Market for locked hedge funds opens Brokers such as Tullett Prebon are launching platforms to let investors trade hedge fund investments in order to circumvent often lengthy lock-up periods. The schemes allow investors either to sell hedge funds stakes directly, or to sell the returns from their hedge fund investments through derivative contracts. Wake2o, a Geneva-based broker, has signed up 60 hedge fund managers to a platform launched in September that allows investors to buy and sell stakes in their funds. It is in talks with another 50 managers about joining the platform. "Traditionally hedge fund managers have restricted access to a privileged set of investors but post-2008 managers are much more humble," said Derek Watson, the founder of Wake2o. "They are trying to grow their businesses, and [the ability to sell investments] could mean investors who need access to liquidity are more willing to invest in hedge funds," he added. Tullett Prebon plans to offer "contracts for difference," which allow investors to trade the returns of a particular fund. Investors could use CFDs to end their exposure to a fund's performance, without having to formally exit the fund. These are not the first attempts to create a secondary market in hedge funds. Before, the financial crisis brokers sold stakes in funds that were closed to new investors at above par prices. After 2008, when some hedge fund managers put poor performing assets into "side pockets" and refused to allow redemptions, side-pocket stakes have been traded at a discount. But the new schemes envisage a much wider secondary market in investments across all hedge funds subject to lock-up periods. According to Wake2o more than 1,000 hedge funds globally require investors to give at least three months notice, or pay a large fee for an earlier exit. The brokers are hoping to imitate the private equity industry where multi-year lock-up periods have fostered a large and liquid secondary market. Some investors welcomed the innovation. "There's no efficient mechanism for trading hedge fund stakes - where it is done it is usually through brokers, and paper contracts - so there is space for a more automated platform," said Christian Thompson, a partner at recently established London hedge fund manager Brook Bay Capital, and a former executive at Man Group. The move towards new platforms comes as the existing secondary market in side-pocket stakes is enjoying a bumper year. Several funds have been raised this year to buy these illiquid assets, including a Deutsche Bank-led fund that targeted $500m. Side pockets holding particularly illiquid assets, such as contested bankruptcy claims and mothballed coal mines, have come to market. Pricing has also improved, with side-pocket stakes selling for close to their par value this year, according to an index compiled by Hedgebay, a pioneer of the hedge fund secondary market. This increased ability to sell illiquid assets has encouraged some hedge fund managers to auction off their side-pocket assets and return cash to investors. Industry participants estimate little more than $50bn, at face value, remains in side pockets, down from well in excess of $100bn in 2008. Tullett Prebon expects 2012 to be its best year for side-pocket brokerage, but Neil Campbell, the broker's head of alternatives, is looking to contracts for difference, because the side pocket trade may only have a few years left. Other side-pocket brokers told FTfm they are looking to trade other financial crisis legacy assets such as portfolios of foreclosed US properties. But other industry participants argue side-pocket trading will remain robust. Consolidation in the fund of hedge funds industry, is expected to generate increased trading, as fund of fund managers look to exit side-pocket stakes of the funds that they buy, rather than researching and valuing them. "Many side pockets have assets that do not mature for five years or more, and hedge fund managers themselves are not distressed sellers, so a market will remain in allowing investors to exit those funds," Mr Thompson said.