Seeking a Way Out: Hedge Fund Investors Turning to Secondary Market to Get Out of Investments

Liquidity has become a scarce and increasingly coveted resource in the hedge fund community.  On the investor side, longer lock ups mean less liquidity of hedge fund investments; many investors would like the performance or diversification benefits of a hedge fund investment without the long lock up.  And on the manager side, investor redemptions and margin calls often require asset sales at inopportune times; all things being equal, mangers generally would prefer to select the timing of purchases and sales of assets rather than having that timing imposed on them, especially for non-investment considerations.  Secondary markets for hedge fund interests have grown in popularity of late as a method – albeit not without criticism – of reconciling the interests of hedge fund managers and investors and the pervasive need for liquidity in a tight credit environment.

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