Health Funds Get Favored Terms

Chidem Kurdas

Investors desiring long/short exposure to specific sectors have accepted lengthier lock-ups for certain managers that specialize in areas like healthcare. Thus Expo Capital Management, a publicity-shy firm with an office in Los Angeles, has clients willing to wait to redeem from its healthcare fund.

Two-year or longer lock-ups are common in illiquid strategies like distressed debt but less so in liquid stock trading strategies. Expo Health Sciences  has a relatively complicated structure that allows redemption of around 40% of an investment after a one-year lock-up but requires longer waits for the rest of the money.

Expo founder  Paul Sinclair was at Merrill Lynch before starting the hedge fund firm. He worked in investment banking, specializing in healthcare.

Healthcare was a favored sector in the aftermath of the recession. That may change because the new debt deal in US Congress is expected to reduce Medicare payments. How this will play out is not clear—providers are already furiously lobbying to protect their revenues. In any case, the sector could become less profitable as federal and state governments try to rein in medical entitlement spending.

But if that happens, says an investor, a fund that goes short as well as long is a better bet than long-only healthcare strategies that are bound to lose in a down cycle


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