A brisk month of trading on the secondary market saw investors move funds in all available asset classes, according to Hedgebay’s Global Hedge Fund Secondary Market Index, with private equity and credit strategies particularly popular.
The diversification of trading in September, combined with the high volume of trades, indicates that investors have returned to the secondary market in earnest after reduced volume over the summer months.
The heavy trading saw the index rise five per cent to 78.93 per cent, a rise of over 450 basis points from August.
The rise was partially driven by return of near-par trading, trading around 100 per cent of NAV, with some trades even reaching 100 per cent.
These trading patterns were likely driven by sellers attempting to harness short term liquidity to meet quarterly redemption demands, while there remain many high quality underlying shares to tempt the buy-side at the right price.
Elias Tueta, co-founder of Hedgebay, says: “September is traditionally one of the quieter months on the secondary market, but increasingly we are seeing that tradition no longer applies in the aftermath of the credit crisis. This time around, September saw some of the most diverse trading we have seen in some time. With the end of the third quarter nearing, the scramble for liquidity meant that sellers were willing to settle for slightly reduced prices for assets in any class. The number of high quality hedge fund shares still on the market means that there will always be willing buyers for these reduced assets, and this sparked much of the near par trading we saw in September.”
Hedgebay’s Illiquid Asset Index, which measures trading in gated or suspended funds, also registered a modest rise to 47.58 per cent.
Trading in this section of the market has been extremely volatile this year, most notable with a month to month percentage swing of nearly 50 per cent recorded between May and June.
This volatility has made it impossible for investors to become comfortable in trading in these assets. This month’s price difference, the smallest percentage change so far this year, hints that some stability may be returning to this end of the market.
Tueta adds: “Many investors in these gated or suspended are currently trading in hope, rather than any firm expectation, about what kind of price level they can expect, which makes any kind of consistent trade strategy extremely difficult. Some price stability would be extremely welcome, and this month’s rise is certainly a step in that direction. Given the volatility we have seen so far this year, however, it would be premature to draw any firm conclusions.”