Highlighting China's Booming Healthcare Sector: HGC Healthcare Fund III Closes at RMB 3.066 Billion, Doubling in Size

On April 8, Huagai Capital’s Healthcare Fund III announced its final closing, with all limited partners (LPs) having completed their initial capital contributions. The fund raised RMB 3.066 billion, surpassing its target size of RMB 3 billion.

This fund will continue the investment strategy of Huagai Medical Fund, focusing on investment and integration opportunities across China’s rapidly growing healthcare industry chain, with a particular emphasis on biopharmaceuticals, medical devices, and healthcare services.

As of now, Huagai Medical Fund manages assets totaling nearly RMB 7 billion and has cumulatively invested in more than 40 industry-leading projects. Among these, four portfolio companies have gone public, three have filed for IPOs, and seven have achieved successful exits through initial public offerings (IPOs) and mergers and acquisitions (M&A). Furthermore, 70% of the projects have completed subsequent financing rounds, with several additional companies poised to file for IPOs in 2020.

During its fundraising period, the Healthcare Phase III Fund completed investments in eight projects, including Haihe Biopharma, Joinn Laboratories, Jianhui Information, MGI Tech, and Kexin Health, with total investment exceeding RMB 1 billion.

“Successful fundraising is attributable, on one hand, to LPs’ endorsement of Huagai Capital’s investment strategy and philosophy, which serves as an affirmation of our phased achievements. On the other hand, based on the projects we have invested in, we have successfully identified a batch of relatively high-quality targets within the healthcare and wellness industry,” said Xu Xiaolin, Founding Partner and Chairman of Huagai Capital.

The limited partners (LPs) of Huagai Medical Fund III span multiple channels, including insurance capital, government-backed fund of funds, market-oriented fund of funds, listed companies, and financial institutions. Combined with Funds I and II, Huagai has established an LP resource network comprising nearly 10 large financial institutions (including insurance and trust companies), approximately 40 healthcare-listed companies, close to 20 specialized fund of funds, and more than 10 well-known state-owned enterprises and government guidance funds.

LPs in Huagai Capital’s Phase III Fund placed larger bets and exhibited higher concentration compared to those in the Phase II Fund. Although the Phase II Fund was half the size of the Phase III Fund, it had nearly 50 LPs. In contrast, the Phase III Fund doubled in scale while its number of LPs decreased by half to just over 20.

“We are on the verge of completing capital commitments for five projects, involving a total amount of approximately RMB 700 million,” said Zeng Zhiqiang, Managing Partner of Huagai Medical Fund. He noted that while factors such as travel restrictions have impacted the pace of capital deployment, overall progress remains steady. “Our first two funds completed all investments within about one and a half years, against a three-year investment period. The size of our third fund has doubled, and based on our current project pipeline, the team is confident that we will complete deployments within approximately two years.”

Huagai Medical Fund I and Fund II have been fully deployed, while fundraising and investment for Fund III are proceeding concurrently, with nearly one-third of the target investment amount already committed.

Xu Xiaolin also candidly stated that Huagai Capital will not pursue a highly diversified investment strategy in the future, and the average investment amount per project for its Phase III fund will increase significantly compared to its earlier funds.

Huagai Medical Fund has gained greater recognition from limited partners (LPs) and the market after more than five years of development. From Huagai’s own perspective, it has made significant progress in areas such as lead investment capability, bargaining power, the refinement of its risk control system, and post-investment services.

After 2015, as Hong Kong stocks and the STAR Market continued to release favorable policies for biopharmaceutical and R&D-focused enterprises going public, coupled with a series of policy reforms, multiple factors contributed to the booming development of healthcare investment.

The expansion of the Huagai Medical Fund will undoubtedly unlock more investment opportunities. Phase III Fund will continue to focus on investment and consolidation opportunities across China’s rapidly growing healthcare industry value chain, with a particular emphasis on three key sectors: biopharmaceuticals, medical devices, and healthcare services.

“In the biopharmaceutical sector, beyond innovative drugs, we are also highly optimistic about oncolytic viruses, gene editing, and cell therapies. Although these areas carry certain risks, we believe the risk-return profile is well-balanced. In the medical devices sector, we will continue to focus on technology-driven, high-value-added device companies, with particular attention to sub-sectors such as medical AI and genetic testing. In healthcare services, in addition to chain specialty hospitals with strong expansion capabilities, we are also exploring new directions such as family physician groups and commercial health insurance.”

In healthcare investing, Huagai Capital adheres to three clear and straightforward criteria when selecting projects: favorable market trends, a reliable team, and the ability to provide value-added support. “If we can offer meaningful assistance, we will make significant investments in the project and leverage all our post-investment resources to empower the portfolio companies.”

Regarding future plans, Xu Xiaolin candidly stated, “On one hand, we must first ensure the fund delivers strong performance and provides solid returns to our LPs. On the other hand, in terms of strategic layout, we will move closer to industry players and deepen our integration, striving to build the capabilities commensurate with those of a strategic investor capable of accompanying portfolio companies over the long term.”