Andrew Lo

Andrew Lo's biotech megafund: pool 150 uncorrelated drug bets to de-risk funding

MIT professor Andrew Lo, after losing six loved ones to cancer, applied financial engineering to biotech: a ~$30B fund backing 150 startups (at ~$200M each), each attacking a different, uncorrelated disease, yielding a ~90% chance of producing 5 blockbuster drugs and making the risk palatable to conservative capital.

“He goes, I'm gonna find a way to make biotech funding more viable. So he went and said, what if we got 150 startups to get $200 million each? And that's a $30 billion fund. And he ran the numbers and said, if on this fund there is a 90% chance that you'll be able to get 5 blockbuster drugs out of it. So the key being this though, each startup has to go after a different disease, be completely uncorrelated.”

Steal thisDe-risk a high-variance investment category by pooling many large, deliberately uncorrelated bets so conservative capital can underwrite the aggregate.