How do investors get access to the most sought after hedge fund managers?
The answer is the secondary market.
One firm, Hedgebay, provides the “gateway to the secondary market” for hedge funds. The firm matches sophisticated buyers and sellers of hedge fund interests and other illiquid alternative investment assets.
Who is participating the secondary market? Funds of hedge funds, ultra high net worth investors and family offices, pension funds, endowments and foundations.
For years, the only way to invest in the highest regarded hedge funds was to be in the tight group of elite investors with access to top managers. With the shift in markets, many more managers are accepting new investors.
Despite continuing demand for top funds, prices of hedge fund positions have fallen. Sellers who need to offload assets must be willing to accept what the market will bear. Sometimes that price is a small fraction of original face value.
The selling price may be painful for investors but a necessary evil in an effort to avoid further losses. In the wake of the financial crisis, funds have been created for the sole purpose of buying stakes in distressed-priced funds.
In terms of winners and losers, the secondary market works like the primary market.
It just depends what side of the transaction you are on.