Private Equity Hedge Fund Secondaries

Private Equity Looks to Buy Illiquid Hedge Fund Stakes

Private equity firms are among the potential investors in the hedge fund secondaries market.  Some hedge fund investors are still worried about liquidity after being stuck with illiquid hedge fund investments during the financial crisis.  Now that the hedge fund industry and markets are recovering, buyout firms and other buyers are looking to purchase stakes in hedge funds.  The hedge fund secondaries market has expanded to several billion dollars a year and there are still a lot of investors interested in selling.

Some niche firms are buying these stakes at discounted prices, willing to wait months or years until a fund winds up, hoping they’ve picked up a bargain when they are finally paid out. Campbell said the firm regularly spoke to around six such funds, as well as other buyers.

The market has developed after the turmoil of 2008, when many funds were unable to meet requests to return client money and instead limited or suspended redemptions. Worst affected were funds which had loaded up on illiquid assets such as debt in struggling sectors or certain emerging markets assets.
The price buyers are willing to pay has risen this year, Campbell said, reflecting improvement in the industry as a whole as investors return and performance has picked up.

A large overhang of stock remains, but new buyers such as niche private equity firms are entering the market and, after doing their homework, are prepared to hold the acquired stakes until a fund winds up, Campbell said.  Source

Read about the differences between private equity and hedge funds here.

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