A recent press release from Montana Capital Partners:
• Allocations to private equity continue to rise, with secondaries now the second most important long-term strategic preference for investors
• Secondaries are likely to be more resilient in a downturn, with investors turning to healthcare and business services
• Market uncertainties lead to increased demand for liquidity through secondaries
Montana Capital Partners (“mcp”) has released its 10th annual investor survey entitled “The Importance of Private Equity in Volatile Times – How Leading Investors Are Responding to the New Market Environment”. This examines current investment strategies and preferences of global private equity investors, including large institutional investors as well as renowned family offices and foundations.
Capital allocation to private equity has surged in 2022 amid declining valuations in public financial markets, rising inflation and geopolitical conflicts. The survey shows that 71% of family offices and foundations and 33% of institutional investors now invest 15% or more of their portfolios in private equity, a significant increase from 49% and 21% respectively a year earlier.
The increased investments are due to the strong performance of the asset class and the supportive fundraising environment. General Partners (GPs) re-entered the market faster than ever, forcing investors to accelerate their investments. Meanwhile, the “denominator effect” has ensured that the value of private equity portfolios has remained the same or even increased for eight out of ten respondents in the first half of the year, while other portfolio positions such as listed shares have collapsed.
To navigate the current market environment and mitigate the impact of a potential recession, investors have focused on resilient sectors such as healthcare and business services, and investment strategies that are expected to be less affected by a downturn. Examples include mid-market buyouts and secondaries.
Secondaries are investors’ second most important long-term strategic preference after mid-market buyouts, ahead of growth capital, venture capital and private debt. Complex secondaries and the acquisition of fund portfolios are preferred. With a quarter of institutional investors expecting to sell positions in the next 12 months, for example as part of a rebalancing, there should be attractive investment opportunities for secondaries in the near future.
dr Marco Wulff, Managing Partner and CEO of mcp, comments: “Even though it is currently more difficult to identify and create value creation opportunities and the market uncertainties are high, we are seeing a growing interest in secondaries and attractive investment opportunities. We believe we are able to generate alpha by partnering with the right GPs and using the market correction to invest in assets with strong fundamentals at lower valuations.”
Eduard Lemle, Managing Partner at mcp, adds: “In the current market environment, secondaries should do well. Because some LPs may be willing to trade a higher discount for immediate liquidity, which will create attractive buying opportunities. Secondaries are also an attractive complement to regular primary and direct private equity allocations as they offer a high level of diversification, lower blind pool risk and earlier return on capital.”
The growing importance of private equity in volatile times
Montana Capital Partners presents the results of its annual investor survey
photo of dr Marco Wulff (source: Montana Capital Partners)
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