Sat, Aug 27, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Institutional investors to drive secondary hedge fund market

Tuesday, November 01, 2011
Opalesque Industry Update - Sovereign wealth funds, pension funds and family offices are allocating increasingly large tranches of capital to illiquid hedge funds in the search for high-yielding long-term investment solutions, says Florian de Sigy, CEO and founder of specialist brokerage and advisory firm Gamma Finance.

"Whilst there's a lot of attention being paid to liquid hedge fund strategies, we are also seeing allocations to dedicated portfolios of illiquid hedge funds," says de Sigy. "Over the past 12 months, we have been working with a number of large-scale, long-term investors who have been allocating tranches of $250 million to $500 million to illiquid hedge fund portfolios. Many are now returning for a second tranche at similar levels."

According to de Sigy, this trend has been facilitated by a shift in attitudes to illiquid hedge funds. "In the past, particularly in the immediate post-crisis period, there was a bit of a stigma attached to either owning or running illiquids, but with the realisation that most investors and hedge fund managers have illiquids on their books, this has changed and many investors are looking at this sector as an opportunity."

The current market conditions and regulatory environment are also impacting on the secondary market. "One of the key things we do is help buyers and sellers understand better the real value of an illiquid fund," says Ben Keefe, director of Gamma Finance’s investment advisory business. "Hence, if a bid comes in at a substantial discount, because we have the ability to do a detailed analysis of the fund's holdings, we can give an assessment of whether or not the bid represents good value against what can actually be realised from the underlying assets."

Keefe adds "equally, we are working with investors to identify good long-term buying opportunities. The brokerage business can then help the buyer find a seller."

"Illiquids look attractive for investors who want high yield, and given the low yields available from traditional assets at present, illiquid hedge funds look particularly attractive to investors with a sufficiently long-term investment horizon”, says de Sigy. “They are also a good match for pension funds against long-term liabilities,“

Regulatory changes such as Basel 3 and Solvency 2 are also changing the landscape for the secondary market. “These regulations make it much more expensive for insurance companies and banks to hold illiquid investments on their books because of the increased need for capital adequacy. In many ways this is counter-intuitive as it is often the banks and insurers who need the long-term yield profile that illiquids can offer,” comments de Sigy.

“Its probably too early to be absolutely certain, but based on current trends we can see illiquid hedge funds emerging as an asset class in their own right,” adds de Sigy. “The market is still at a very nascent stage – often the time when the best rewards are to be gained – and traditional measures of activity do not necessarily give a clear view of what is happening underneath – often giving conflicting indicators month on month. Nevertheless, the trend to institutional investors building specialist portfolios of illiquid hedge funds is fairly clear. Current levels of dedicated investment are around the $3 billion mark, and that could easily double in the next year.”

- FG

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Strategies - The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I, Hedge funds get more pushback on terms as enthusiasm for strategy wanes[more]

    The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I From IBTImes.co.uk: To illustrate a strategic gap common to today's portfolio managers, George Sokoloff, PhD, founder and CIO at Carmot Capital, proposes an interesting thought experiment – a breakdown of

  2. Institutional investors - Investors set to increase allocation to private debt, With investment income key, Richmond retirement system faces funding challenges[more]

    Investors set to increase allocation to private debt Investors are set to increase their allocation to private debt, with 60% revealing they believe the private debt market will grow over the next 12 months, according to a new study by Elian, a leading funds services provider. 41%

  3. Investing - Hedge funds snap up banks, unload Apple, Some of hedge funds' favorite stocks are finally starting to beat the market, Einhorn's Greenlight shifts positions, Treasury yield climbs to two-month high as Fischer joins hawks, 9 stocks smart investors put their money in last quarter[more]

    Hedge funds snap up banks, unload Apple From Barrons.com: Prominent hedge funds have a newfound love of big banks, and some have a distaste for shares of Apple, regulatory filings released last week show. The filings suggest that the funds have been pivoting their portfolios in recent mon

  4. Chesapeake energy seeks $1 billion loan to refinance debt[more]

    From Bloomberg.com: Chesapeake Energy Corp. is seeking a $1 billion loan as the company battered by cratering fuel prices and credit downgrades takes a step to address its $9 billion debt load. The natural gas producer hired Goldman Sachs Group Inc., Citigroup Inc. and Mitsubishi UFJ Financial Group

  5. Institutions - Nordic pension funds magnify focus on unlisted and direct investing, building up teams[more]

    From IPE.com: As bond yields remain at low or negative levels, pension funds and other institutional investors in the Nordic region are stepping up efforts to find higher returns by adding more unlisted investments to portfolios and are expanding in-house teams in order to do this, according to new