Secondary market continues to rise as investors start the year with positive outlook, says Hedgebay

Date: Wednesday, March 30, 2011
Author: HedgeWeek

The secondary market has seen the return of stability at the start of 2011, with February showing an increase in the average trade price for the second consecutive month, according to Hedgebay. The rise to 73.15%, although slight, suggested the market is establishing a more consistent average.

After last year’s volatility on the hedge fund market, the need for consistency is evident among investors. February’s index indicates 2011 could provide the stability that was missing at the end of last year.

More encouraging still was the appearance of a trade at 103%, the first premium trade since April last year. The premium trade, for a diversified commodity fund, could point to a return in pre-crisis confidence among investors. The rise in equity markets, following solid performance last year, may see investors once again paying premium prices for access to high quality hedge funds.
Hedgebay have preached caution for the time being, however. The improved financial climate and steady performance on the primary hedge fund industry in 2010 has seen the secondary market become a seller’s market. Buyers have the means to buy assets, but have been unwilling to pay for shares they deem inappropriately priced for the current state of the secondary market.

Elias Tueta, co-founder of Hedgebay, believes that the market should see this as an encouraging development, as it represents a necessary part of the market’s recovery, and an indication that 2011 could herald a return to consistent premium trading.

"The market is currently in a stasis between crisis and recovery, with trading being dictated by both the legacy effects of the downturn and increased investor confidence," he says. "Improved conditions mean that most sellers have no immediate obligation to sell, and currently buyers are unwilling to match their prices."

“This is a temporary holding pattern on the market, and is a sign that we are closer to the highs of pre-crisis trading than we are to the illiquid state of the post crisis market. Once buyers have the confidence to match sellers’ prices, we will see consistently higher average prices, and the kind of premium trade we have seen this month will become more common. The 103% trade is, we hope, a sign of things to come. Certainly, we expect 2011 to be a significant year for the hedge fund market.”

The Illiquid Asset Index (IAI) gained modestly again this month, after witnessing a significant percentage of growth in December and January.  The IAI’s steady climb since October indicates sellers may be looking to their illiquid assets whilst the SMI continues its even pace.

"The IAI indicates that now, more than ever before, investors are getting more for their money via illiquid transactions," says Teuta. "Although this month’s figures suggest that investors might be keeping a hold of their illiquid assets as they are providing a steady income in a market that is still at present, tentative."