A steady rise in transaction frequency characterised the last quarter of 2011, a year that Hedgebay believes could be seen as significant in the history of the secondary market.
The recent volume has seen 2011 trading levels surpass those of 2010, and alongside improving depth and breadth in the market place, both in the number of participants and types of investors, points to the increasing popularity of secondary trading.
With an increasing number of participants using the market to both access high performing hedge funds and remove illiquid assets from their portfolios, pricing remains volatile. The full breadth of pricing was seen in the fourth quarter, with trades completed at 1% and 100% of NAV, clearly showing the dispersion of assets being traded.
The average price of completed trades showed similar volatility, falling from 79% in October to 65% in November, before rising again 86% in December – a year-long high. Lindsey Clavel, Managing Director for Europe, believes the rise in price from November to December is an encouraging sign for investors.
Lindsey Clavel says: “In the years since the crisis we have seen the average price drop in December, as investors eager to clean up their portfolios for year-end settle for lower prices for their illiquid assets. The fact that the average price rose to a year long high, combined with the high level of trading volume, may signal that the market is finally coming to terms with its liquidity issues.
The recent market movement aside, Hedgebay believes that 2011 represented a significant year in the secondary market’s life, with a new range of investors finding value in using the secondary market. Increasingly regulated engagement between buyers and sellers also points to the emergence of a more mature secondary market.
Lindsey continues: “2011 saw a rise in overall trading volume and a significant influx of new market participants. We have also seen subtle shifts of behaviour from secondary market users, with improving cooperation between managers in fostering the industry. This all adds up to a deeper and more mature secondary market, and we believe this will attract even more participants to the market in 2012. We expect another year of growth and evolution of the market next year.”
2011 was also notable for a number of new service providers entering the industry, yet more evidence of the secondary market’s place in the financial mainstream. However, with one high profile provider exiting the market recently, Hedgebay has warned that the increasing number of competitors will lead to a survival of the fittest among providers:
Lindsey says: “We see it as a boon for the secondary market to have a number of providers competing for investors, and this competition has undoubtedly contributed to both the size and professionalism of the industry. However, as that trend increases we will see the best providers flourish, while others may exit. This will ultimately benefit the industry’s maturation. Hedgebay pioneered the market twelve years and almost USD6 billion worth of trades ago, and it is exciting to see the market how much the industry has evolved since then.”