The ideal investment portfolio is solid and liquid at the same time. Perhaps because this principle defies the common sense of physics, even some of the world's biggest investors have overlooked it.Read the whole thing here:
Now, with billions of dollars trapped in illiquid investments, many colleges and charities are cutting budgets at the worst imaginable time.
Thursday, 29 January 2009
Institutional Portfolios, Alternative Investments, and Liquidity
Before the recent meltdown in hedge funds, one of the regularly stated reasons for superior returns in "alternate investments" was that they are more exposed to "liquidity risk" (i.e. they can't be easily converted to cash without loss of value, and this results in higher required returns). Economics tells us that there's no such thing as a free lunch. So, here's recent (January 17th) story article from the Wall Street Journal that ties the two concepts together: