GLOBAL - Pension funds are increasingly using private exchanges to trade stakes in hedge funds and are now more often buyers than sellers, HedgeBay says.
Elias Tueta says since the start of the crunch global pension funds have increased their use of HedgeBay, the secondaries trading exchange he co-founded in 1999, more than tenfold.They now represent at least 15% of HedgeBay's total activity.
Tueta added five buyers now line up for every seller, reflecting thawing in previously frozen markets and a recognition the credit crunch is now largely over.
He said where pensions understood the stake and had confidence in the manager and his strategy, they were willing to buy troubled assets, even where the ‘work-out' period could last up to five years.
"Astute pension funds look at it and, if they like it and have confidence in the manager, they can say they can wait three to five years without flinching," he said
Tueta said troubled assets such as those linked to Lehman Brothers and Chrysler will take years to unravel, often through bankruptcy courts.
There has, however, been growing investor disquiet recently over how slowly some managers are selling assets isolated from forced sale during the crisis.
Chris Jones, chief investment officer at Key Asset Management, which invests pension fund money in hedge funds, said managers could not be blamed during the crunch for having used pre-exiting provisions to bar assets from redemption.
"But some funds have been quite slow to pay back money, and are making decisions contrary to what investors want, holding out for value rather than taking advantage of liquidity," he added.
"Managers in the event-driven strategy, for example, could sell assets now or during last year, but some did not."
The issue is made more contentious by the fact some managers charge investors fees on unredeemable assets, Jones said.
Stakes in gated or suspended hedge funds on HedgeBay changed hands, on average, at a 56% discount to their NAVs in August, far cheaper than the average 32% discount the month before.
Stakes in standard hedge funds traded 26% below NAV in August, marginally wider than the 25% discount of July and significantly wider than April's average discount of just 8%.
Tueta said pensions are increasingly willing to pay near NAV to buy good funds from sellers seeking to avoid a 0.5% or 1% penalty for redeeming in the conventional way.
He added pensions are also using private exchanges instead of potentially lengthy withdrawal procedures to trim holdings in "superstar managers", which have appreciated in value since the crunch.
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