Secondary Hedge Fund Marketplace Sees Broad Selloff

Jan 31 2011 | 9:54am ET

The secondary market recently witnessed one of the broadest selling effort by investors in the secondary space in the decade since the market was established. According to Elias Tueta, co-founder of secondary hedge fund marketplace Hedgebay, a high volume of trading across the spectrum of strategies in December suggests a methodical clearing of assets by investors preparing for 2011.

The average price of trades for December registered at 72.81% for the month, a slight drop from November. Tueta attributes the fall to a change in investors’ priorities this month. While the pricing of trades is normally the top priority for investors, the disposal of assets was the main concern as the year-end neared. Investors are eager to cleanse their portfolios to start 2011 fresh.

“The selling we saw in December was not only widespread, it was calculated and methodical. In the years since the credit crunch we have seen individual investors or groups of investors make a determined effort to clean their portfolios, but never before have we seen it across the whole secondary market. Two thousand and eleven looks set to be another strong year of recovery for the hedge fund market and this was a concerted effort by investors to start the year with a clean slate,” Tueta said.

Despite the pervasiveness of the liquidation, legacy assets still remain on the market, particularly at the illiquid end of the spectrum. While assets that were gated, side-pocketed or suspended due to the credit crunch are still residing on investor balance sheets for the moment, Hedgebay believes that a long-term shift in these assets could help stimulate market growth.

“Looking forward to 2011, it looks to be a year of growth in the secondary market,” he said.  “The presence of transparency could make all the difference in rectifying this volatile situation. The overhang of legacy assets could be alleviated as a result and therefore create the confidence investors need in order to reinvest their capital, generating more demand and growth for the industry generally.”

Hedgebay’s Illiquid Asset Index, which measures trading in gated or suspended funds, rose 15.94% in December, the second month in a row the index has climbed. 

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