New Secondary Market Platforms Emerge

Nov 30 2012 | 12:22pm ET

Two firms are building new secondary-market hedge fund platforms with an eye towards the future.

Wake20 has already launched its system, while Tullett Prebon's remains in the works. Both firms tell the Financial Times that they envision a growing and broadening secondary market as clients increasingly look for ways out of illiquid funds and others seek bargains or access to otherwise closed firms.

Tullett Prebon's planned platform will be a departure from the traditional secondary-market system, in which one investor sells his or her interest in a hedge fund to another. Instead, Tullett Prebon will offer contracts for difference on their hedge fund stakes, allowing investors to trade a fund's returns without actually having to give up their stake in a fund.

Tullett Prebon's Neil Campbell told the FT that its contracts for difference platform is designed to keep the secondary market flourishing. While the firm said that this year will be its best ever in side-pocket brokerage, the firm fears that business line may only have a few years left.

Geneva, Switzerland-based Wake20 launched its platform in September, with 60 hedge funds signed up to participate. The firm is in talks with another 50 hedge funds about joining the platform.

"Traditionally, hedge fund managers have restricted access to a privileged set of investors, but post-2008, managers are much more humble," Wake20 founder Derek Watson told the FT. "They are trying to grow their businesses, and [the ability to sell investments] could mean investors who need access to liquidity are more willing to invest in hedge funds."

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