Neuberger Feels Pull of Secondary Market
As the secondary market for hedge fund shares heats up, Neuberger Berman hopes to raise $500 million for an investment vehicle that would buy fund stakes at a discount.
The offering is being crafted by staffers in Neuberger's fund-of-hedge funds group, led by Eric Weinstein. The New York money-management firm is an established player in the secondary market for private equity funds, running a $2.3 billion vehicle that targets stakes in buyout and venture capital funds.
The secondary market for hedge fund shares is expected to grow as investors look to get out following the worst year in the industry's history. Neuberger is one of several firms with plans to target interests in hedge funds.
London-based Permal Group, the fund-of-funds unit of Legg Mason, is about to launch Permal Hedge Fund Opportunities, which will buy hedge fund stakes in the secondary market. Some of Permal's funds of funds have been trading secondary-market shares for years, but this would be the firm's first investment vehicle devoted solely to that market.
In the past, fund managers have discouraged investors from selling their stakes in the secondary market in order to maintain control over their investor base and avoid administrative hassles. But managers appear to be loosening their policies as they look for ways to help cash-strapped investors without being forced to liquidate assets in a depressed market.
Plainfield Asset Management, for example, recently sponsored an auction to help investors unload their stakes. The auction, run by Credit Suisse, resulted in the sale of a number of stakes at 80 cents on the dollar. GoldenTree Asset Management is sponsoring a similar auction this month.
Other firms, meanwhile, are looking to create platforms for secondary-market trading. Last month, Cogent Investment Strategies of Fairfield, Conn., announced the launch of CogentMarkets, a web-based platform designed to facilitate secondary-market transactions. And Morgan Stanley is setting up an operation that would function as a market maker for hedge fund shares. Until recently, the only significant market maker for hedge fund shares was Hedgebay, a Bahamas firm.