Thursday, June 11, 2009

Secondary hedge fund transactions show less desperation

Hedgebay a facilitator of secondary hedge fund transactions (the supposed E-bay for hedge funds), released their monthly results on secondary transaction valuations. Numerous hedge fund investors in need of liquidity who got slammed with gates, redemption suspensions, or have long lockups have been trying to get their money out. The only way to do that is to privately sell their investment to a third party (who is less concerned about liquidity) at a discount to NAV. The index below is a compilation of some fraction of secondary transactions that Hedgebay was involved with (or has access to).

We saw a large dip earlier in the year as investors were desperate to get out. Now however the discounts are much smaller. Does that mean improved confidence in the hedge fund asset space? Explanations have to do with fund managers lifting (or promising to lift) gates, hedge fund improved performance this year (we'll discuss that shortly), and just the fact that those who desperately needed liquidity may already have it (so less need to sell at a large discount). This result however is basesd on significantly lower volumes:

"volume was muted – both in terms of number of transactions taking place as well as in the absolute amount of closed transactions. The two categories showed the lowest totals for the year while volume was the lowest monthly total in the last 8 months."

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