Montana Board of Investments, the Helena-based state pension, plans to use the secondaries market for active portfolio management.
The $25.3 billion US public pension wants to opportunistically sell private equity fund stakes and divest of non-strategic relationships, according to materials from its quarterly meeting last week.
A long-term average private equity programme pacing of $400 million to $450 million in six to 10 commitments coupled with opportunistic usage of the secondaries market “provides flexibility to explore various scenarios”, given near-term economic uncertainty, the pension noted in the documents.
Montana has an actual allocation of 14.8 percent within a target range of 11 percent to 19 percent for the asset class, the documents noted. It has generated a 41.6 percent time-weighted net return over the last 12 months.
Montana’s private equity portfolio includes funds managed by Foundation Capital, Tenex Capital Management and Levine Leichtman Capital Partners, according to affiliate title Private Equity International data.
The pension has used the secondaries market before. In 2017, it sold its $25 million stake in the fourth fund of Chicago-headquartered private equity firm CIVC Partners at a premium to a group that was making a primary investment in the fifth flagship, after themselves declining to re-up for “various reasons”, as Secondaries Investor reported. In 2016, the pension sold a stake in Montlake Capital II, a 2006-vintage $45.3 million growth capital fund, at a discount.
The LP portfolio market is springing back after a pause last year. In a recent episode of PEI Media’s Spotlight podcast, Jake Stuiver, head of LP secondaries at M2O Private Fund Advisors, suggested that now may be an ideal time to bring an LP portfolio to market as buyers look to balance out built-up single-asset exposure.
Fully 43 percent of transactions in the first half of the year were LP portfolio deals, the least ever by proportion, according to Greenhill’s H1 Global Secondary Market Review. The firm also observed “an increase in appetite for tail–end funds with near–term liquidity potential” to rebalance an overallocation to those concentrated GP–led transactions that have back–ended liquidity profiles.
Outperformance in the wider market this year has resulted in a numerator effect for many institutional portfolios as PE allocations outpace other investment buckets. Blackstone president Jon Gray told analysts on the firm’s Q3 earnings call last week that the resulting overallocations would be “very bullish” for its secondaries business.