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Investing in illiquid assets - optimal strategies

  • ,  Chief Executive |
  • 09 May 2018
  • Updated 08 Jun 2018

Optimizing the illiquidity risk premium

For investors able to take a long-term view, illiquid assets offer the alluring possibility of higher returns in a low-return world.

The papers below have been selected to help institutional investors work through the practical issues of selecting the optimal illiquid-liquid asset mix, modelling the outcomes, implementing the decision, and determining whether the additional return is likely to make up for the loss of flexibility.


Modelling Illiquid Assets within Multi-Asset Portfolios (Jacobi Strategies, 2018)
This paper by Jacobi Strategies explores better modelling techniques for multi-asset investors utilising illiquid assets, allowing for more complete risk-return estimates and further informing future commitment/redemption activity. 

Asset Allocation Framework for Investors with Illiquid Private Assets (PGIM, 2018)
(For compliance reasons, this paper is only accessible in the United States)
​PGIM describes a framework for simulation-based asset allocation in order to assist CIOs in determining the optimal asset mix for portfolios of both liquid and illiquid assets.

Understanding the illiquidity risk premium (Willis Towers Watson, June 2016)
Illiquidity risk is a potentially appealing means of generating additional yields in a low-return world. This document discusses three different dimensions of illiquidity risk premium that investors should demand for a given asset.

Investing in illiquid assets: A review (Robeco, September 2015)
Is it worthwhile to invest in illiquid assets? What additional return from a liquidity premium should an investor expect for such investments? This paper discusses the theoretical and empirical evidence.

Private Debt: Income and diversification with illiquid assets (TIAA, 2018)
In this paper, TIAA examines private debt as an asset class potentially suitable for institutional investors seeking low correlations with public markets, high current income, and relatively low credit risk for the yield achieved.

Asset Allocation with Private Equity (Mark Anson, 2016)
Private assets such as venture capital and private equity are perceived to lack liquidity which means they are difficult to model in a risk budget or asset allocation model. This paper seeks to correct this misunderstanding.

Strategic Allocation to Less Liquid Assets (Felix Schlumpf, 2014) 
This paper proposes a model to help investors address liquidity questions when engaging in strategic asset allocation decisions. They consider market liquidity, funding liquidity, and liquidity risk and return.