Archive for the ‘Illiquid hedge funds’ Category


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.

A bumper 2011 for the secondary market

A bumper 2011 for the secondary market. This is the prediction of leading research firm Preqin published in their March special report entitled “Secondary Market Outlook”. Whilst the report focuses predominantly on PE investments, Shelley capital believes that most of the trends apply to the secondary market of hedge funds as well. Read on