Seymour Lowell was trapped in auction-rate securities from Nuveen Investments Inc., rendered untradable since 2008 and paying low interest rates. Then in early August, a company called SecondMarket Inc. found him a buyer, at 13% less than the $1.7 million he had paid.
Getting into auction-rate securities, mortgage-backed bonds and hedge funds was a lot easier for investors than getting out. Such investments became illiquid in the financial crisis, and can be almost impossible to unload through regular markets.
So SecondMarket and others like it are thriving, as a last-ditch alternative for investors like Mr. Lowell, a 78-year-old from West Palm Beach, Fla., who owns a maker of scientific instruments.
These firms match the investors and the firms’ own rosters of buyers eager to snap up illiquid assets at bargain prices. Holders can get back anywhere from a few cents on the dollar for the most poisonous mortgage-backed securities to 90 cents for the best auction-rate securities.
SecondMarket, based in the old Standard Oil building overlooking Lower Manhattan’s famed bronze bull statue, said it arranged $750 million in sales of unloved assets in 2009’s first half. That equals its sales volume for all of last year. Typically, it holds auctions among investors culled from the 3,500 in its database. While SecondMarket is a broker-dealer, it doesn’t take positions in any of these transactions.
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Emile Wamsteker for The Wall Street Journal
SecondMarket CEO Barry Silbert in the firm’s New York office. The company arranged $750 million in sales of illiquid assets in the first half, equaling its sales volume for all of last year.
These deals aren’t easy to arrange. “Sometimes sellers get cold feet” because buyers want draconian discounts, said SecondMarket’s 33-year-old chief executive, Barry Silbert, who launched the company in 2004. His firm charges handsomely to play matchmaker, from 2% to 4% of the sales price.
One seller of restricted stock, shares that can’t be sold on the open market for several years, was reluctant to accept a price one-third below that of common shares of the same company. But he needed money to pay taxes. …
Read the original article at WSJ
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