Wed, 05/09/2012 - 16:20
Hedgebay has called on hedge fund managers to take advantage of secondary market platforms, claiming they can provide a permanent source of funding.
The call comes in the wake of a recent survey on the private placement industry by trading and risk solutions provider Simplify.
The survey, which polled around 500 private placement users, showed that 100 per cent of respondents had traded hedge fund shares on a secondary basis – proving the popularity of secondary markets among hedge fund investors
The survey claimed that private placements are set to double in 2013. However Hedgebay, who was shown to be the most popular broker with 42 per cent of those polled having used their platform, claims that this statistic depends on manager uptake of the secondary market.
Since the credit crisis, volume on the hedge fund secondary market has surged, with many investors needing quick access to liquidity. That activity has seen the secondary market become a mainstream tool for the market. However, most managers have yet to use the secondary market on a consistent basis, thus potentially missing out on the best price for their shares as a result.
Jared Herman, founder of Hedgebay, says: “The majority of hedge fund managers have yet to embrace the potential of the secondary market, preferring to handle the private placement process themselves. As a result, they don’t have access to the range of price offers they could get from a platform, which means they are limiting the chances of getting maximum value from their shares. Volume on the secondary market has increased hugely since the financial crisis, but until managers start taking advantage of secondary trading it is difficult to see how the market will double within the next year.”
Moreover, Hedgebay believes that greater manager involvement would lead to further maturation of the secondary market. With broader and more liquid pricing options available, managers would be able to take advantage of a consistent source of funding, known as “permanent capital”. Permanent capital – the ability to protect against redemptions by having access to a constant source of capital – is much sought after among hedge fund managers.
A number of high profile managers have recently launched publicly listed reinsurance products, providing them with a stable pool of capital that can be invested over long term periods. Hedgebay believes that an evolved secondary market could perform a similar function for all hedge fund managers, giving them instant access to investors in the event of redemptions in their fund.
Herman says: “A source of permanent capital has long been the holy grail of hedge fund managers, but most don’t have the option of backing or launching a reinsurance vehicle, and even those that have had limited success so far. The secondary market gives managers access to a permanent source of funding, as well as creating a broader and more liquid for all investors, on the buy and sell sides.”
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