Secondary Hedge Fund Market Struggles Continue

The secondary market for hedge fund assets has improved somewhat, but huge discounts to NAV persist.

he average price of secondary hedge fund assets rose for the first time in seven months in April and May 2009. The average discount to NAV fell in half to a still high 10%. After promising signs in April and May, the average discount rose again in June.

“A large proportion of the rise in the average price of sales is due to the trading of funds whose underlying assets are generally liquid and performing well. It is notable that investors now have the confidence to pay a higher price for these assets,” said Elias Tueta, of Hedgebay, the author of the report.

But isn't their something discouraging about discounts of more than 10% for sellers of hedge fund assets considering that many of the underlying funds profit on intraday moves of fractions of a percent? Of course, some discount is rational to account for the illiquidity the buyer takes on.

A secondary market for hedge fund assets would provide hedge fund investors an opportunity to dispose of their interests in a fund to a qualified buyer, without having to meet the actual hedge fund's redemption requirements.