Strathclyde Pension Fund (SPF) – Scotland’s largest local authority pension fund – has invested £15m (€16.5n) in Epidarex Capital III UK (EC III UK).
Epidarex Capital Management is a transatlantic life science venture firm based in Edinburgh, and the new fund invests in early-stage, high growth life science health companies from emerging research hubs across the UK, including spinouts from universities.
The managers consider that these regions – falling predominantly outside the three main life science clusters of London, Oxford and Cambridge – have many outstanding research institutions but lack access to risk capital. This results in a wider selection and less competition for the best opportunities.
EC III UK had a first close of £102.1m, compared with its £85m target. The British Business Bank is the cornerstone investor, other investors including the Universities of Edinburgh, Manchester, Glasgow and Aberdeen.
Typical initial investments in companies will range from £2m to £5m.
The EC III UK investment follows a £5m investment in Epidarex Capital II UK by SPF. It forms part of SPF’s direct investment portfolio (DIP), set up to secure attractive new opportunities for which there is no access within other SPF asset classes.
The DIP targets 5% of SPF’s total fund value, £20.9bn at 31 March 2020, with venture/growth capital making up 8% of the DIP allocation.
SPF told IPE: ““Our DIP invests on an opportunistic basis with a UK or local impact. To date the majority of Epidarex investments have been university spin-outs of intellectual property/technology sourced from the respective universities of Glasgow, Strathclyde, Edinburgh and Aberdeen amongst others and meet our criteria for this particular portfolio.”
SPF continued: “This is an equity investment which balances our portfolio in terms of diversification, and is likely to make good returns in line or above the industry standard for this asset class.”
EC III UK’s target internal rate of return (IRR) is no less than 25% (net) and it has a 10-year term, plus up to two one-year extensions.
Earlier this year, SPF also awarded mandates for private debt, as it expands its allocation from 1.5% to 4.5% of the portfolio.
Three private corporate debt mandates were awarded, with Barings and Alcentra each managing 1.25%, and Partners Group 1%, of the total fund.
Barings and Alcentra had previously each managed 0.75% of the fund. These investments have now been wrapped into segregated mandates as part of the latest tender process. The Partners Group mandate is also segregated.
A further 1% of the total fund has been earmarked for SPF’s first allocation to private real estate debt, to be managed by ICG LongBow through pooled funds.