Market for hard-to-sell assets gets a big boost

By Scott Cendrowski, reporter


NEW YORK (Fortune Magazine) -- The charity foundation of Li Ka-shing, Hong Kong's richest man, and Singapore's sovereign wealth fund said Tuesday they had invested $15 million in SecondMarket. You may not have heard of this fast-growing New York-based company, but it's created new exchanges where companies and investors can sell assets they might otherwise have had trouble unloading.

Some examples of what you'll find trading there: Lehman Brothers' bankruptcy claims, collateralized debt obligations (CDOs), mortgage-backed securities, and other so-called illiquid assets.

Until now, the six-year-old company has run trading platforms only for U.S. assets, but the investment by Li and Singapore's sovereign wealth fund Temasek Holdings will likely create new exchanges for illiquid assets in Hong Kong and elsewhere. That should increase the number of potential buyers and sellers for SecondMarket's existing inventory. Even more importantly, it could provide additional liquidity in China's private companies and red-hot real estate market.

SecondMarket wouldn't discuss what specific asset exchanges would be created in Asia, but its chief strategy officer, Jeremy Smith, said illiquid debt, equity and real-estate securities offer the most opportunity.

Barry Silbert started SecondMarket in 2004 after advising distressed companies for investment bank Houlihan Lokey. He opened the marketplace at an opportune time. Just three years later, as subprime losses rocked Wall Street, banks and other companies were looking for a market to quickly unload hard-to-trade assets like CDOs and mortgage-backed securities.

The exchange operator says it boasts an inventory of $25 billion in illiquid assets, up from $100 million at the end of 2007. The dramatic rise was driven by the bankruptcy of Lehman Brothers in 2008 (SecondMarket is where many Lehman claims ended up for sale) and SecondMarket's new exchanges for CDOs and other toxic Wall Street creations. Revenues rose too, reaching $35 million last year, up from $20 million in 2008.

The company now competes with large banks to trade illiquid assets, especially as markets for toxic assets have calmed over the past year. But it's also successfully created markets for private shares of companies such as Facebook, which has a large number of employee shareholders.

Venture capitalists have swarmed around SecondMarket in the past year, hoping to profit from its growth as its inventory rose. But the company has rebuffed additional capital until now because it didn't need the cash and offers didn't include the same type of overseas partners. Li Ka-shing and Temasek Holdings are respected investors with deep ties in Asia.

In a statement, Frank Sixt, a director at the Li Ka-Shing Foundation, said: "We believe that SecondMarket's model of transparency, centralization and independence represents an innovative development and potentially significant opportunity in financial markets." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 5:47pm ET
Sponsors

Sections

General Mills has scrapped a controversial change to its fine print that some read as eliminating customers' right to sue the company. More

Obamacare sign ups hit 8 million, though final enrollment remains to be seen. More

Office for iPad move is a symbolic victory for Nadella's Microsoft, but the company is still weighed down by many of the same old issues. More

Schwinn, Trek and Cannondale are all iconic American bicycle brands. But none of them are made in the United States. More

As Detroit moves closer to reaching a bankruptcy deal, retired civilian workers are poised to be left worse off than firemen and police officers. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.