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Ex-Bush Aide Brailer Said to Seek Restructuring of Fund

Health Evolution Partners Founder David Brailer
A file photo shows David Brailer, founder and chairman of Health Evolution Partners, during the Cleveland Clinic's 2010 Medical Innovation Summit titled "Obesity, Diabetes, & The Metabolic Crisis" in Cleveland, Ohio, on Nov. 3, 2010. Photographer: David Maxwell/Bloomberg

July 2 (Bloomberg) -- David Brailer, the former adviser to President George W. Bush who seven years ago started a private-equity fund with a big investment by California Public Employees’ Retirement System, is seeking to sell the pension’s stake after lackluster returns, according to two people with knowledge of the matter.

Brailer’s Health Evolution Partners Inc. hired Evercore Partners Inc. to find buyers for Calpers’s stake in its growth equity fund, said the people, who asked not to be identified because the fund is private. Calpers, the biggest U.S. pension system and the only outside investor in the fund, originally committed about $500 million to fund. The stake had about $380 million of remaining value as of Sept. 30.

Calpers helped put the San Francisco-based firm in business in 2007 by pledging as much as $700 million, counting on Brailer to deliver returns of 20 percent to 30 percent, even though he had no track record in private equity. The investment was sitting barely above cost as of Sept. 30, generating a 2.6 percent net internal rate of return, according to data compiled by Bloomberg.

Brailer didn’t respond to e-mail and phone messages seeking comment. Dana Gorman, a spokesman for Evercore at Abernathy MacGregor Group, declined to comment, as did Joe DeAnda, a Calpers spokesman in Sacramento.

‘Deep’ Expertise

Calpers’ commitment is one of the largest the pension fund has made to a first-time private-equity manager. Brailer’s White House work was one reason the pension fund bet on someone who had never run a fund, Mike Dutton, a Calpers portfolio manager, said in an October 2009 interview with Bloomberg News.

“We wanted deep medical and policy expertise, working with our existing private equity but positioned a little different,” Dutton said.

Brailer, 54, worked as national coordinator of health care information technology in the Bush administration from 2004 to 2006, planning for a national electronic medical-record network.

When Brailer, a physician with a PhD in economics from the University of Pennsylvania’s Wharton School, left the government to move to San Francisco, he tried to interest private-equity firms in his ideas for investing in companies that could profit by making health care more efficient. Calpers heard about Brailer’s plan from managers who were pitched and contacted Brailer in early 2007. The pension fund wanted health investments outside of biotechnology, where risks increase with costs to get new drugs approved, Dutton said.

Radiology Readings

Brailer’s investments have ranged from a company that seeks to save hospitals money by using a centralized center to read radiology images, to a maker of electronic chemotherapy pumps that save time and prevent treatment errors.

Calpers also committed about $200 million to a health care fund-of-funds, also run by Brailer. The fund-of-funds was producing a 0.8 multiple on invested capital and negative 5.8 percent return rate as of Sept. 30, according to data compiled by Bloomberg.

To contact the reporters on this story: Sabrina Willmer in New York at swillmer2@bloomberg.net; Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net Josh Friedman, Sree Vidya Bhaktavatsalam

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