27 Oct 2011
The Hedgebay Index for Q3 has claimed that continued illiquidity and a shift in the price of underlying assets in the secondary hedge fund market has caused fluctuating trading levels in the last few months.
Secondary market trading data from July to September has shown that despite a steady rise in the average price in Q3, volatility is still to be expected. The index has shown that the average discount to NAV on transactions completed in the third quarter of 2011 has climbed steadily from around 70% in July to 85% in September.
However previous pricing levels, notably June’s average price of 82%, indicate that the market is still largely in a state of fluctuation. This suggests that investors have yet to find a consistent level of pricing compared to the value of their assets.
The summer months’ trading also showed that transactions are reflecting a fundamental shift in the prices of underlying assets, a theme that has characterised the secondary market since 2008. The uncertainty among investors that these factors have caused continues to keep the average price of completed transactions at around the three quarter to NAV mark - with the long awaited market recovery still seemingly some way off.
While uncertainty is still the chief sentiment among investors, Hedgebay has pointed to an increasing interest in near par trades, where prices come close to the NAV valuation of assets, as a positive signal that investors are willing to explore the kind of prices that characterized the market before the downturn.
Secondary market trading data from July to September has shown that despite a steady rise in the average price in Q3, volatility is still to be expected. The index has shown that the average discount to NAV on transactions completed in the third quarter of 2011 has climbed steadily from around 70% in July to 85% in September.
However previous pricing levels, notably June’s average price of 82%, indicate that the market is still largely in a state of fluctuation. This suggests that investors have yet to find a consistent level of pricing compared to the value of their assets.
The summer months’ trading also showed that transactions are reflecting a fundamental shift in the prices of underlying assets, a theme that has characterised the secondary market since 2008. The uncertainty among investors that these factors have caused continues to keep the average price of completed transactions at around the three quarter to NAV mark - with the long awaited market recovery still seemingly some way off.
Lindsay Clavel, Hedgebay’s managing director for Europe said, “The fluctuating pricing suggests that the market is still unsure of exactly where it stands between crisis and recovery. The overall pattern of trading is still being dictated by the legacy effects of the downturn, with the amount of illiquid assets, liquidity demands and portfolio construction all playing a part. It is currently very difficult for buyers or sellers to determine a true and fair valuation for assets, with much of the pricing dependent on the requirements of the individuals involved. I believe this is why we are seeing such volatile pricing.”
While uncertainty is still the chief sentiment among investors, Hedgebay has pointed to an increasing interest in near par trades, where prices come close to the NAV valuation of assets, as a positive signal that investors are willing to explore the kind of prices that characterized the market before the downturn.
