Secondary Market Tumbles Despite Uptick In Volume

Oct 1 2010 | 3:31am ET

Hedge fund investors were busy buying and selling stakes on the secondary market last month—busier than they have been all year, in fact.

According to Hedgebay, the hedge fund secondary market saw its highest trading volume of 2010 in August. Gated funds, and others with redemption restrictions, in particular were changing hands.

“The relative quiet in August allowed investors to refocus on cleaning their balance sheets, which in part explains the drop in average price from last month,” Hedgebay’s Elias Tueta said. “With much of the trading taking place in gated and suspended funds, investors are currently focused on making sure their portfolios are set for when the market resumes in earnest.”

“It is not certain at this stage whether trading patterns in these illiquid assets are being driven by investors’ fears or by other random market factors such as distribution,” Tueta added. What is certain is that, in spite of the increased activity, secondary hedge fund stakes continue to decline in value.

The average price on Hedgebay’s Secondary Market Index dropped for the third straight month in August, to 74% of net asset value. It’s Illiquid Asset Index took an even bigger hit, dropping 23 points to just 44% last month.

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