AXA Investment Managers Alts has launched a healthcare impact strategy targeting $500 million to reduce barriers to accessing healthcare in mid- and low-income countries.
The AXA Group, AXA IM Alts’ parent company, has committed $200 million to the fund. The vehicle, known as Global Health Strategy, will address child and maternal health, chronic disease, infectious disease and vision. It will invest in healthcare companies at late-clinical and early-commercial stages producing medical devices, biopharmaceuticals, vaccines and diagnostic facilities. It is targeting returns of around 20 percent to 25 percent IRR, a source with knowledge of the fund told New Private Markets. AXA IM Alts declined to comment on its returns target.
AXA IM will set impact KPIs for each investment during due diligence. KPIs applied to most investments will include lives improved, lives saved, number of products that pass clinical trials and number of countries that the products penetrate. Its investments will be in healthcare companies domiciled in Europe and the US, but expansion to mid- and low-income countries will be part of AXA’s five-year plan for portfolio companies, Jonathan Dean, head of impact investing at AXA IM, told New Private Markets.
“Everything starts in a high-income country. But we have to be convinced that the problem being addressed is a global problem – that it doesn’t only exist in certain markets. We have to see very specific product characteristics that will lend themselves to international expansion and be accessible in mid- and low-income countries. That’s where we measure our impact,” said Dean.
These product characteristics include “a low cost of goods sold; it has to be cheap to produce and it has to be durable. It also has to be workable in different types of environments – often low-resource settings, so it doesn’t just require the top infrastructure and the top hospital to work.
“And it needs to be easy to use – it can’t only be operated by the top-trained surgeon in a New York hospital. It has to be something that can be cascaded down to different caregivers or ultimately self-use,” said Dean.
This impact – expansion of portfolio companies into low- and mid-income markets – “will also fuel the financial return”, said Dean. “That’s what an impact investment needs, if we’re really going to make a long-term impact. If it needs concessionary finance to get there, your impact will only last as long as that finance is there to bridge the gap.”
While AXA has ruled out concessionary returns on its investments, buyers of its portfolio companies’ products may be government and philanthropic bodies and global procurement programmes, as well as consumers, said Dean.
“We’re seeing a lot of premiums being added to companies because they’ve got a global market. That will also enable them to be profitable,” said Dean. In AXA’s previous healthcare investments, “we’ve seen the companies attracting attention quicker than we thought. We can sell into strategic buyers, financial buyers or IPO markets”.
This is AXA’s fifth impact fund. Previous funds that raised external capital include:
- Prime Impact Fund I: launched April 2020; raised at least $70 million so far; theme: financial inclusion and access to healthcare
- Climate and Biodiversity Fund: final close December 2020; raised $350 million; theme: climate and biodiversity
- Impact Fund II: final close April 2018; raised €180 million; themes: environmental and social impact in a 50:50 portfolio split
- Impact Investment Initiative: final close 2014; raised €150 million; theme: financial inclusion, access to healthcare and quality education
AXA IM Alts is also investing €1.5 billion from AXA Group’s balance sheet into forest and biodiversity protection by directly acquiring woodland assets.
On having multiple live funds simultaneously, Dean said: “There’s no overlap in terms of assets. When one fund has committed all of its capital, the next fund is beginning to raise capital for similar themes. It’s very complementary in terms of what funds are in the market at one time.”
“We’re becoming more thematically focused,” said Dean. “Originally, we were diversified across many themes and sectors. Today, our products are focused on one or two major themes. That allows us to be more intentional with the impact that we’re measuring. We can think about the problems we’re trying to solve, quantify them and then assess our success at solving those problems.”
This multi-strategy approach means “we can be more nimble and more intentional with our impact”, said Dean. “If you try to create a generalist approach to impact and raise multiple billions of dollars across multiple sectors, it’s very hard to be accountable for the impact you’ve delivered at the end because you’re so broadly split.
“The problems that you can try to address in a sector-focused fund are more clearly defined upfront. Every asset you invest in has accountability towards delivering that target. The larger, more generalist funds can be very well structured, but the impact measurement is harder.”