Montana eyes direct-lending opportunities

  • In addition to small, mid-market push, Montana expands direct-lending holdings
  • Portfolio includes stakes in CapitalSpring, Centerbridge, Oaktree funds
  • Montana PE portfolio valued at $1.1 bln

Montana Board of Investments is increasing its allocation to private equity-related direct-lending strategies, a portfolio overview in its Nov. 14-15 meeting packet shows.

“Staff is moving towards smaller cap strategies … with a push towards direct lending and credit investments. It is a competitive market, staff has looked at numerous managers and will slowly build up investment in credits,” a draft of the board’s October meeting minutes says.

Direct-lending strategies account for less than 5 percent of Montana’s PE program.

In August, Montana allocated up to $40 million to a CapitalSpring fund that will lend to fast-service restaurants and other franchises that are unable to access bank financing. The PE program also has stakes in credit- and debt-related funds managed by Centerbridge and Oaktree Capital Group.

With traditional fixed-income portfolios generating minimal returns, a growing number of LPs are committing more capital to private debt and credit-related strategies.

Dry powder held by private debt funds swelled to $224 billion as of mid-2016, Preqin reports. More than 60 percent of LPs surveyed by Hamilton Lane said they planned to increase their allocations to private credit and debt-related strategies in the near term, the firm’s 2016-2017 private-markets survey shows.

Montana has indicated it was concentrating more new commitments on smaller buyout strategies, including new funds from firms like Angeles Equity Partnersand Gridiron Capital. More than 60 percent of the portfolio is in small and midsized buyout investments.

Through June 30, Montana’s PE program had netted a 12.6 percent internal rate of return since inception. The Board of Investments holds 10.4 percent of its assets in PE. The PE portfolio is valued at $1.1 billion.

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