You seem to have more experience hedging in the real world than me but I'll bite anyway...
"So, while you can create a theoretical hedge instrument, the application of such an instrument is untenable as a profitable hedge in practice"
There is an infinite amount of hedges that can be created with synthetic financial instruments. Some instruments haven't been invented yet and even if they have been invented you have to convince somebody else to take the other side of any trade. Credit default swaps, options and just about any other instrument were new, unproven and potentially secret at some point. Right now there could be somebody who has figured out a way to do some kind of time horizon hedging and is going to make bank when some startups do/don't IPO.
I actually think it's quite likely.
Edit: Having read some of your other comments on here I would rephrase my answer as this: why would a time-horizon hedging strategy be any less successful than any other hedging strategy?
The framework I'm operating from includes the time-value component of the fund. If a fund has a target rate of return of 10% per annum, each additional year they wait for a liquidity event requires an additional 11% (1 / 0.9) in returns in order to hit their target.
So a valuation drop of 20% is comparable to ~2 years delay in liquidity. My strong suspicion is that the price volatility is small relative to the time volatility in these startups. There's a lot more knowledge around addressing the pricing volatility issues than the liquidity issues (an unexpected liquidity issue in the short-term markets is what caused both Bear Sterns and Lehman Bros to fail). In the end I believe that delayed liquidity events, in the market we are entering, are going to be strongly correlated with reduced IPO value.
To directly answer you question : the challenges of hedging for the time horizon of liquidity events will also include price volatility issues as well. So essentially if you're worrying about liquidity you still have to worry about price, where in saner times there are vehicles where you only have to worry about price. More hedges means more carry cost and less-profits. So what I meant by the "untenable" is that I don't expect the cost-value to be there in those circumstances.
Definitely possible that I'm wrong here, I just think the odds are against anyone dealing with those types of problems.
I have zero experience in this area, but regarding the price volatility, I was under the impression that a lot of the massive late-stage investment rounds had been structured more like debt. So something like 2-3x liquidity preference, with a cap on returns[1]. Not sure if this is what the hedge funds are doing, but if so, seems like they are controlling the price and taking a risk on the time horizon. Of course the fact that they are heading towards the exits (according to this article) implies it's not going as expected.
"So, while you can create a theoretical hedge instrument, the application of such an instrument is untenable as a profitable hedge in practice"
There is an infinite amount of hedges that can be created with synthetic financial instruments. Some instruments haven't been invented yet and even if they have been invented you have to convince somebody else to take the other side of any trade. Credit default swaps, options and just about any other instrument were new, unproven and potentially secret at some point. Right now there could be somebody who has figured out a way to do some kind of time horizon hedging and is going to make bank when some startups do/don't IPO.
I actually think it's quite likely.
Edit: Having read some of your other comments on here I would rephrase my answer as this: why would a time-horizon hedging strategy be any less successful than any other hedging strategy?