Struggling in the shallow end?

Hedge funds love illiquidity and are increasingly moving down the liquidity curve. While investors also presumably love the potential 'illiquidity premium' such investments can make, there is the not inconsequential problem of valuing instruments that trade rarely if at all. With hedge funds paying banks such large commissions, banks are helping them migrate into even shallower waters – to private equity, for example, or to instruments constructed specifically for the fund. This raises

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