Institutional portfolios such as corporate pension plans are increasing allocations to illiquid private assets seeking better returns and diversification. However, as allocations increase, a portfolio’s liquidity structure changes, sometimes abruptly. How can a CIO increase their confidence with private asset allocations and unlock their potential?
For asset allocators, liquidity risk is one of the most critical, but least quantified, risk dimensions in portfolio construction. For example, corporate defined benefit (DB) plans have many unexpected liquidity demands, besides scheduled benefit payments, which should be accounted for when evaluating liquidity risk.
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