Deal flow strong in alternatives secondary market, says Cattegatt
Cattegatt Capital, a specialist broker for alternative investments in the secondary market, says it is seeing growing interest from investors seeking “esoteric hedge fund strategies”.
London based Cattegatt’s focus is illiquid assets in hedge funds, private equity and other assets. Its business is to identify counterparties for direct placings, consortiums and auctions, on behalf of wealth managers, family offices, private banks, pension funds, insurance companies, investment banks and funds of funds.
The broker’s founder Lars Lindqvist said that this part of the secondary market had changed since the days after the Lehman Brothers collapse, when prices were forced down because of the need by sellers to obtain liquidity at any cost. This resulted in some sellers being afraid to enter the market – fearful of being subject to ‘low ball’ bids.
However, Lindqvist said the market has changed, and the presence of more sophisticated investors has increased the amount of information in the market, leading to pricing being set in a different environment.
Those involved in buying the types of illiquid assets that Cattegatt focuses on include Tier 1 investment global investment houses, family offices with long term investment objectives and, increasingly, funds of funds.
Lindqvist said that while these assets would not constitute the typical holding in a fof portfolio, as they are illiquid, some fof structures would allow for this, such as those whose fortunes were not dependent on which way quarterly redemptions might go.
The lack of liquidity meant that any investors ought to aim for a minimum holding period of 3 years, up to 10 years depending on the strategy.
The current size of the overall market is hard to determine for a number of reasons, Lindqvist added. One is that sellers now are not distressed as they were when Lehmans went down. Therefore this can affect the timing on any deals. The popularity of a ‘placing model’ means sellers are afforded time to see what buyers want.