Strategy: Mastering illiquidity

Euromoney Limited, Registered in England & Wales, Company number 15236090

4 Bouverie Street, London, EC4Y 8AX

Copyright © Euromoney Limited 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Strategy: Mastering illiquidity

Kjerstin Hatch is portfolio manager for Madison Capital’s illiquid real estate fund that invests in unlisted Reits or limited partnerships. The significant infrastructure required to manage the fund means that competitors are few and far between. It is indeed a unique strategy.

Alternative investment: US hedge funds look to short side

Unlisted Reits raise money from hundreds of thousands of individual investors who invest as little as $15,000 at a time. The shares, which aren’t listed on any exchange, are highly illiquid; it is this illiquidity that firms like Madison are benefiting from. “You can’t generally call up your broker and say you want to sell or buy these securities. If an investor wants to sell, they may be willing to sell at a discount when they find a buyer,” says Hatch. Madison has a team of well-trained specialists for holders of these unlisted Reits to turn to for a price if they want to liquidate. “It’s taken several years to develop the infrastructure to cope with this, from development of a proprietary operating platform to the tracking down of the ownership of these unlisted securities and dealing with transferring the securities between accounts,” explains Hatch.

The fund generally buys and holds the investment until a natural liquidation or listing, but sometimes buys and holds until a large position in a private Reit has been gathered that could be attractive to sell on to an institutional investor. “We’ll be buying shares at $10,000 or $15,000, but when we get enough securities together to have a holding of a few million dollars, then the size becomes attractive enough for a pension fund to buy at a yield premium,” says Hatch.

Gift this article