Interdealer brokers and large banks are seeking to cash in on the secondary market for hedge funds, private equity and real estate, which took off in 2008 and still remains strong.
Gottex Brokers Alternative (GBA), a broker in the secondary markets for alternative investments, is strengthening its U.S. operations by opening an office in New York, through its subsidiary, Gottex Brokers Alternative USA.
Gottex Brokers, a Swiss interdealer broker for interest rate derivatives, launched Gottex Brokers Alternative in order to leverage its nearly 30 years’ experience in navigating illiquid markets on behalf of institutional clients.
“Gottex Brokers created Gottex Brokers Alternative basically to get into the secondary market for hedge funds, which developed nicely with a strong European clientele and some U.S. clients,” said Bruno Bardavid, CEO of Gottex Brokers Alternative USA, which is based in Los Angeles. “We bring buyers and sellers together. We are an agency broker and we take a commission.”
The expansion in New York is the result of demand for Gottex Broker Alternative's services on the East Coast, where most market participants are located, and from where the company expects to provide much-needed liquidity in the secondary markets.
“The secondary hedge fund market remains very active more than five years after the financial crisis,” said Raphael Moreno, CEO of Gottex Brokers, parent company of GBA. “We believe that the growth in secondary markets for illiquid assets is a long-term trend.”
Deutsche Asset & Wealth Management's Aggregator Solutions fund has either acquired or had bids accepted on positions with a net asset value of more than $400 million from professional investors since it launched in October 2012. The fund was set up to invest in illiquid or lower-liquidity hedge funds, particularly in situations where market conditions make it difficult for investors to redeem their holdings.
"Many hedge fund investors have been struggling to find liquidity since the financial crisis,” said Magnus Lorrain-Smith, head of hedge Fund secondaries at Deutsche Asset & Wealth Management. “Contrary to market expectations, the liquidity issues in the hedge fund sector have not been resolved. We continue to be able to source opportunities and provide liquidity for would-be sellers."
Aggregator Solutions recently acquired a $85 million portfolio of illiquid hedge funds from a Swiss asset manager. The fund closed in August 2013 with commitments from professional investors of $1 billion. "This acquisition adds a diversified pool of hedge funds to Aggregator Solutions' portfolio. At the same time, it provides locked-up investors with liquidity,” said Lorrain-Smith.
Trading of hedge fund shares using secondary platforms and providers has become increasingly popular in the last five years. Since the credit crisis, 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.
Hedgebay Trading Corporation, which provides a gateway for secondary market transactions, launched an electronic settlement service for the hedge fund secondary market in 2013. Hedgebay’s Electronic Settlement Service is expected to initially reduce overall trading time by up to an estimated 20%. Currently, secondary market participants rely on a manual trading and settlement process. Typically, a transaction takes at least 90 days to close.
SecondMarket, a registered broker-dealer, is offering a general solicitation service that allows an issuer to offload much of the administration burden involved in closing a Rule 506 private placement – on-boarding potential investors, verifying their accredited investor status by through manual review of documents uploaded onto our platform, electronic transaction document execution, and funds transfer.