Strategies to navigating the changing investment landscape – especially the administration burden and areas such as secondary markets – are keeping many portfolio managers awake at night.
However, despite their faults, secondary markets are still a good option, says Dominic Maier, Partner – Head of Fund Investing, AXA Venture Partners.
"Secondary markets are a great tool to be able to rebalance your portfolio,
but they need to be done at a time when the opportunity is correct.”
Maier was speaking at the recent Insurance Asset Management DACH 2022 virtual event, hosted by Clear Path Analysis, where he discussed the challenges and opportunities of the private markets arena in the central European/German-speaking regions and what they could expect going into 2023.
“Secondary markets are a great tool to be able to rebalance your portfolio, but they need to be done at a time when the opportunity is correct,” Maier said. In secondary markets for insurers – often misconstrued as hidden markets – investors exchange directly with each other instead of with the issuing entity.
Maier said that in a period of heightened uncertainty, the response from many secondary buyers is that as risk increases, the discount increases.
“Therefore, if you are in a position where you need to sell off of Q2, Q3, or Q4 marks of 2022, you are likely to face an uncertainty discount on top of the general discount applied to assets in the secondary market and maybe today isn’t the right time to sell,” he said.
“It is a great tool to use but not when you need to use it,
only when you want to use it.”
However, the situation isn’t as complicated as some make it out to be, and the secondary markets can be easily used to hedge liquidity concerns, which was listed as many insurers’ key concern in 2023 and was likely to remain so in 2023. “If you don’t need to [sell off], don’t, but a great time to sell was Q3 or Q4 2021 when everything was going up,” Maier said. “If you had the foresight of being able to time the market that well, there would have been a premium on certain high-quality exposure and so this is a great time to rebalance and take money off the table.”
He concluded that “it is a great tool to use but not when you need to use it, only when you want to use it.”
