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Relying on Advice From Scientists Has Really Paid Off for This Hedge Fund

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Relying on advice from scientists has paid off for a Swedish hedge fund focused on the health industry.

Rhenman Healthcare Equity L/S is the top performing hedge fund in the Nordics this year with a 32 percent return, according to the website HedgeNordic.

“We are more long term than many other investors,” Henrik Rhenman, partner and portfolio manager, said by phone on Tuesday. “The Scientific Advisory Board makes us invest more than we would’ve otherwise dared to. If you have renowned scientists behind you that say it’s really good research then you perhaps invest two percent of the fund instead of half a percent.”

The 509 million-euro ($600 million) fund relies on its Scientific Advisory Board of five medical experts to evaluate research and companies. The board includes Tomas Olsson, a professor in neurology and the Chairman of the Nobel Assembly at Karolinska Institutet, which awards the Nobel prize in medicine.

This year, the board has played a big role in helping managers focus on mid-cap companies, such as Nektar Therapeutics and Esperion Therapeutics Inc. Both stocks were among the fund’s largest holdings at the end of November and have risen more than 300 percent this year.

“If we find a high quality company, we go in early,” Rhenman said. “We are on board during the transformation from a niche company to getting attention from generalists. It’s a very rewarding part of our market.”

The fund’s biggest position is Roche Holding Ltd, which Rhenman describes as “Europe’s best pharmaceutical company.”

M&A Activity

While mergers and acquisitions in the industry drove fund returns at the beginning of the year, activity then slowed until CVS Health Corp.’s acquisition of Aetna Inc. this week, both of which were held by the fund.

“It’s a good deal long-term for both CVS and Aetna shareholders,” he said. “But it will take one year to get it approved, one year to fire managers that don’t like it and then in the third year you can see positive effects.”

Rhenman sees more deals coming after the U.S. tax reform, which will make M&A financing alternatives clearer.

“Absolutely, but it will take some months,” he said. “2018 will be a good M&A year.”

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