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Financial Times‎

May 11th, 2015

Harriet Agnew and Philip Stafford in London

Tullett Prebon is launching an online platform designed to match up sellers of alternative investment positions with potential buyers, as new regulation and advances in technology pushes the industry of interdealer brokers to explore new markets. The Tullett Prebon Alternative Investments Matching Engine is aimed at investors in hedge funds, private equity and real estate funds who want to buy or sell illiquid positions, a practice that has historically been complicated and opaque.

Many of these funds have long-term liquidity structures, which mean that investors can only take their money out at specific intervals that can range from once every quarter to once every few years. The new platform is designed to increase transparency, simplify arranging of transactions and make trade settlement more efficient.

Suchita Nayar, the firm’s head of alternative investments for North America, said that several general partners have signed up to run auction events, or make it easier for clients to get in and out of positions. “We are getting close to a time when investors will be able to choose between regular liquidity events several times a year, or will be able to access immediate liquidity,” she said.

Tullett Prebon is exploring new markets outside the historic scope of interdealer brokers as the firm and its rivals adapt to deep structural change.

The broker acts as a middleman in the over-the-counter swaps and energy markets, shifting illiquid assets between buyers and sellers but the model has come under threat from regulators seeking more transparency and electronic trading, and forcing banks — the main users of OTC markets — to deleverage their balance sheets. At the same time Tullett has also lost its position as the world’s second largest interdealer broker by market capitalisation to BGC Partners, which earlier this year bought GFI Group. It is expected to announce the results of its strategic review, initiated by new chief executive John Phizackerley, next month.

Opportunities in the secondary market for hedge funds arose when assets worth billions of dollars were locked into illiquid so-called “side pockets” during the financial crisis. Hedge funds used these to carve out distressed parts of their portfolios, often flattering performance in the remaining fund.

Managers were reluctant to sell these positions for fear of taking a hit, while investors wanted their money back. As a result of this dynamic, brokers tried to develop a more liquid and efficient secondary market to trade these assets.



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