Investment Perspectives - Winter 2022
Private markets – taking stock of liquidity risk
28 Jan 2022
The investment time horizons in some private markets are changing. In this article, we profile four key private markets and examine the liquidity considerations for each.
After the hard-fought challenges of 2020, it’s encouraging that the overall funding position of defined benefit (DB) schemes improved over 2021. Market movements played a big part, thanks to another strong year for equity markets. But while this is undoubtedly a cause for cheer, it has caused other issues to emerge – not least, the liquidity and time horizons in investment portfolios. These issues are especially pertinent for schemes targeting buy-out.
Such schemes need to ensure they have the liquidity required to act, and also to carefully consider the time horizons for investments. However, within some private markets, investment terms are getting longer. Illiquidity is a common feature of private markets, and the reason why they usually offer a return premium. But now, given some investors’ shorter time horizons, a liquidity mismatch is emerging, limiting opportunities in private markets.
Even investors that are less time constrained still want to access the best opportunities – which means keeping up with evolving markets. That involves considering if a market is best accessed through debt or equities or through closed or open-ended funds, given considerations such as extension risks.
To help understand these considerations, this article revisits key private markets and weighs up the liquidity considerations for investors. Please note, these are brief market profiles – in future editions of Investment Perspectives, we will explore each market in more depth.
Read the full article including more on:
- Private equity
- Property
- Private debt
- Infrastructure
- Key takeaways
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