How this investor is trying to solve a crisis that will affect 8 million Australians

I can safely speak for the Livewire team in saying that when you do come to consume our content, we hope you are doing well. We don't mean this just from a physical standpoint but from a mental one as well. Make no mistake - the mental health crisis is global, urgent, and indiscriminate in who it touches. 

Government data suggests 8.6 million Australians between the ages of 16 and 85 have come face to face with a mental disorder in their lifetime - and half of that figure in the last 12 months alone. 

But it is also true - and inevitably so - that solving the mental health crisis will take a huge amount of money and a long time. One estimate suggests mental health could cost the global economy as much as US$6 trillion by 2030. 

Reflecting this reality, a fund is now open to Australian investors wanting exposure to the mental health treatment space, and in turn, companies helping drive step-change improvements. 

The fund is administered by Canadian firm Noetic and managing partner Sa'ad Shah joined me recently to discuss the reasons behind its launch and what his team hopes to achieve. 

Why the alternative healthcare space?

Shah emphasises two things - that it is an impact fund and that it wants to invest in companies that are driving real change in helping address the mental health epidemic. 

"We're trying to seek curative and long-term efficacious solutions to mental health ailments. Where we're not interested is in treating the symptoms but rather, finding a cure," Shah tells me.

Research and understanding of neuroscience, which the Noetic Fund II specialises in, has also come a long way in the last 10 years. New medications also continue to be developed for a variety of mental health conditions like depression, anxiety, and psychosis. These medications are often more effective, can be personalised, and have fewer side effects than older medications.

"We've learned more about the human brain in the last seven to eight years than at any other point in history. We've learned a tremendous amount that we've had from cancer treatments, especially when it becomes precision medicine with regards to cancer. We've taken that technology and that understanding and applied it to this area," he says.

Impact without the moral hazard

While some ESG and impact-oriented funds may steer away from the label, the Noetic team leans right in. 

"We're looking at solving a very distinct problem that will make us all happier people. We want these problems to be solved," he says. "For depression alone, it is a $300 billion market in the US. These are very large markets with large, unmet needs," he adds.

A separate estimate by Allied Market Research suggests the addressable market for mental health treatment could top US$500 billion by 2030. 

But even with this huge opportunity set, Shah is also quick to say it wants the fund to be the "antithesis" of a moral hazard. 

"Would you not want a world where the brightest minds in the world are helping improve mental health in society rather than helping a social media giant increase the time children spend on their phones?" Shah argues.

"If we can deliver returns for investors, and at the same time, have a huge return on human capital, that's a huge win-win. That, to me, is the definition of impact investing," he says.

The companies and the treatments

Shah is also keen to point out that the cure need not always be a pill. From wearables to medical devices, psychedelics to digital therapeutics, the team are conscious that solutions can come in all forms.

"Personalisation in mental health treatments through emerging modalities has become pervasive," Shah says. 

One of the fund's earliest investments is in New York-based Gilgamesh Pharmaceuticals. Gilgamesh's pipeline includes oral and hallucinogenic treatments for major depression, bipolar disorder, and obsessive-compulsive disorder. Another, Apollo Neuro, uses wearable technology and software to improve stress resilience and sleep. 

While the fund currently has no Australian investments, Shah praised Australia as a leader in recognising and legalising alternative treatment options for mental health.

"We've been in touch with quite a few parties in Australia," Shah says. "We're looking at geographies where again, the science is compelling, where when we look at the efficacy of what they're doing is compelling, when we take a look at their ability to scale it and make it accessible that is compelling and Australia is one of them."

What makes for a good investment?

For Shah, it's all about finding companies that know the science.

"Good investments begin with good science, strong intellectual properties, and a team that can hit their scientific marks, hit their financial milestones, and have the ability as well as the experience to know how to go through compliance so that they can commercialise that innovative technology," he says.

"At a portfolio level overall, we diversify the portfolio. We need to diversify by indication and we need to diversify by technology and verticals," Shah adds.

Verticals, in this context, is not about just saying that you will invest in companies treating addiction. It's about finding companies that can treat the different manifestations of addiction. For instance, one of the fund's investments is in a company that is working on a drug specifically to treat Alcohol Use Disorder (AUD). 

Return profiles

Being a private markets and venture capital fund, finding a benchmark for the Noetic Fund II is difficult at best. But that doesn't mean Shah and the team have not set themselves some big targets.

"A this stage, we are targeting a gross IRR (internal rate of return) of over 30%, or 7 to 8 times our original capital before fees over a life of eight years," Shah says.

"We're looking at delivering high risk-adjusted returns as we are early stage, we're price makers and we play very active roles with our portfolio companies. We're on a lot of the boards, we're not just passive investors," he says in closing.