Hedge fund liquidity may prove fleeting

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This chart from Hedgebay shows the flooded story of secondary hedge fund transactions (that Hedgebay has in their database). The discount, which seems to be permanent for now indicates the liquidity premium one would obligation to go into a fund that is presumably locked (via a lock-up, a gate, or a general redemption suspension).




Some of the discount haw be appraisal uncertainties, but with every the scrutiny on hedge assets these days, most appraisal uncertainties would hit been vetted with third parties. If they haven't been, no one would acquire much fund even at a 10-15% discount.

Such liquidity premium means that assets who wage the best liquidity cost (within their strategy category) module be able to improve more top than those who hit long lock-ups and sidepockets.

It's somewhat of a chanceful game because this haw create an asset-liability mismatch. That is assets module offer delusive liquidity cost meet to intend the top in the door. As assets embellish fully priced and rates move to stay low, hedge assets module be pressured to essay discover inferior liquefied strategies to squeeze discover incremental returns. They haw deploy leverage, making inferior liquefied investments even more illiquid. The liquidity of the portfolio module embellish "mismatched" with the liquidity cost for redemptions (the badness side).

And when redemptions increase, assets module place up gates and we are backwards where we started. As much as institutions, particularly assets of assets essay the liquidity holy grail, these investments are not mutual funds, and the most "investor-friendly" liquidity cost haw not wage the investor protection these institutions expect.



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