Investors are increasingly interested in Frazier Healthcare Partners’ managing partner Ben Magnano’s bread and butter. Healthcare services, products, supplies, and information technology are drawing outsized inflows, most recently $1.4 billion to Frazier Healthcare Partners’ oversubscribed 10th fund, which announced its close today. Magnano walks us through the market opportunity, from secular trends to a post-pandemic rebound.

Healthcare workers prepare doses of the Pfizer Covid-19 vaccine.

The substantial haul says a lot about investor confidence in Frazier Healthcare’s specialty market. One attractive investment opportunity is in modernizing and centralizing patient data.

“Our belief is that the healthcare industry is decades behind other industries in modernizing use of data, whether it’s tracking patients through the system in terms of a primary care appointment or someone starting a chronic long-term medication,” Magnano says. “There may not be another industry with more data recorded over disparate systems as we interact with the industry over our lifetime.”

Just like other industries forced to cut costs during the pandemic, healthcare service providers could emerge as leaner companies with better upside after Covid. 

“It’s not just hospitals: dermatology clinics, [gastrointestinal] clinics, a number of offices are under pre-pandemic numbers from volume perspective, but took an opportunity to streamline operations so they could be more efficient operators,” Magnano notes. “So when we get back to pre-pandemic volume they’re going to be better businesses.”

Capital will continue to be deployed in Frazier Healthcare Partners’ $10 million to $75 million in target Ebitda size, through equity checks ranging from $50 million to $300 million.

There’s evidence interest in the space could become a trend. Let’s start with the fundraising numbers. The expected operational and investment opportunity has drawn significant interest from both current and new investors. About $1 billion of the new fund’s $1.4 billion fundraising was sourced from current investors, who previously funded the firm’s $780m ninth fund. The upsized commitments speak for themselves.

And so do the investors: Frazier saw increased interest from foreign funders like sovereign wealth funds. The financial sponsor’s North America-heavy investor base shifted with the new fund to approximately 55 percent of the latest haul, with about 25 percent coming from Europe and 10 percent from the Middle East and Asia. The composition of limited partners leaned toward pension funds, endowments, and large insurers. Increasingly international participation could signal a future boost to sector fundraisings and, eventually, to deals. 

“I think LPs have become smart too, with respect to the pandemic, that our portfolios performed well after we came out of the shutdown. Healthcare is a utility we all need it no matter what, and it’s growing as our country ages for better or worse,” Magnano says. “It’s a complex space. LPs look at it and say it’s [Frazier Healthcare Partners’] 30th anniversary.”

The financial sponsor exited pharmaceuticals supply-chain company PCI in December in a $3 billion deal reported to have made co-investors Thomas Lee Partners and Partners Group a 4x equity return. Frazier’s own investment was staged over two of its funds. All-in, Frazier helped take PCI from $10 milliion to nearly $200 million over the life of its investment.

Read more about today’s fundraising here: Frazier Healthcare Partners Closes Growth Buyout Fund at $1.4B.