Secondary Hedge Fund Market Activity Increases

The secondary hedge fund market has grown while other areas of the hedge fund industry have contracted during the financial crisis.   The secondary hedge fund market gives investors the opportunity to sell stakes in funds with long lockup periods or limits for redemptions as well as providing access to funds not currently accepting new investors.  The increase in secondary market activity is a result of managers trying to keep investors with long lock up periods and limiting redemptions.  Investors responded by turning to the secondary market to sell their stakes, usually at a heavy loss.

Hedgebay, a leading secondary market player that’s been in the business for a decade, helped investors buy and sell stakes representing roughly $1 billion in assets under management last year. The firm has completed more deals so far in 2009 than in all of last year.

Citco, a large banking and custody firm, has offered similar services for many years, while Swiss bank Credit Suisse (CS) and NYPPEX are also active in the market. But a slew of new rivals have entered this year, including CogentMarkets, SecondMarket, 2n20.com and the largest interdealer brokers ICAP and Tullett Prebon PLC (TLPR.LN).

So many firms have got into the nascent business that there may not be enough action for everyone to survive.  “A lot of players will show up when there’s money to be made,” said Bradley Alford, head of Atlanta-based Alpha Capital Management LLC. “There are all kinds of secondary hedge fund players now and not enough supply out there.”  Source

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