PEFOX books €1.35bn in ‘long’ and ‘short’ orders

The nascent London Private Equity Futures and Options Exchange has taken derivative orders on more than 146 private equity funds.

During its first month in operation, the London Private Equity Futures and Options Exchange (PEFOX) received €1.35 billion of “long” and “short” orders on 146 private equity funds globally.

By the end of June, the invitation-only platform had attracted a mix of institutional investors including sovereign funds, large family offices, secondary funds and funds of funds.

The exchange does not allow investors to trade actual fund interests, nor to short them in the sense of naked short selling, but rather creates a synthetic platform for parties wanting to hedge their private equity portfolios by reducing or boosting exposure.

Rebalancing a private equity portfolio is like trying to turn an oil tanker. It’s very difficult to do and takes a great deal of time.

Ray Maxwell

It has so far matched counterparties aiming to rebalance risk in their portfolios on four separate funds, said PEFOX managing partner Kishore Kansal. He declined to disclose the names of the investors or the funds involved.

“Investors today have very little room to manoeuvre,” he said. “If they want to reduce exposure they have two options: do nothing or sell in the secondaries market. Often, neither is an ideal solution.”

Ray Maxwell, PEFOX chairman and former managing director of INVESCO Private Capital, echoed Kansal’s sentiments. “Rebalancing a private equity portfolio is like trying to turn an oil tanker. It’s very difficult to do and takes a great deal of time,” Maxwell said. “Using derivatives can make the rebalancing process much more efficient and allows private equity to conform more closely to other, more mature asset classes.”

PEFOX was launched in early June. Its advisory board members include Andre Jaeggi, former partner and co-founder at Swiss fund of funds and advisor Adveq.