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Hedge Fund Sees 21% Returns on Advice From Nobel Prize Pickers

There's no shame in asking for help from the experts.

by Jonas Cho Walsgard
(Bloomberg) --If you’re investing in health care stocks, you’d better ask the experts.

Thanks to the advice from a range of professors, Swedish hedge fund Rhenman Healthcare Equity L/S has delivered an average annual return of 21 percent since it started in 2009. Asking clinical expertise before investing in complex products is a must for Henrik Rhenman, who manages the 460 million-euro ($500 million) fund.

“We make money, sooner or later, on most of the recommendations from the Scientific Advisory Board,” Rhenman, chief investment officer at Rhenman & Partners Asset Management AB, said in a phone interview on Friday. “The advice is most important within biotech and pharma but medtech is getting more important for the scientific board.”

The Stockholm-based fund meets with an advisory board of five medical experts once a quarter which includes Tomas Olsson, a professor in neurology and a member of the Nobel Assembly at Karolinska Institutet, which awards the Nobel Prize in Physiology or Medicine. Rhenman & Partners’ chairman, Hans Wigzell, is a professor in immunology and the former vice chancellor at Karolinska.

Investors in health care are seeking to profit from the global trends of an aging population, innovation, and growing prosperity, especially in emerging markets. The MSCI World Health Care Index has increased about 14 percent a year in the past five years but fears of tighter price regulation have subdued the market since 2015.

“I see a small risk for that,” Rhenman said. “This risk has always been present. The risk isn’t bigger than five years ago.”

The fund had a net long exposure of 130 percent at end of February. Valuation of the health care sector is low relative to both the MSCI World Index and historically, according to Rhenman, who earlier managed health care funds at SEB AB and Carnegie Investment Bank AB.

For the 59-year-old, evaluating new information is a key to increase returns. The fund holds about 140 positions. Many of them are very small just in order to follow the companies closely and regularly. The biggest stakes are Shire PLC, Horizon Pharma PLC, Bristol-Myers Squibb Co., Biogen Inc. and Esperion Therapeutics Inc.

While Shire has “low” valuation and its debt burden is manageable, Bristol-Myers Squibb will grow within cancer treatment, according to Rhenman.

The fund has a long horizon of five years on its investments but it also trades daily to exploit mispricings and the high volatility of certain healthcare stocks, especially when new information hits the market. The fund turns over the fund at least 10 times a year, Rhenman said.

“There are buy and sell opportunities all the time,” he said. “We increase and decrease our weightings.”

So far this year Rhenman’s strategy has paid off. After posting a loss for the first time in 2016 of 12 percent, the fund has rallied 17 percent through February, which makes it the best performing hedge fund in the Nordics, according to the website HedgeNordic. Mergers and acquisitions have boosted the fund, which have seen bids on its stakes in Actelion Ltd, Ariad Pharmaceuticals Inc. and Zeltiq Aesthetics Inc., according to Rhenman.

“M&A will be record high because money is still cheap, cash-flow is good in the industry and there’s a deep wish to buy products and science by large pharma,” Rhenman said.
 
To contact the reporter on this story: Jonas Cho Walsgard in Oslo at [email protected] To contact the editors responsible for this story: Veronica Ek at [email protected] Jonas Bergman, Stephen Treloar

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