In the business of travel: a postcard from Baar’s Montana Capital Partners

The firm opened its first international office last year, two years after its tie-up with PGIM, and retains its Swiss heritage in its approach to deal-making.

The location of Montana Capital Partners‘ headquarters inadvertently inspired the mantra that the firm carries through its global sourcing: getting out and pounding the pavement.

Marco Wulff
Wulff: there’s other criteria, outside of price, that play a role for selling LPs

Far from the bright lights of many of its secondaries peers, Montana’s Baar headquarters – up until last year its sole office – provides its staff with a picturesque backdrop overlooking the Swiss Alps. It is situated next to an increasing number of high-rise buildings that house large corporates. Its prior location within the municipality was even more rural.

Managing partner Christoph Jäckel recalls a meeting with a GP coming from Paris, who recounted that his cab driver was convinced the firm’s office couldn’t possibly be at the address given to him. “[Our office] was an old textile factory. Next to that, you had forests and sheep in the field, so it just is a bit of an unusual place.

“By and large, when you’re not based in a place such as New York or London, you really have to get out to meet people. We then made a virtue out of a necessity in the sense that we knew we had to get out.”

Bespoke and complex

While at fund of funds manager Capital Dynamics, chief executive and managing partner Marco Wulff and his co-founder Christian Diller realised there was a niche in the market. Small- and mid-market investors – like family offices, pension funds, banks and insurance companies, who may have wanted to sell private markets portfolios – were either too small or didn’t want to team up with an intermediary.

“When we started doing that, we realised that there’s a very attractive risk-return profile,” Wulff explains, “because you can talk to them directly, you understand what is important to them. And don’t get me wrong, price is always important – but sometimes there’s other criteria that play a role.”

Montana was founded in 2011. The firm, focused on the mid-market, began with a team of four people focusing on investors who mainly wished to remain under the radar.

Today, the firm has a global approach with the team growing to 37 people. Its fund size has also grown considerably. Montana’s latest vehicle, mcp Opportunity Secondary Program V, closed above its €1 billion target, reaching €1.3 billion at the end of 2020. That vehicle was around 60 percent bigger than its predecessor and substantially larger than its debut fund, which reached €83 million in 2013. The firm’s latest vehicle, mcp Opportunity Secondary Program VI, launched its fundraising in January, according to Secondaries Investor data. The firm declined to comment on the raise.

While Wulff declined to give specifics on fund returns, Devon County Council Pension Fund, one of the backers of mcp Opportunity Secondary Program V, has had €3 million of its €10.1 million commitment to the fund called, as of the end of 2022. The fund had delivered a total value to paid-in capital of 1.27x at the time, according to Devon County data.

Eduard Lemle Montana Capital Partners
Lemle: will continue to oversee the firm’s investment activities in the US from the Montana’s headquarters in Baar

Its investments are split 50/50 in two ways: across European and US funds and assets, and across LP-leds and GP-leds, Montana’s managing partners say, with a North America-based adviser confirming the firm was well balanced across both geographies. The splits allow the firm to capture market opportunities throughout different points in cycles, while also providing diversification for its funds, the managing partners add.

Montana seeks to deploy between €20 million and €80 million into primarily lower mid-market buyout strategies and assets, and it has the room to back smaller or larger transactions. On the LP-led side, it takes stakes in anything from small- to large-cap buyout funds. “You can buy a €10 million transaction in a mega-buyout fund. Then it would be considered the small secondaries end of the market,” Wulff says, adding that diversification across fund sizes and direct sourcing is key to its fund strategy.

On the GP-led side, the firm has a clear focus on lower mid-market managers and looks to back those with a high degree of specialisation. The firm has backed complex continuation fund transactions, preferred equity and strip sales and spin-outs, its executives explain.

On the LP side, one of the firm’s sweet spots is fund of funds transactions, where its executives say the firm isn’t seen as competition by those investors looking to offload their stakes.

Wulff says it helped Middle East LPs suffering from the effects of the global pandemic and negative oil prices in 2020 to offload portfolios. Price, speed and certainty were all important, as well as trust “because they didn’t want you to then tell them it’s a 25 percent discount and then one day later it’s 50 [percent]”.

The firm has sourced LP transactions from Japanese sellers looking to offload European and US assets where “confidentiality was super important… at least as important as the price”, Wulff says.

Montana was also an investor in two transactions for Ping An. In 2020, Montana and GIC acquired an $875 million strip of assets from the balance sheet of China Ping An Insurance Overseas and used it to seed two private equity funds. The process was carried out without an intermediary, Secondaries Investor reported at the time.

The next year, Montana was an anchor investor in another complex transaction for Ping An alongside Goldman Sachs Asset Management and Ardian. The transaction saw Western GP fund stakes lifted from Ping An’s balance sheet and placed into Global Equity Selection Fund II, Secondaries Investor reported. A second component involved unfunded capital to make investments in secondaries and co-investment deals out of another vehicle, GP Opportunities Fund. The vehicles received commitments totalling $750 million.

“As part of our usual trips, we developed a relationship with Ping An a long time back,” Wulff says. In 2020, Ping An approached less than a handful of investors and looked at different concepts. Montana had done something similar before in Europe and Ping An liked the firm’s ideas. “It was a very professional, incorporative process whereby we developed a solution that in the end met their requirements and also ours,” he says.

“This is something that you build over time, you build the trust, you have repeat sellers, you have cross-references, recommendations, and this is how we build our network.”

‘Blood, sweat and tears’

Montana initially called its strategy “blood, sweat and tears” and has since softened the language to “proactive sourcing”, the managing partners tell Secondaries Investor. The strategy entails a lot of international travel and a lot of meetings, with each member of the Montana team responsible for certain geographies. Individuals are expected to deploy that proactive sourcing approach across those regions within their remit.

