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Benedicte Gravrand, Opalesque Geneva:

Here is an analysis that may be of use for secondary market players trying to figure out the effects on hedge fund secondary pricing from the current market turmoil and the expected macro slowdown. According to Compagnie Financière Tradition SA (TSAF), a global interdealer broker which issued a research document on the hedge fund secondary market last week, there are ten reasons why secondary market securities holders should review their exposure to illiquid hedge fund shares.

TSAF’ 16-page report, called Downside Risks on Hedge Fund Secondary Pricing: holders' patience should be revisited, posits that the average distressed/post-restructuring position held in secondary funds has passed the point of survival stage, but it is facing pressure from excessive leverage. Holders should review their exposure because:

1. There may be drawdown of -15% / -20% in August for existing holders; 2. Macro pressures will affect fundamentals; 3. Lack of clarity may incite buyers to focus on the purchase price rather than on a speculative exit price (and push for discounts); 4. Even if August’ drawdown lead to attractive opportunities, funds will still report losses, which will make them harder to sell; 5. Valuations in extreme liquidity conditions may be less accurate; 6. Deterioration of market liquidity for these securities may delay monetiza......................

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