Private Equity Allocations Surge

Montana Capital Partners has published its 10th annual Investor Survey which reports on current investment strategies and preferences of private equity investors, including institutional investors, family offices, and foundations. The title of this year’s report is “The role of private equity in volatile times — how leading investors respond to the new market environment.”

According to Montana Capital Partners (MCP) allocations to private equity have surged in 2022 in an environment of decreasing public market valuations, rising inflation, and geopolitical conflicts. The survey finds that 71% of family offices and foundations and 33% of institutional investors now allocate 15% or more of their portfolio to private equity, a significant increase compared to 49% and 21%, respectively, in 2021.

Increased allocations are a result of the strong performance of the asset class and a fundraising environment that has seen general partners come back to market faster than ever and forced investors to accelerate their capital deployment. Meanwhile, the “denominator effect” has meant that for 8 out of 10 respondents, private equity portfolios have maintained their value or increased during the first half of the year, while stock markets declined.

To navigate the current market environment and mitigate the impact of a potential recession, investors have turned to resilient industries such as healthcare and business services, and investment strategies, including mid-market buyouts and secondaries, which are expected to be less impacted in a downturn.

MCP reports that secondaries are the second long-term strategic preference of investors behind mid-market buyouts and ahead of growth capital, venture capital and private debt. Specifically, investors prefer complex secondaries and acquisitions of fund portfolios.

“While it is currently more difficult to identify and create value and there are elevated market uncertainties, we also see heightened interest in and attractive opportunities for secondaries,” said Marco Wulff, a managing partner, and CEO at MCP. “We believe that we will be able to generate alpha by partnering with the right general partners and by taking advantage of the market correction to invest in assets with strong fundamentals at lower valuations.”

“Secondaries are expected to perform well in the current market environment, as some limited partners may be willing to accept a higher discount in exchange for immediate liquidity, which will create attractive buying opportunities,” added Eduard Lemle, a managing partner at MCP. “Secondaries are also an attractive complement to regular primary and direct private equity allocations, due to their high level of diversification, reduced blind pool risk, and earlier repayment of capital.”

Montana Capital Partners focuses on secondaries transactions in small- and mid-cap markets, with investors in Europe, Asia, and the United States. MCP has raised five secondary funds – all were oversubscribed and closed at their hard caps – with total assets under management of more than $3.5 billion. In the third quarter of 2021, MCP was acquired by Prudential Financial (NYSE: PRU). MCP is headquartered near Zurich in Zug, Switzerland.

Click HERE to access MCP’s 10th annual Investor Survey.

© 2022 Private Equity Professional | November 29, 2022