Montana shifts PE focus to Asia, direct lending strategies

Montana Board of Investments is planning to boost its allocations to direct lending and Asia-focused funds, bolstering a private equity portfolio dominated by North American buyouts strategies.

More than 80 percent of Montana’s $1.2 billion PE program was invested in North-America-centric funds as of March 31, an investment report included in its upcoming meeting materials showed.

About 75 percent of the portfolio is in vehicles that take direct stakes in private companies, as opposed to funds-of-funds, and most of those commitments are in buyout funds.

The Board of Investments, which manages more than $11.2 billion of state retirement assets, recently committed $75 million to a new OCP Asia direct lending fund that is reportedly targeting $500 million.

OCP Asia specializes in providing direct loans to businesses in Asia and Australia. Its third fund raised more than $129 million as of early April, an SEC filing said. A parallel vehicle for U.S. investors had raised another $79 million.

Montana also recently committed $30 million to Deerpath Capital Management’s fourth fund, which is seeking more than $500 million. Deerpath Capital IV will invest in the capital structures of PE-backed companies.

Since its inception, Montana’s private equity program delivered a 12.6 percent net internal rate of return as of Dec. 31. Montana began investing in PE in 1987.

The system also committed $20 million to Builders VC Fund I, a $200 million vehicle being raised by former Formation 8 executive Jim Kim and Paul Lee, a former partner at Lightbank.

Montana’s shift away from traditional North American buyout fund strategies comes as the private equity market enters increasingly expensive territory.

The average purchase-price multiple on new leveraged buyouts hit a record 11.2x Ebitda last year, Bain & Co data cited by Montana said.

“Entry prices for assets remain very high, and with so much available capital competing for deals, this will only increase the challenge for fund managers looking to deploy capital in 2018,” the meeting materials said.

Montana Board of Investments Executive Director David Ewer did not respond to a request for comment. Ewer plans to retire from his role in September.