Hedgebay has published the results of a survey conducted amongst its high profile hedge fund, institutional and banking clients designed to pinpoint potential improvements that could be made in secondary market trading.
More than 150 firms from across Hedgebay’s user base took part in the survey, including hedge funds, funds of funds, pension funds, insurance companies, family offices and banks. Questions were asked to determine how far the secondary market for hedge funds has come, and whether any improvements need to be made.
Trading in hedge fund secondaries has seen its popularity skyrocket since the financial crisis, as investors from across the spectrum use the secondary market to capture liquidity. With a significant number of users new to the market in recent years, and as the market becomes ever more mainstream, Hedgebay believes that education of users is critical to the industry’s evolution.
Jared Herman, founder of Hedgebay, says: “It’s crucial that as the industry grows, it also matures. The massive increase in the number of investors trading hedge fund secondaries means there are more and more new users coming to the market. Secondary trading is in many ways a peer-to-peer dynamic – the users themselves are responsible for the information and behaviour that characterise trading. It’s therefore crucial that Hedgebay, as trading facilitators, do what we can to encourage ever-increasing best practice in the market.”
The survey polled respondents on a number of areas, including current levels of secondary market activity and views on how established the market now is. Hedgebay also asked for users’ thoughts on potential improvements the secondary market for hedge funds could benefit from. The following areas were identified as ways to increase efficiency and information in the market:
• More transparency in the underlying funds
• Benchmarking for easy price checking
• Greater transaction due diligence
• Education of the target audience
• More efficient price discovery
Survey data showed that 80 per cent of respondents feel that the market has now established itself, but that there is room for it to grow further. Some stress the need for greater transparency in order to make the underlying funds more visible. Others believe that the target audience, the hedge funds themselves, need to be further educated regarding the benefits the market can provide funds seeking additional sources of liquidity.
Herman says: “The feedback from our clients, particularly long-standing users of the secondary market, is reflective of how the market is developing. Investors from across the market are waking up to the benefit of secondary trading. That’s a huge positive for the secondary industry, and a major reason it has become so mainstream. However, the rapid change the market has experienced means that we need to continue to guide investors in using the market most efficiently. This survey is extremely useful in showing us where those improvements can be made – and where our education of users will have the most impact.”
Hedgebay became the first company to report data and trends on the secondary market with the launch of its monthly Secondary Market Index. The index detailed transaction prices, trading volumes and asset classes being bought and sold, providing for the first time insight into the secondary market functions.