STRATEGY

Unique Niche Strategy

Montauk TriGuard provides value-added liquidity solutions by focusing exclusively on four main underserved niches that it has identified and classified as: (1) Secondary Fund, (2) Carve-Out, (3) Clean-Up and (4) Opportunistic.

• Secondary Fund transactions. Montauk TriGuard Funds are designed to acquire interests in other secondary funds. As the depth and breadth of the secondary fund investor base grows, so does the need for liquidity solutions. Due to the complementary nature of the Montauk TriGuard Funds and the Managing Partners’ longstanding relationships with secondary fund General Partners, the firm is uniquely positioned to maintain a leadership position in this market niche.


• Carve-Out transactions. Montauk TriGuard seeks to purchase niche “carve-outs” and “strips”, providing value-added solutions to the larger secondary players when they purchase portfolios containing niche assets that are not part of their core strategy, positions that are too large to accommodate themselves or that may conflict with their internal guideline restrictions.


• Clean-Up transactions. Montauk TriGuard Fund’s are designed to provide the full range of liquidity solutions to other secondary funds, including providing liquidity for their tail-end, past term secondary funds. Most private equity funds have a targeted life of 10 to 12 years. However, many funds continue to hold portfolio investments after the 12-year period. Given the relatively small value remaining in the partnership, many investors and general partners seek liquidity to avoid the inefficiency associated with monitoring/reporting on these tail-end portfolios.


• Opportunistic. Montauk TriGuard purchases opportunistic transactions in non-competitive situations when it has a distinct advantage.

Secondary Market Opportunity

The growth and maturity of the private equity market has generated significant secondary market opportunities. With the growth of primary commitments made to private equity funds, combined with the increasing understanding and acceptance of secondary market transactions, global annual secondary transaction volume has grown significantly. The growth in the secondary market is being driven by five key factors:

• Commitment growth. The secondary market is highly correlated to both the amount of capital committed to private equity funds and the number of investors in the asset class. The amount of capital committed globally to all private equity funds is over $6 trillion (Preqin).


• Refocus on core operations. Many investors have increased their private equity investment programs, for both strategic and financial reasons. The gains and losses from these partnerships have become a significant part of the earnings volatility of many firms. Therefore, many entities are increasingly scaling back or eliminating their alternative investment programs.


• Active portfolio management. Investors continue to consolidate fund managers, re-balance allocations and actively manage their sub-allocations to various types of private equity positions through secondary market sales.


• Liquidity. Many institutional and high net worth investors, who desire to balance their cash outflows with their inflows, are seeking alternatives to funding additional capital calls. As a result, they turn to the secondary market for liquidity.


• Regulatory change. Capital adequacy guidelines applicable to financial institutions are also contributing to increased selling activity in the secondary market. Such capital requirements are causing many financial institutions to re-evaluate the role of private equity investing, as increased regulations require some financial institutions to set aside significant capital against private equity investments relative to other asset classes. Further, recently proposed legislation may restrict the ability of certain banks and non-bank financial institutions from investing in private equity funds, which may further increase selling in the secondary market by these institutions.

Key Benefits of Secondary Investing

Secondary market opportunities offer investors a unique ability to diversify a private equity portfolio while mitigating the “J-Curve”, accelerating distributions and enhancing net returns to investors. Specifically, a secondary market fund offers investors the following key benefits:

• Higher return potential. Secondary funds seek to provide investors with superior returns by acquiring interests in private equity funds at attractive discounts, thereby enhancing secondary fund investor’s returns.


• Private equity hedge. With unfunded commitments to deploy, secondary funds can acquire quality assets at deep discounts during periods of economic downturn. This can offset negative performance from a private equity portfolio.


• “J-Curve” mitigation. Secondary funds generally produce early positive returns by acquiring assets at a discount to net asset value while primary fund investments tend to have negative returns for the first three years as management fees and expenses have yet to be offset by investment gains.


• Accelerated distributions. Acquiring mature private investment fund interests during their harvesting phase can result in accelerated distributions relative to many other private market investments. As a result, secondary funds tend to deliver significant, early and consistent cash distributions, which can result in attractive annual cash yields.


• Enhanced diversification. An allocation to a private equity secondary fund can lower an institution’s overall portfolio risk level and increase overall portfolio diversification. Typical Montauk TriGuard funds offer investors exposure to more than 1,000 underlying private equity funds with exposure to more than 10,000 underlying companies that diversify risk across strategies, industries, vintage years and geographies.

Counterparty Benefits

• Well-capitalized. Montauk TriGuard is well-capitalized and is currently investing out of Montauk TriGuard Fund VI, which has $505 million of capital commitments.


• Responsive. The Montauk TriGuard Partners have managed many primary and secondary partnerships. This experience allows us to respond quickly to potential opportunities.


• Focused. Montuak TriGuard is an independently owned firm that is focused on providing value-added liquidity solutions. Montauk TriGuard has no third-party owners and its investment team is dedicated to providing niche liquidity solutions with no conflicting or competing products.


• Sourcing advantage. Montauk TriGuard maintains longstanding relationships with secondary fund Founders and Managing Partners that have been cultivated over the past 25 years. This network has created a competitive advantage for the Firm by positioning it to be the “first call” for many proprietary transactions.


• Information advantage. Montauk TriGuard utilizes its internally-developed proprietary database of information on secondary funds to proactively identify, carefully analyze, and efficiently price potential opportunities.


• Reputation advantage. Since the Firm’s inception in 1999, Montauk TriGuard has earned a reputation as a trustworthy and dependable counterparty with a proven ability to execute with speed and certainty.


• Firm offers. Montauk TriGuard's purchase proposals are firm and reliable during the period prior to closing.


• Transfer process. The extensive primary fund, direct debt, mezzanine and equity investing activities of the Partners provides Montauk TriGuard with a clear advantage in securing general partner consents in relation to the transfer of partnership interests. Since 1999, Montauk TriGuard has earned a reputation for providing swift transaction solutions to counterparties, allowing them to meet their most aggressive deadlines.


• Discreet. As an independent entity focused on liquidity solutions, Montauk TriGuard operates with complete discretion maintaining the confidentiality of the seller and the underlying partnerships. In addition, the Partners have developed strong relationships with many limited partners, primary, secondary and fund-of-fund managers, many of whom come directly to Montauk Triguard to resolve various liquidity issues.