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Should Hedge Fund Share Repurchase/Transfer Programs Be Arm's Length Transactions?

Date: Tuesday, September 22, 2009
Author: Cogent Alternative Strategies Inc.

Unintended Consequences:
Should Hedge Fund Share Repurchase/Transfer Programs Be Arm's Length Transactions?

Introducing CogentMarkets Hedge Fund Auction Mechanism

We are hearing of more and more hedge fund managers taking advantage of the current investment climate to repurchase their own shares, coordinate transfers of fund assets for existing investors, or otherwise assist in the disposition of fund interests. These transactions are often accomplished at a discount to Net Asset Value simply because the current investor needs to cash out of an illiquid entity. If not done with a high level of transparency, this type of transaction can cause serious unintended consequences for the manager - and therefore for the remaining investors in that manager's funds. The central issue is whether this can be considered an arm's length transaction for the manager and a fair trade for the seller.

CogentMarkets, the secondary marketplace for privately placed alternative investments, has created an Auction capability providing a segregated platform apart from the website's general view of 500+ postings of indications of interest to buy and sell hedge fund assets. This extension to the regular application allows a manager to extend to its shareholders a transparent, level playing field to offer positions to a global universe of highly qualified interested investors. The manager, as an equal participant in this process, is then just another potential investor. We believe that while the manager still may possess information not available to either the sellers or to other buyers, the liability this presents is sufficiently mitigated by the platform to be considered unbiased. Depending on the circumstances underlying the specific Auction event, this capability is offered without cost or obligation to the hedge fund manager.

CogentMarkets recently conducted one such Auction on behalf of Alpstar Secured Bank Loan Fund, Ltd., a Cayman Islands exempted company that is an investor in European secured bank loans which are now, in the majority, illiquid. Because of this illiquidity the fund had suspended redemptions as it replaced its bank leverage with private term financing. Although the investment manager considers that the fund's portfolio has significant potential upside and expects it to emerge from the financing in a substantially more stable position, an auction event was arranged to benefit investors who must dispose of their assets but were otherwise locked in. The auction was considered by all parties to be a very successful and beneficial event.

Auctions are open to any qualified investment professional that is U.S. tax-exempt or otherwise a non-U.S. Person.

Come to the CogentMarkets website (https://www.cogentmarkets.com) and register for access to the highly secure, password protected secondary market trading platform. Participation is absolutely free to all qualified professionals; typically, a modest fee is charged to the seller only upon successful completion of a transaction. Note that this is a dynamic environment where indications of interest to buy or sell Fund shares may be posted and modified at will. Where buyers and sellers find common ground, transactions are processed by CogentMarkets in consideration of all applicable contingencies.

The CogentMarkets web-based platform was created in early 2009 by Cogent Alternative Strategies, Inc. to facilitate secondary trading of hedge funds, private equity, venture capital and real estate funds. The website has registered over 1000 investment professionals and carries more than 500 postings representing assets of some $3.5 billion. A number of transactions have closed and settled, and a substantial volume of transactions are currently in the process of settling, under negotiation, or otherwise in the pipeline.

Please feel free to contact us at support@cogentmarkets.com if you have any questions regarding any aspect of our service offering.

A partial listing of Postings of investment entities currently being offered for sale or being sought by potential investors are displayed at https://www.cogentmarkets.com/bulletinhf.aspx.

Best regards,

Glen Beigel
President & CEO
Cogent Alternative Strategies, Inc.
+1 516-621-6105

Tom Prunty
Senior Managing Director
Cogent Alternative Strategies, Inc.
+1 631-234-2787

David Slavin
Managing Director
Cogent Investment Research LLC
+1 609-945-0629

PLEASE NOTE: Cogent Alternative Strategies, Inc. ("CASI") is an SEC registered broker-dealer and a FINRA member. CASI and CogentMarkets are not affiliated with Cogent Partners, Cogent Partners Europe LLP or CP Cogent Securities LP.

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