Growing numbers of limited partners are using the secondaries market to free up liquidity ahead of a possible downturn, according to research by Montana Capital Partners.
In a survey of LPs published last month by the Baar, Switzerland-headquartered secondaries firm, 17 percent cited liquidity requirements as a motivation for selling, a record high across the seven years in which the survey has been conducted. The figure was just 8 percent in 2018.
The need for liquidity was cited by 25 percent of family offices and 8 percent of institutional investors. Private equity tends to account for a larger proportion of family office and endowment portfolios, increasing the need to free up liquidity in a downturn scenario, managing partner Christian Diller told sister publication Secondaries Investor.
Portfolio management was cited as the primary reason to sell, with general partner performance second. This is not necessarily a negative point, Diller said.
“[Some investors] are locking in good returns which they got over the last few years in terms of TVPI, but they didn’t yet get it in terms of distributions. They want to realise the current valuation and get out of the fund at an earlier stage.”
The responsibility of the secondaries buyer is to see beyond the headline figure to the true value of the fund, he added.
“Some GPs are more aggressive on valuations, others more conservative.”
Montana is investing mcp Opportunity Secondary Program IV, an €800 million fund which closed in April last year after five months in market.
The firm was founded in 2011 by Diller and Marco Wulff – both former Capital Dynamics executives – to focus on small and complex secondaries transactions.