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Montana Capital’s LP survey in charts

An increased need for liquidity and a lack of enthusiasm for preferred equity are two trends that emerge from the secondaries firm's latest investor survey.

Montana Capital Partners has published its annual survey of limited partners, based on responses from 119 institutional investors, family offices and endowments. Below are some of the most interesting findings from the Baar-headquartered secondaries firm’s report.

Majority of LPs now invest in secondaries

Seven out of 10 respondents said they invest in secondaries funds, the highest proportion recorded in the seven years the survey has been carried out. Only two out of 10 family offices and one out of 10 institutional investors said they were not at all active. A majority of respondents have no set allocation to the strategy, suggesting an opportunistic approach to secondaries investing.

Investors show taste for complexity

More than 40 percent of all family offices and foundations highlighted small and complex secondaries as priority areas, with vanilla portfolio trades lagging far behind. Only around 10 percent of respondents considered tail-end stakes a priority, despite there being – as Secondaries Investor reported in May – around $525 billion of net asset value left in funds more than 10 years old.

One US investor said in the report that GP-led deals “offer better value creation and arbitrage” than LP deals, as the specific skillset required to do them leads to less competition.

Single-asset deals divide opinions

Asked about single-asset deals from the perspective of an LP in a secondaries fund, 24 percent gave a positive view and 17 percent a negative one. Asked about single-asset deals from the perspective of an LP in a fund whose GP has proposed one, only 12 percent gave a positive view and 20 percent a negative one.

“There’s one camp that really likes this kind of deal, believing the GP knows the asset well and that the deal gives them more time,” said Montana managing partner Marco Wulff. “The second camp hates them because they think it’s a conflict of interest and only the GP gets a good deal. You have to carefully look at each transaction and, based on your analysis, make an informed judgement.”

LPs less convinced by preferred equity

Although some of the great fundraising success stories this year have been for preferred equity, many LPs have yet to be won over. Almost 50 percent of respondents believe preferred equity returns are too low or view it as a temporary phenomenon that does not require their attention.

There is a clear split between institutional investors and the rest, with 33 percent of institutions holding a negative view compared with 14 percent of family offices and foundations.

Point in cycle affecting motivation to sell

Almost 30 percent of family offices and foundations, and 38 percent of institutional investors, cite strategic repositioning as their main reason for using the secondaries market. Although strategic repositioning was still the most frequently cited reason, the responses have fallen from last year’s levels of 39 percent for family offices and foundations and 50 percent for institutional investors.

The need for liquidity has increased dramatically, with 27 percent of family offices citing it as a reason for selling compared with 8 percent last year. Wulff suggested this is partly a result of LPs wanting to crystallise returns ahead of a potential downturn.