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Let's say that I'm an investor in a hedge fund, a recession just hit and I need cash asap. But the hedge fund either has infrequent redemption, or it locks my fund in, until the market gets better and they can liquidate the assets at a better price.

If I need money, can I securitize my position at the fund? So i can either sell that as an asset at a discount or use it as a collateral.

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  • $\begingroup$ “Securitise” means that you are issuing a creating an entity with assets that then sells securities in the public markets. It seems extremely unlikely that this would be possible, and such a security would be of little interest to investors. Whether hedge fund holdings can be used as collateral or transferred is a question securities law. $\endgroup$ – Brian Romanchuk Jun 16 '20 at 0:00
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    $\begingroup$ You may find quant.stackexchange.com to be more suitable for your questions. $\endgroup$ – user18 Jun 16 '20 at 0:46
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Actual securitization would be impractical for a number of reasons, but secondary market transactions of shares in hedge funds do occur with the consent of the funds in question (though it’s not a particularly liquid market). Using these shares as collateral would not generally be practical, as they’re not assignable interests.

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  • $\begingroup$ According to the linked article, secondary limited partner trading "...has now become a widely accepted practice..." in the HF community, implying that it is somewhat liquid(?). $\endgroup$ – Michael Jun 16 '20 at 3:39
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    $\begingroup$ @Michael The context there is that it’s “widely accepted” in the sense that it’s not considered as much of a black mark on the HF manager to have a client drop them in this manner. If you read a bit further into the article, you’ll note several references to it being illiquid. This is a market that involves essentially bespoke matching between buyers and sellers— a transaction that takes only weeks is basically a best-case scenario. $\endgroup$ – dismalscience Jun 16 '20 at 11:35

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