The Hedgebay Global Hedge Fund Secondary Market Index saw the average discount on hedge funds drop to a record low of just below 80 per cent in December, as the differential between low and high priced trades narrowed, said Hedgebay Trading Corporation.  

The monthly index, which tracks the average discount or premium to net asset value (NAV) of hedge fund shares traded in the secondary market, saw the vast majority of sales clustered around the average value of 79.8 per cent last month, with only one trade taking place close to par. The highest and lowest trades took place at 97 per cent and 56 per cent of the funds' NAVs respectively.

Elias Tueta, co-founder of Hedgebay, attributed the big discount at which trades were taking place to investors’ desire to eliminate illiquid assets and start 2010 with a clean balance sheet. This is emphasised by the fact that private equity was the second most highly traded strategy after credit.

“Since these assets are illiquid, managers do not frequently change their pricing and as a result they are 'non-performing' in an investor’s portfolio. This dead weight makes achieving performance targets very difficult,” said Mr Tueta.

Mr Tueta believes activity in the first quarter of 2010 will continue in this vein, revolving around less liquid assets as investors seek to remove these from their holdings.