Trading of alternative assets such as hedge funds, private equity and real estate using secondary platforms and providers has become increasingly popular in the last five years. Since the global financial crisis of 2008-2009, investors from across the investment spectrum have used the secondary market as a liquidity tool – with many now considering secondary platforms as a vital part of their investment process.
Secondary transactions in fund interests tend to be opaque. To address that, Tullett Prebon Alternative Investments has launched a screen-based matching engine called Tullett Prebon Alternative Investments Matching Engine to better facilitate transactions in alternative investments. In addition to functioning as a price discovery and matching engine, the screen also facilitates auctions in hedge fund, private equity and real estate fund interests, the company says,
The objective of TP-AIME is to increase transparency, simplify the arranging of transactions and make trade-settlement more efficient. “We act as the intermediary to find a buyer or seller,” Suchita Nayar, head of alternative investments North America at Tullett Prebon, told Markets Media. “We match the bid and the ask, and once the terms are agreed to on both sides, we introduce the buyer and the seller for direct counter party settlement. It's all anonymous and discreet.”
Tullett Prebon has been brokering these assets as well as running competitive and independent manager-led auctions since 2009. TP-AIME is the next step in the evolution of the market from a purely voice-based model to a hybrid voice-electronic model. “It's a matching system for buyers and sellers,” said Nayar. “Suppose you have a $2 million position and want to get out of it. You will enter that position on the screen and there maybe will be a matching bid on the screen already for that fund, or if there isn't, somebody might see your offer and place a bid into the system.”
“You can see it on the screen, it's transparent, and it's more readily available to a wider base of participants, such as family offices” Nayar added. “It no longer has to be limited to the largest private equity buyers or the largest hedge fund buyers, who may have limited interest in smaller positions.”
TP-AIME is aimed at limited partners looking to buy or sell illiquid interests, as well as general partners who can employ it as a tool for one-time managed liquidity events aimed at investors that remain in tail-end funds, as well as offering their investors a periodic source of liquidity from ongoing funds.
Alternative assets such as private equity, venture capital, and real estate have traditionally been long-tailed, but hedge funds have also become so in recent years. “Private equity exposure can be 10 years, 12 years, similarly to real estate and venture capital,” Nayar said. “Hedge funds typically were not that long-tailed, they were supposedly one year liquidity or 2-3 year cycles, but post '08, some of these assets had to be side pocketed within hedge funds, which became long-tailed share classes. So different structures were set up to silo off assets within hedge funds.”
The auction functions can be used for both tail-ended funds and ongoing funds. For instance, if an ongoing fund wants to provide liquidity to its investors once a year, or maybe semi-annually, the GP can run an auction with the screen managing all the bids, and it can all be done at an arm’s length, away from the GP.
The matching engine is web based. “Your interface is Explorer or whatever else you use,” Nayar said. “There are no expensive software downloads or special dashboards that you need. So it is a secure system yet it is web-enabled so that it's easy for everybody to use and it is widely available.”
Featured image by Michael Flippo/Dollar Photo Club