Hedge Funds Secondary Market
Broker Working to Set Up Secondary Hedge Fund MarketHedge funds are more and more looking for ways to keep current investors happy and to draw in new investors to their funds. But one reason that investors are sometimes hesitant to commit capital is the illiquidity of these investments.
An obvious solution is a secondary market where investors can buy and sell their interest in a hedge fund, but establishing an efficient and effective marketplace has been difficult especially during the financial crisis when some managers used a side pocket provision to lock up capital, further reducing the liquidity of the investment. Wake2o, a Geneva-based broker, is working to correct this issue by setting up a secondary market and has already signed up over 60 fund managers and has plans to add more.
Wake2o, a Geneva-based broker, has signed up 60 hedge fund managers to a platform launched in September that allows investors to buy and sell stakes in their funds. It is in talks with another 50 managers about joining the platform.
“Traditionally hedge fund managers have restricted access to a privileged set of investors but post-2008 managers are much more humble,” said Derek Watson, the founder of Wake2o.
“They are trying to grow their businesses, and [the ability to sell investments] could mean investors who need access to liquidity are more willing to invest in hedge funds,” he added.
Tullett Prebon plans to offer “contracts for difference”, which allow investors to trade the returns of a particular fund. Investors could use CFDs to end their exposure to a fund’s performance, without having to formally exit the fund. Source