Patient Square Capital, a middle-market investor in the healthcare-services sector, is in the process of raising its second fund, this time with a target of over $6 billion, according to a person familiar with the matter.

Last year the firm led by Jim Momtazee, a KKR healthcare deal veteran, raised $3.9 billion for its inaugural fund, exceeding its original goal of $3 billion. The new fund is expected to close some time in 2024.

Patient Square, based in Menlo Park, Calif., rode the tailwinds of high investor demand for exposure to healthcare deals after a strong year of dealmaking in the sector in 2022.

Like its predecessor fund, the firm’s second fund is expected to focus on deals across drug development, pharmaceuticals, medical adhesives, healthcare providers and other tech-enabled healthcare services.

Some limited partners from the first fund have already committed to the second fund, including Goldman Sachs, the person said. Patient Capital declined to comment on fundraising.

The firm’s first fund attracted commitments from some of North America’s largest institutional investors, including a $300 million commitment from the California Public Employees’ Retirement System and $350 million from the New York State Common Retirement Fund.

Patient Square’s fundraising capitalized on specialist healthcare funds’ heyday last year, when similar firms amassed $18.3 billion touting bespoke, niche approaches to the market. The firm is part of a cohort of middle-market healthcare managers that are maturing and occupying larger shares of the market.

Peers of Patient Square include Linden Capital Partners, which closed its fifth fund at $3 billion in 2021, and Altaris Capital Partners, which is targeting $3.5 billion for its sixth fund, according to PitchBook data.

In 2023, Patient Square teamed up with Elliott Investment Management and Veritas Capital to acquire biopharmaceutical solutions provider Syneos Health for $7.1 billion. Earlier this year, the firm agreed to pay $220 million for NanoString Technologies, a bankrupt provider of biotech research tools.

Since Patient Square set to work on building its debut fund, the fundraising environment has shifted dramatically.

The subdued exit environment and constrained distributions to LPs have hampered PE fundraising. From 2022 through 2023, PE fundraising came in flat with a -1.1% change year-over-year, according to PitchBook’s 2023 Annual Global Private Market Fundraising report.

At the same time, deals in healthcare services have declined steadily since 2021 amid a persistent pricing gap between buyers and sellers, according to PitchBook’s Q1 2024 Healthcare Services report.

The market hasn’t shown any signs of a rebound. Healthcare services dealmaking trailed off in 2022, and fell to an estimated 158 deals in the first quarter, down from 209 deals in the same period a year ago.

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