Even before tools now taken for granted such as Zoom, “not many people went to… Valencia or a savings bank in the middle of nowhere in Germany”, Wulff says.

The strategy paid dividends, Jäckel says. “You would be surprised how often you actually had a conversation with someone – tell them: ‘Hey, wouldn’t [it] be great whenever a secondaries opportunity comes up that you call [us].’” Montana then strives to continuously stay in touch, he adds. “Three months later… they tell you, ‘Well, good you called.’”

Behind its proactive sourcing strategy, Montana has built out a data-driven approach. The firm had 4,000 meetings across the investment period for its last fully invested fund – mcp Opportunity Secondary Program IV – Jäckel says.

Christoph Jäckel Montana Capital Partners
Jäckel: initial conversations with counterparties can lead to surprising results

“Those meetings are tracked in our system… We’re tracking not only with whom we have spoken, but maybe with what other organisations they are mentioning – so you’re meeting an LP but they are telling you, ‘Well, I met this new upcoming GP, you should reach out to them.’”

Through analysis of information comprised within its database, Montana creates model portfolios “and then through thousands and thousands of iterations, replicates cashflow profiles across cycles”, managing partner Stephan Wessel says. “That really gives us a pretty good feel for what the portfolio should return in the base case and the 25th percentile and the 75th percentile – we can run all of those iterations.”

“The gut feeling in private equity will always be important,” Jäckel says, adding that the subjective view of people who have analysed GPs, portfolios and companies for many years is key. However, “on top of that, adding the additional information you can get out of all the data that you’re collecting over time, I think, is a very powerful tool”, he adds.

Montana was described as “a good lead or key syndicate” by a North America-based adviser who has worked with the firm.

“There are two types of GP-led investors: ones who utilise tonnes of data and ongoing GP relationships, and the others who bring a more direct investor mindset into the underwrite,” the adviser said, adding that each approach has pros and cons. “Montana’s ability to drill in and underwrite unknown managers and focus on the assets and the structure to protect their downside – it sets them apart in a crowded field. They also speak in bigger size and statute than their fund size indicates, especially given how they invest consistently on both sides of the pond.”

Montana’s ‘strategic crossroads’

In step with its secondaries peers, private equity platforms, asset managers, banks and GP stakes firms began to court Montana around 2019 and 2020.

“We didn’t really have plans to sell,” Wulff says. “We didn’t proactively approach it… back then, we just listened to [pitches]. Then we thought, because there were so many approaches, perhaps we need some advice on that side – do it professionally so that we can make an informed judgment.”

Having sought outside counsel, Wulff realised the firm was at a strategic crossroads. “We were too big for the small guys, but too small for the big guys,” Wulff says. The firm realised it needed to broaden its geographical footprint, particularly in the US, which makes up around half of its fund portfolio. There were also increasing regulatory and compliance requirements and ESG considerations that had to be addressed, he adds.

Stephan Wessel Montana Capital Partners
Wessel: Montana’s approach to data gives the firm a good feel for what the portfolio should return

PGIM – the global investment management business of Prudential Financial – was one of the first suitors to approach Montana. The asset manager has a multi-boutique model with many organisations that remain relatively autonomous and benefit from the PGIM partnership. That approach appealed to Montana, which prides itself on its culture of entrepreneurialism, as well as fostering and elevating talent, Wulff explains. Montana agreed to sell a 100 percent stake in its business to PGIM and the deal closed during the summer of 2021.

Former co-founder Diller decided to cash out and leave Montana at the end of 2022 following the PGIM acquisition. The move came as a shock to peer firms and secondaries advisers Secondaries Investor spoke with.

At the time of acquisition, Montana was going from a founder-led business to a more institutional setup, Wulff says. The PGIM acquisition represented “good timing and it was a very constructive and amicable process”, Wulff says. Diller left Montana to pursue something more entrepreneurial, according to a source familiar with the matter, with two sources confirming to Secondaries Investor the departure was amicable.

While Wulff declined to comment on specific details of its key person clause at the time of Diller’s departure, he says it was “waived by the investors with a very high majority”.

“They knew Christoph and [current CIO] Eduard [Lemle]. They have been with the firm for eight, nine years, became managing partner [in 2022, and] have been equally active on the investment side. So overall, I think it was a well-managed process.”

Branching out beyond Baar

In May, Montana said it would launch a New York outpost – a process sped along by PGIM representing a benefit of a tie-up with a larger player, Wulff says.

The firm hired former Newbury Partners director and investment committee member David Overton as director and head of its first US office.

Lemle, who has focused on the US for almost two decades and who spent a combined 11 years based in New York in roles prior to Montana, will continue to oversee the firm’s investment activities in the US from Montana’s headquarters in Baar. Over time, however, the firm’s focus will shift to the New York office as more professionals join its US hub, Lemle anticipates. It has four staff members there, two of whom relocated from its headquarters.

Despite its tie-up with PGIM and the opening of its New York office – worlds apart from its headquarters in Baar – don’t expect transformational change in Montana’s strategy in the short term.

“We want to be and continue to be in this segment that we’re in,” Wulff says. While its New York hub will allow the firm to monitor its portfolio more closely and deepen relationships with industry players in the largest secondaries market on the planet, it will continue its regular international travel and countless meetings in areas such as Asia and the Middle East where it does not have offices.

“More than fund size, we are looking at transaction size, and here we are in a sweet spot,” Wulff says. “Once you move up above $200 million, then the big guys come down, they use leverage, and that makes it more difficult. And [going] too low is also sometimes, from an efficiency point of view, not the right thing to do.”

– This article was updated to provide clarity on Diller’s departure from Montana.