The Shelley Capital Case Study by Harvard Business School

The Harvard Business School recently published a case study on Shelley Capital as advisors to the secondary market of hedge funds.  The case will be used as teaching material on the Harvard MBA and Executive MBA programs.  It was first presented on 11th July at a HBS Investment Management Workshop, which brought together over 70 high-caliber asset management professionals.

Shelley attracted the attention of the Harvard Business School because of our specialised experience, the breadth of our client base and our proprietary transaction process. The case study aims to unravel the complexity of our business by means of a live example. At a higher level it gives insight into the evolution of the secondary market of hedge funds: its origins, its current structure and its possible future direction.

The case study can be purchased for US$ 6.95 on Harvard Business School’s official website:

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Pricing Risk for Hedge Fund Illiquid Assets

At Shelley capital, we take the view that the current debt crisis and economic slowdown could make the pricing of illiquid hedge funds assets more difficult and lead to delayed/reduced cash flow realisations. Against this uncertain climate, clients might consider transacting on the secondary market of hedge funds while they can.

Some forced selling might be on the cards in order to secure cash in hands now and not risk uncertain price realisations in three or four year’s time. A prolonged period of turbulence would negatively impact the pricing of illiquid hedge fund assets for a number of reasons:

  1. Cash-flow expectations may be significantly reduced, resulting in lower IRRs for buyers at current prices.
  2. An uncertain macro backdrop would exacerbate the inherent difficulty of valuing hedge-fund secondaries.  Additional provisioning at fund levels might therefore crop up.
  3. All classes of hedge-fund illiquids will be affected.  The PE features of most side pockets, for instance, make them directly correlated to the corporate sector, while ABL funds would suffer similarly from deteriorating credit conditions.

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Brisk Business in June

Shelley has won several new mandates in June while closing a number of transactions. In general, prices are holding up despite the growing illiquidity of the holdings for sale. Interest from buyers and sellers remains high and we are advising our clients to take advantage of this favourable climate while it lasts.

Shelley’s main projects are as follows: (Shelley Capital – June Newsletter)

  • Closure of a $21m portfolio sold by a Global Financial Institution.
  • Launch of second round bids for a $84m US portfolio.
  • Buyers due diligence for two separate ABL Funds of Funds, with NAVs of ~$10m and ~$210m respectively.
  • New sale mandate for a $200m diversified liquidating portfolio.