Serial SPAC sponsor Chamath Palihapitiya is teaming up with the head of a little known hedge fund that has enjoyed the most successful new launch in recent memory.
The pair disclosed plans to launch no fewer than four blank check companies seeking to do deals in the biotech industry in a series of regulatory filings made public on Wednesday evening.
The four special purpose acquisition companies -- Social Capital Suvretta Holdings Corp. I, II, II and IV -- are each seeking to raise $200 million.
These are the first SPACs sponsored in part or entirely by an individual with links to the hedge fund industry in nearly two months.
Palihapitiya, who serves as chief executive officer and chairman of the four SPACs, is the marquee name of the partnerships. Before these filings the founder of venture capital firm Social Capital had launched six SPACs and said he plans to eventually create 26 SPACs, according to Bloomberg.
Suvretta Capital Management was founded in 2011 by Aaron Cowen, who previously was chief investment officer of SAC Capital Advisors, Steven Cohen’s former hedge fund firm.
However, it is Kishen Mehta, the portfolio manager for Suvretta’s healthcare-oriented Averill strategy, who is serving as president of the SPACs and the key principal in the partnerships.
He and the fund are little known, except perhaps to Institutional Investor readers.
Averill, a long-short fund specializing in biotech stocks began trading on March 23, 2020. It is completely separate from Suvretta’s existing funds but uses the firm’s infrastructure.
Mehta, who has extensive experience in the biotech industry, was an analyst at Evercore Partners, Apothecary Capital, and Adage Capital before spending nearly three years as a portfolio manager at Citadel’s Surveyor Capital. Before launching Averill he was most recently a strategic advisor to Biohaven Pharmaceuticals, a clinical-stage biopharmaceutical company.
Averill specializes in small- and mid-cap biotech stocks as well as private companies.Mehta is also known for his skill at shorting stocks.
In 2020, its first stub year, Averill posted gains between 195 percent and 221 percent, depending on the share class, according to a fund communication earlier obtained by II. This is up to four times the 55 percent return generated by the NASDAQ Biotechnology Index, its preferred benchmark.
This year it is up 1.8 percent through May after losing 22 percent in January, according to an investor. This is no small feat since virtually every other biotech hedge fund is in the red for the year, several by double-digit percentage rates, according to investors and hedge fund databases.
In the four offering documents, Social Capital Suvretta Holdings Corp. asserted the universe of private biotech companies looking to go public in the near term is significant. “We further believe an acquisition by a blank check company provides an attractive alternative to the traditional IPO, offering privately held biotechnology companies looking to go public several key advantages, including a highly efficient process, a secure balance sheet with price certainty at the time of public listing, and a strong and diverse shareholder base that typically supports the company over time,” it added.
The SPACs noted 688 and 626 investigational new drug applications were filed with the Food and Drug Administration in 2018 and 2019, respectively, compared to an average of 414 filed annually from 2013 through 2017. And 2020 was a record year, it added, largely driven by an influx of potential therapies for Covid-19.
And while the documents acknowledged biotechnology companies are raising more capital than ever, as evidenced by a record-setting U.S. biotech IPO volume in 2020, it stressed that capital raised by biotech companies through IPOs are actually a fraction of that raised through private offerings.
And with valuations down, the SPACs are apparently ready to pounce.
