04/03/2010 Author: Gwyn Roberts

Institutions drive second hand purchase activity

Pension and endowment funds are piling into the secondary markets, as they attempt to pick up bargain stakes in top-performing hedge funds.

The flurry of recent interest, an upswing of almost 100%, according to secondary market platform Hedgebay, is in contrast to the generally static nature of the ‘second hand’ hedge fund space, which has returned to normal trading conditions following a busy period at the end of 2009.

Elias Tueta, founder of Hedgebay, describes current interest from the institutional sector as, “being at an all-time high, with pension and endowment funds looking at top-performing funds with longer lock-ups, allowing them to access a greater discounts.”

HFMWeek recently revealed that the Florida State University, which manages an endowment of $399m, is considering hedge fund purchases in the secondary market, according to Ralph Alvarez, associate vice president for budget/planning and financial services.

The move to pick up discounted stakes is part of a gradual repositioning of the endowment’s overall investment portfolio, with the long-term aim of investing exclusively in direct hedge fund strategies.

Hedgebay recently launched a product valuing the illiquid side-pockets of hedge funds, many of which are still subject to redemption gates. “We are already seeing interest in this from a mixture of banks, funds of hedge funds and a new wave of high-net-worth individuals,” said Tueta.  

However, the current pension and endowment interest is sticking to more transparent products, currently trading at a discount of 10%, as opposed to the expected half price reductions of side-pocketed assets.

Latin American investors are also showing an increase interest in the secondary markets, with Brazilian money in particular looking to invest in “global hedge fund brands”, according to Tueta.

“It’s a certainly a fresh interest, I guess that the secondary markets had not been on the radar here in the past,” he said.