Opalesque Industry Update - The secondary market has seen the return of stability at the start of 2011, with February showing an increase in the average trade price for the second consecutive month. The rise to 73.15%, although slight, suggested the market is establishing a more consistent average.|
After last year’s volatility on the hedge fund market, the need for consistency is evident among investors. February’s index indicates 2011 could provide the stability that was missing at the end of last year.
More encouraging still was the appearance of a trade at 103%, the first premium trade since April last year. The premium trade, for a diversified commodity fund, could point to a return in pre-crisis confidence among investors. The rise in equity markets, following solid performance last year, may see investors once again paying premium prices for access to high quality hedge funds.
Hedgebay have preached caution for the time being, however. The improved financial climate and steady performance on the primary hedge fund industry in 2010 has seen the secondary market become a seller’s market. Buyers have the means to buy assets, but have been unwilling to pay for shares they deem inappropriately priced for the current state of the secondary market.
Elias Tueta, co-founder of Hedgebay, believes that the market should see this as an encouraging development, as it represents a necessary part of the market’s recovery, and an indication that 2011 could herald a return to consistent premium trading:
‘The market is currently in a stasis between crisis and recovery, with trading being dictated by both the legacy effects of the downturn and increased investor confidence. Improved conditions mean that most sellers have no immediate obligation to sell, and currently buyers are unwilling to match their prices.”
“This is a temporary holding pattern on the market, and is a sign that we are closer to the highs of pre-crisis trading than we are to the illiquid state of the post crisis market. Once buyers have the confidence to match sellers’ prices, we will see consistently higher average prices, and the kind of premium trade we have seen this month will become more common. The 103% trade is, we hope, a sign of things to come. Certainly, we expect 2011 to be a significant year for the hedge fund market.”
The Illiquid Asset Index (IAI) gained modestly again this month, after witnessing a significant percentage of growth in December and January. The IAI’s steady climb since October indicates sellers may be looking to their illiquid assets whilst the SMI continues its even pace.
‘The IAI indicates that now, more than ever before, investors are getting more for their money via illiquid transactions. Although this month’s figures suggest that investors might be keeping a hold of their illiquid assets as they are providing a steady income in a market that is still at present, tentative.’
About Hedgebay Trading Corporation
As the first and largest secondary hedge fund market provider, Hedgebay - founded in 1999 - can rely on historical illiquidity data dating back several years. The IAI and SMI primarily target investors in hedge funds, such as fund of hedge funds, pension funds, endowments, foundations, insurance companies, family offices, wealth managers and HNWIs. However, Tueta believes that the index also provides pertinent information for the wider global investment and financial services industry, including leverage providers, regulators, investment banks and prime brokers.
For nearly a decade Hedgebay Trading Corporation has provided hedge funds with a market to trade positions by matching buyers with sellers. Since its launch, Hedgebay has provided secondary market data to registered users of its website (www.hedgebay.com).
Its primary service has sourced, executed and settled billions of dollars of secondary market transactions giving the company the most comprehensive insight to date into price discovery and the fair value of illiquid alternative investment assets.
Founded in 1999, the Nassau-based Hedgebay Trading Corporation through its authorised agents helps match sophisticated buyers and sellers of hedge fund interests and other illiquid alternative investment assets. Its international client base includes funds of hedge funds, ultra high net worth family offices, banks, pension funds, insurance companies, endowments, foundations and sovereign wealth funds.
Participants in the secondary market generally look to capitalise on two major themes: liquidity and access to highly sought-after fund managers. Hedgebay’s services can allow sellers to capture the opportunity cost of redeeming and exit positions before the end of the lock-up period, giving them the ability to reduce or eliminate tail-risk events. Buyers can benefit from being able to add to existing positions at discount, profit from high water marks, acquire “seasoned” shares (reduced or even no lock-up) and increase exposure to top tier managers.