The secondary market, where investors historically went to trade their illiquid holdings in hedge funds, private equity and other alternative investments, is increasingly a source of liquidity in normal times and not just an escape hatch for investors in duress, according to a recent survey of more than 489 institutional investors managing gross assets of USD417bn.
The survey indicates that, while USD65bn worth of secondary stakes are now traded annually, this market is expected to grow 125 per cent within the next year, to USD146bn.
Even with that increase, that trading would only represent about two per cent of a USD7trn market, leaving substantial room for further growth.
“The growth of the secondary market can only help hedge funds and private equity firms as they struggle to raise capital,” says Brian Shapiro, chief executive of Simplify, which conducted the survey. “Cash is king, and investors will be more eager to allocate if they know they aren’t checking into the Hotel California.”
Of the 55 per cent of respondents to indicate they have traded a private placement interest at least once, they reported that average time to complete the transaction was more than 90 days, an indication that the process is clearly still encumbered by prehistoric execution and settlement workflow.