Key Takeaways
- • SecondMarket reports record-breaking secondary market activity in 2010, with registered buyers and sellers surging from 2,500 in early 2009 to 15,000 by late August 2010, demonstrating accelerating interest despite recent market volatility.
- • Family offices are increasingly entering the hedge fund and private equity secondary markets as a liquidity solution, driven by overweighting in alternatives and the need to exit long-term illiquid commitments (typically 10-year lockups).
- • Jeffrey Bollerman, SecondMarket managing director, attributes the surge partly to family offices following the Yale endowment model of alternative asset allocation, which has created excess exposure and now drives demand for secondary liquidity.
- • High-net-worth individuals and family offices are now active participants alongside institutions, with advisors increasingly introducing clients to secondary market platforms as a mechanism to reposition portfolios.
Summary
Family offices are emerging as significant participants in the secondary market for hedge funds and private equity, according to SecondMarket's Jeffrey Bollerman, speaking in September 2010. The secondary market—where investors buy and sell existing fund positions—is experiencing unprecedented activity levels despite broader market uncertainty, reflecting a structural shift in how wealthy investors are managing their alternative asset exposure.
SecondMarket's platform data provides quantitative evidence of this expansion. The firm registered 2,500 combined buyers and sellers at the beginning of 2009. By early 2010, that figure had doubled to approximately 6,500 participants. By late August 2010, the registry had surged to 15,000 market participants, representing a six-fold increase in less than two years. This trajectory indicates that trading volume in 2010 is tracking larger than previous peaks, including the spike recorded during the 2008 financial crisis.
Bollerman attributes this activity surge to the structural dynamics of alternative investing. Many family offices and high-net-worth investors have adopted the Yale endowment model, which emphasizes significant allocations to alternatives including hedge funds and private equity. However, these commitments typically lock capital for extended periods—often up to ten years. As investors have become overweighted in these illiquid positions, the secondary market has become the primary exit mechanism. According to Bollerman, "You get into these investments and you're locked in for up to ten years. This is the only avenue out."
The market dynamics differ markedly from the 2008-2009 period. While 2008 saw a significant spike in secondary market activity driven by forced selling during the financial crisis, trading volume contracted in 2009 as conditions stabilized. However, 2010 is demonstrating sustained and accelerating activity—not driven by distress, but by deliberate portfolio repositioning. Family offices and their advisors are increasingly viewing secondary market platforms as "useful eyes and ears in the market," according to Bollerman. The entry of family offices represents a meaningful shift from the institutional-dominated secondary market landscape of prior years, expanding the buyer and seller base beyond traditional hedge funds and large institutional investors.
SecondMarket's platform data provides quantitative evidence of this expansion. The firm registered 2,500 combined buyers and sellers at the beginning of 2009. By early 2010, that figure had doubled to approximately 6,500 participants. By late August 2010, the registry had surged to 15,000 market participants, representing a six-fold increase in less than two years. This trajectory indicates that trading volume in 2010 is tracking larger than previous peaks, including the spike recorded during the 2008 financial crisis.
Bollerman attributes this activity surge to the structural dynamics of alternative investing. Many family offices and high-net-worth investors have adopted the Yale endowment model, which emphasizes significant allocations to alternatives including hedge funds and private equity. However, these commitments typically lock capital for extended periods—often up to ten years. As investors have become overweighted in these illiquid positions, the secondary market has become the primary exit mechanism. According to Bollerman, "You get into these investments and you're locked in for up to ten years. This is the only avenue out."
The market dynamics differ markedly from the 2008-2009 period. While 2008 saw a significant spike in secondary market activity driven by forced selling during the financial crisis, trading volume contracted in 2009 as conditions stabilized. However, 2010 is demonstrating sustained and accelerating activity—not driven by distress, but by deliberate portfolio repositioning. Family offices and their advisors are increasingly viewing secondary market platforms as "useful eyes and ears in the market," according to Bollerman. The entry of family offices represents a meaningful shift from the institutional-dominated secondary market landscape of prior years, expanding the buyer and seller base beyond traditional hedge funds and large institutional investors.
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