Wed, Aug 20, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Necessity is the mother of invention: London Private Equity Futures and Options Exchange (PEFOX) to be launched next month

Monday, May 31, 2010
Opalesque Industry Update – The launch of the London Private Equity Futures and Options Exchange (PEFOX) in the next month is the manifestation of a silent movement in the private equity industry, which in recent years has seen the boundaries of “secondaries” pushed to their natural limits. PEFOX is able to offer its members, for the first time, the chance to take long or short positions on private equity funds, discreetly and independently of the fund manager. In what the firm’s management describes as a “synthetic revolution” in private equity, PEFOX is working with some of the most prominent institutional investors in private equity to establish an active and liquid derivatives market, distinct from the existing primary and secondaries space.

Recognising the way derivatives markets have emerged in almost every quarter of the financial world and eventually gone on to transform investments such as commodities, bonds and listed equities, Kishore Kansal, the Managing Partner of PEFOX, brought together a group of private equity industry veterans with the intention of replicating this in private equity. “The attractions to investors are obvious. Gaining access to the most sought after funds or hedging out exposure to partnerships or entire portfolios, PEFOX enables investors to actively manage a private equity portfolio”, explains Ray Maxwell, the former Managing Director of INVESCO Private Capital and the Chairman of PEFOX. “This is about providing the market with additional tools to manage liquidity and risk”.

“The secondaries market has grown rapidly in both breadth and depth in recent years. Secondaries became more and more complex until some of the larger, more sophisticated groups started doing ‘transfers of economic interest’”, explains Kishore Kansal. “The economic interest in a fund is transferred to a buyer but the seller retains nominal legal ownership. This was a derivative structure in all but name and, by definition, went beyond the technical boundary of what could have been achieved through a secondary sale.” Kishore Kansal describes this as just the starting point on a derivatives spectrum. “PEFOX provides such structures but has developed the concept further. PEFOX has created proprietary, standardised futures contracts covering all major private equity funds, which allows investors the chance to access a global marketplace where they can enter into long or short positions on funds, something which is totally discreet and independent of the fund manager”.

The Advisory Board of PEFOX includes a number of experienced, industry renowned thought-leaders. “For the first time, secondary funds, fund of funds and other institutional investors will be able to utilise derivatives to reduce volatility and rebalance risk in their portfolios.” states Andre Jaeggi, a former partner of Adveq and one of the first to join PEFOX’s Advisory Board.

Kishore explains that this is by no means a new thought. “Various investors have been looking at creating something like this for over a decade, but it didn’t take off for a couple of reasons. First, this is the type of market that really needs an independent and impartial organisation such as PEFOX in order to function. It just doesn’t work when the buyer tries to deal directly with the seller. Second, previous attempts have failed because of a fundamental lack of liquidity.” Kishore describes how current market conditions may have changed that equation in PEFOX’s favour.

“After the financial crisis, investors in private equity really began to question the wisdom of being locked into a blind pool for eight years plus, with little or no chance of liquidity. Like the Emperor, they found themselves both naked and over exposed. Like it or not, we now live in a time of significantly higher volatility and this is something which investors can no longer ignore.

Commenting on the early progress that has been made, Kishore concludes “PEFOX is able to provide its members with liquidity solutions and more elegant tools to manage risk. Quite simply, this is appropriate for the markets in which we find ourselves”.

www.pefox.com


Bg

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. Investing – Hedge funds feasting on Apple again, Top U.S. hedge funds up Walgreen shares; lose some taste for Apple, A look at how some of the top investors, hedge funds spent the second quarter, Blockbuster movies fuel big wins for hedge fund investors, Top hedge funds flock into Allergan amid bid backed by Ackman, Soros Fund Management exits stake in some tech companies, Jana buys FMC stake, adds to AIG, exits Sirius in quarter[more]

    Hedge funds feasting on Apple again From Forbes.com: Robert Citrone and Phillippe Laffont are two of the most prominent Tiger Cubs, hedge fund managers who once worked for legendary money man Julian Robertson’s Tiger Management. Both of them had a rough start to 2014 and sold the bulk of

  2. Legal – Pershing Square sues U.S. over Fannie Mae and Freddie Mac, Elan investors sue SAC over insider-trading losses, Lawsuit loss by hedge fund is just a cost of doing business[more]

    Pershing Square sues U.S. over Fannie Mae and Freddie Mac From WSJ.com: William Ackman's Pershing Square Capital Management LP, which has taken sizable stakes in the common shares of Fannie Mae and Freddie Mac, filed a lawsuit Thursday against the U.S. government challenging its bailout

  3. Private equity follows hedge funds into reinsurance for long-term capital[more]

    From Artemis.bm: It’s not just hedge funds that are entering the insurance and reinsurance market in search of so-called long-term capital to put to work in their strategies, private equity firms targeting the space are also seeking opportunities to add assets under management. The entry of large pr

  4. North America – New York City’s next hot neighborhoods targeted with property funds[more]

    From Bloomberg.com: New York’s real estate world is filled with tales of ordinary people who bought property decades ago and saw values skyrocket to the millions. Seth Weissman is seeking investors to get in early on the next hot neighborhoods. The veteran of Goldman Sachs Group Inc. and hedge

  5. Investing – George Soros bets $2bn on stock market collapse, Warren Buffett's Berkshire reveals Charter stake, cuts DirecTV, Hedge funds lusting to cash out of MGM, Top hedge fund managers are buying Ally Financial, Hedge funds dumped 5m Herbalife shares in Q2, Paulson & Co hedge fund ups Puerto Rico real estate bet, Netflix Inc., Citigroup Inc, Google Inc are top new picks in Tiger Management’s 13F[more]

    George Soros bets $2bn on stock market collapse From Newsmax.com: Billionaire investor George Soros has increased his financial bet that U.S. stocks will collapse to more than $2 billion. The legendary hedge fund manager has been raising his negative bet on the Standard & Poor's 500 Inde