PE professional preps new hedge fund strategy for Q1 launch

Few knew there would be a quarantine and the idea of mask mandates was a foreign concept in the U.S., but Feb. 7 is a date firmly cemented in Corey Deutsch’s memory. He recalls reading a news article discussing a Texas mask manufacturer facing a massive supply/demand imbalance for the first time in its multi-decade lifetime. Knowing that the coronavirus had spread from China to the broader Asian continent to Europe in short order, he remembers turning to his brother and saying, “This thing is coming to the U.S. and everyone will be wearing a mask similar to the Paradigm Shift that resulted in mass demand for masks after SARS infected Asia in the early 2000s.” The next week he moved on his hunch and bought shares in Alpha Pro Tech, a pure-play manufacturer of masks, which experienced significant growth in share value in the three weeks that followed. He then wondered if this was more than just a single hunch and whether his thesis was correct that there are many small-cap healthcare companies significantly overlooked by the broader market and whether there is a clear route forward to “beating the market to the opportunities". As the lockdown ensued, he vowed to beta test his theory on these healthcare companies with market caps between $10 million and $500 million that Deutsch believes are often overlooked by traditional hedge funds and market analysts alike. Starting in early March, Deutsch worked during the day at his healthcare private equity job and built a hedge fund portfolio at night. By June, he had made a decision to quit his private equity job to launch Paradigm Opportunities. Paradigm is a long only hedge fund that focuses on healthcare companies in the lower middle-market. Paradigm actively seeks investment opportunities in companies that it views as being fundamentally undervalued with an attractive risk/reward skew. The hedge fund will officially launch in the first quarter of 2021 with roughly $50 million in initial capital. Deutsch, who analyzed numerous healthcare companies working in private equity, employs a top-down approach to identifying investment themes with attractive tailwinds and a bottom-up approach to security selection. The strategy invests in both public equities and unique PIPE opportunities. “Imagine a world where not a single human wore shoes and out of nowhere the government mandated that individuals are required to wear shoes when entering public locations. Imagine that day you invested $100 in Nike and held that stock for 5 years. I view Conversion Labs as the Nike of the telehealth world,” he said in a recent interview with Alternatives Watch. Conversion Labs recently closed a $16 million PIPE which was one of the final steps required for being uplisted to the NASDAQ – which the company will achieve within the next two weeks. Paradigm successfully raised over $3 million via a special purpose vehicle this month for the PIPE in Conversion Labs, a direct-to-consumer telemedicine company. Conversion Labs released its third quarter financials in November, reporting a record quarter with total revenue of $11 million, a year-over-year increase of 252% and annual recuring revenue (ARR) of $19 million, a 458% year-over-year increase. “The Conversion Labs team has done a tremendous job building the company into a leading player in the direct-to-consumer telemedicine space,” Paradigm’s Deutsch noted in the official press release detailing the deal. “We see Conversion Labs as having an extremely promising future ahead, as it continues to capitalize on the shift occurring in the healthcare ecosystem and the rapid adoption of telehealth.” The capital infusion allows Conversion Labs to accelerate several growth initiatives within the telehealth space, including the launch of new telemedicine brands, a recently constructed call center and patient acquisition initiatives. Brand launches include Nava MD, a new teledermatology line. Just like his investment portfolio, pockets across the broad healthcare landscape are rapidly evolving below the radar too. Within biotech, treatments are being developed such as T-cell therapies that are proving to be highly effective treating oncology indications. Another one of his investments in the biotech area is Heat Biologics, which is in late-stage development for several oncology indications including non-small cell lung cancer. Heat has dosed over 300 patients with its T-cell activation platform, and is using this platform to build a next-generation T-cell vaccine against COVID-19 to supercharge T-cell protection for those who need it most. And if T-cells sound familiar, it is worth noting that the scientific community is now recognizing the importance of T-cells as a way to elicit an immune response to the coronavirus responsible for COVID-19, which in its own odd way was integral to launching Deutsch on this new investment endeavor.

Continue Reading With a Free Trial

Be an Alts Watcher

Subscribe to our mailing list and know first!

Five private equity firms come together for One Planet

AW Manager Scorecard: Private market players raise $58bn in October

Related Articles

Yale’s Swensen remembered as an alternative investing pioneer

Preparing your hedge fund for the modern cybercriminal

Barometer Capital launches Canadian music rights fund

EnCap to profit from low-carbon future with $1.2bn fundraise

Get our daily news digest in your inbox

Get our daily news digest
in your inbox