million) in assets under management. Long Hill raised $125 million for its debut vehicle in 2016 and $265 million for its second in 2018. More than 90% of LPs are still institutional players out of Asia and the US – with pensions, endowments, and foundations predominant – although the latest vintage includes a couple of Europeans.

Perhaps most notable is the fact that Long Hill was able to significantly diversify the LP base despite the all-virtual engagement. About $100 million of the final corpus came from new investors, and three of them made commitments without ever having met the Long Hill team in person. No group accounts for more than 15% of the fund, and most represent 10% or less. In prior vintages, the largest LPs accounted for more than 20%.

Long Hill had budgeted 9-12 months for the raise, so its speed was surprising. Fund II is still being invested, and Fund III has yet to be mobilized. The response can be attributed in large part to Hygeia Healthcare, a portfolio company that became the best performing Chinese healthcare IPO in Hong Kong last year in terms of aftermarket performance. It currently has a market capitalization of HK$33.4 billion ($4.3 billion.)

The thematic-driven strategy remains familiar with a strong focus on filling needs related to China's rapidly aging population and bringing quality healthcare to lower-tier cities. China is now tracking a net addition of 10 million seniors a year. This demographic numbered about 270 million at the end of last year and is expected to grow to 400 million in 20 years.

Jiang observes the local healthcare system is most heavily burdened by those born in the 1930-1950 period, who are about 180 million in number. Those hospital beds will soon be filled by people born during 1950-1970, a generation 420 million in size. Importantly, the incoming seniors have benefited from China's post-1960 economic reforms. Having bought up first-tier city properties on the cheap in decades past, they are now in a position to retire en masse in unprecedented affluence.

"They're sitting on assets that have appreciated 10-15x in the last decade," Jiang says. "It's no wonder they have the spending power, and they're going to want to take care of themselves from a health perspective."

Long Hill believes the trick to making anything work in this environment is to do more with less, especially as COVID-19 dwindles already constrained government budgets. This is part of the foundation of the firm's decision to focus on services and related technologies rather than biotech and therapeutics development.

"If you compare us to a firm that's mostly investing in biotech and new therapeutics, it's a different mindset. That's a product mindset – our is a solutions mindset. I believe that the world of healthcare needs to move from the realm of product to the realm of solutions," Jiang explains.

"Eventually, you have to pay for outcomes, not volume of work. Historically, people have paid for the volume of work, which is fine if you have an unlimited budget. Once you don't, how do you pay when the volume keeps growing? Are you focused on getting more results or better results?"

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Fundraising
• Venture
• Healthcare
• Consumer
• GPs
• China
• Long Hill Capital