13/12/2011
By Matt Ritchie
The current debt crisis enveloping Europe is likely to have lasting impacts on the hedge fund secondary market, according to a specialist alternatives broker.
Cattegatt Capital founder and chief executive Lars Lindqvist has released a note saying that the crisis will likely see the market “return to its origins” as a secondary market for closed on-going funds trading at a premium or modest discount.
“Unless of course, there is a meltdown – for example, if the euro collapses you will have a domino effect throughout the financial system.”
Lindqvist predicted this to result in “major illiquidity”, accelerating the hedge fund secondary market and potentially resulting in Ucits funds proving to be less liquid than anticipated.
As the market is “self-liquidating”, with a piece of the market disappearing each time assets are successfully placed, the market was predicted to be unsustainable in its current form with a large portion of participants selling “very actively”.
However, the naturally illiquid private equity market was expected to remain more stable, with the supply side driven by continuous needs to meet capital requirements alongside internal strategic changes among asset managers.
“On the demand side you have an unprecedented number of secondary funds eager to deploy cash, low valuations and large corporate cash balances, which stimulate pricing, unless there is an accelerating meltdown in which case there is a whole new scenario,” Lindqvist said.
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