Seligman Launches a New Health Care Fund

Behind the strategy of the long-short fund


Illustration by II

Seligman Investments, which is part of Columbia Threadneedle Investments, has launched a new, separate hedge fund devoted to investing in health care stocks.

Seligman Healthcare Spectrum Fund and an offshore equivalent began trading this week with $10 million from internally sourced capital and are actively seeking capital from other investors, according to someone familiar with the launch.

Seligman declined to comment.

The long-short strategy will invest across most sectors of health care, but with a strong focus on biotech, which figures to fetch about 60 percent of the capital. The rest will be broadly invested in small and large companies in medical devices, health care services, managed care, hospitals, life sciences tools, diagnostic equipment, and medical tests, among other things.

In general, the portfolio’s net long exposure figures to range between 40 and 70 percent, but it will likely be closer to 85 percent long and 40 percent short, with a net long exposure ranging between 40 and 50 percent. And the firm has told investors the strategy may be as low as 20 to 30 percent net long in a frothy environment.

The strategy will be headed up by Kosta Kleyman, who according to his LinkedIn profile, was health care portfolio manager and VP, biotech analyst at Seligman Investments,. The firm says he is an analyst in central research at Columbia Threadneedle responsible for the therapeutics vertical. His background is in the life sciences industry. Kleyman was previously at hedge fund Acuta Capital and has also worked at AstraZeneca, Genentech, and Allergan. He has spent the past three and a half to four years on the Seligman Tech Spectrum Master Fund as the principal person on health care, mostly on the short side.

That fund, which now has $2.4 billion in capital in its long-short hedge fund, was up 4.45 percent through the first two months of the year. It climbed 11.45 percent in 2023 and has compounded at a 13.1 percent net annualized rate since 2001.

Although planning for Seligman Healthcare Spectrum Fund has been in the works for a while, its launch came at an intriguing time. After several years of sharp declines, life sciences, biopharma, and other health care stocks have been moving since early November. Many hedge funds that specialize in these sectors have recovered some of their earlier large losses over the past four or five months, although most remain below their high-water marks.

Of course, the big question is whether this recent run was just a cyclical rally or the beginning of another long bull market for life sciences and health care stocks in general. Many market analysts point out that biopharma and life sciences stocks were hurt badly for several years because of the huge explosion in IPOs from 2019 to 2021, dramatically increasing the supply of companies in which to invest.

However, IPOs have all but dried up in the past two years. Meanwhile, biopharma companies have increasingly become prime targets for acquisitions by large firms that have seen many of their drugs come off patent and want to bolster their future pipelines.

The sector got a big boost in late October when the Federal Reserve signaled plans to start cutting interest rates this year, sending life sciences and most other stocks on a year-end tear. An increase in the number of popular obesity drugs has also benefited the sector.