The average discount for secondary hedge fund transactions as a percentage of NAV registered a -5% drop in September, according to market data from Tullett Prebon. The firm attributed this to anticipated fund drawdowns and highly turbulent markets.

Tullett Prebon said it is too early to conclude whether this will trigger another wave of supply in the secondary market. It noted that the performance data coming out of a number of funds has been very weak, and could well have an impact on fund of fund redemptions for the third and fourth quarters. Whether fund of funds will utilise the secondary market to manage those outflows remains uncertain.  

“While many buyers are still willing to price funds rather than wait on the sidelines, they are much less likely to chase supply now than they were a few months ago,” the firm said in its Alternative Investments Market Commentary. “In turn, sellers need to decide whether to accept a lower price for their assets now, or weather the storm and hope that pricing recovers in the coming months. This market dynamic is significantly different from a few months ago, where buyers were often bidding higher on names just to get deals done and hoping that by buying now they would avoid having to pay a higher price in the future.”

Tullett Prebon said that the fourth quarter will be very telling for the secondary market and for hedge funds. It added that if markets continue to be volatile, there could be a significant uptick in the volume of transactions by the end of the year.