Sell, sell, sell

Details that emerged this week around Montana’s recent secondaries sales make clear why other US public pensions are increasingly following suit.

The $15.8 billion Montana Board of Investments is no stranger to the secondaries market; we reported earlier this week that its private equity portfolio now has a roughly 10 percent exposure to secondaries funds, which are among its top performers.

Long a supporter of marquee fund managers like Lexington and HarbourVest, the Montana BOI has also recently been selling positions in funds to reduce non-core relationships, providing additional proof of concept (for any behind-the-curve investors still needing it) of secondaries as a bona fide portfolio management tool.

Back in May we reported it had started a sales process to divest eight fund stakes, from managers including energy specialist First Reserve and mid-market firm Madison Dearborn, which the pension took pains to stress weren’t “troubled” but were funds managed by GPs with whom it had decided not to pursue an ongoing strategic relationship. As such it said it planned to take advantage of “the current valuation perspective and the good market timing and strong demand and ample dry powder among secondary funds”, according to remarks from chief investment officer Clifford Sheets.

And take advantage it has.

More than 40 offers came in for the eight stakes, whose net asset value was listed as approximately $126.6 million as of 30 September 2013. This week we learned the Montana BOI sold the stakes to two undisclosed buyers. The sales were split up into three closing dates (7 April, 12 May and 30 June) and all eight stakes were priced individually – some at a discount, par or premium. Together, they sold for roughly $133.6 million, representing a roughly 6 percent premium to NAV.

That experience is indicative of why other US pensions have been following suit – there’s no shortage of buyers and pricing remains full.

In recent months, we’ve seen New Mexico’s State Investment Council sell stakes above par; Wisconsin’s State Investment Board complete the sale of 34 fund stakes; and Florida’s State Board of Administration steadily divest interests in large European buyout funds, most recently selling at least five fund positions to Partners Group.

And many of those groups are not done selling, as they continue to spring clean their portfolios amid advantageous market conditions. We expect to report again soon on New Mexico SIC, for instance, which we revealed is preparing to sellsome 100 tail-end fund stakes as of last month.

At present – despite some chatter about current pricing not being sustainable for the long-term – most market sources say there’s still no sign of high prices abating, which should encourage more LPs to sell, sell, sell. Watch this space.