Semi-Liquid Funds: Is the cash drag really such a drag?
The proliferation of open-ended funds for illiquid assets has increased the accessibility and attractiveness of private assets for many investors. However, questions have been asked around the cost of this liquidity. This paper attempts to answer the question; is the cash drag really such a drag?
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Private assets have proven their place in a portfolio, having historically delivered higher returns at a lower volatility. In the current economic environment, investors are looking for asset classes to provide diversification from traditional listed equities and bonds, particularly at present due to the increasing correlation between these two asset classes which is proving challenging for ‘modern’ portfolio theory.
Historically, asset classes like private equity have remained out of reach to the general investor, with investment vehicles traditionally requiring high minimum investment amounts and decade-long commitments.
Fund managers like Schroders have been at the forefront of the democratisation of private assets, creating a suite of open-ended, semi-liquid funds that allow investors to access these asset classes with a much lower commitment and more palatable liquidity profile. Generally these funds may have a quarterly redemption cycle, along with a monthly valuation window, meaning in practice it may take 4-7 months for investors to get their money back (subject to a cap on redemptions). This may still be deemed too illiquid for certain investors, however there are many that find this trade-off of liquidity for access to differentiated asset types very attractive.
In this paper we will first describe how investors have traditionally invested in private equity via closed-end funds, then discuss the new fund structures available to combat some of the challenges of traditional funds, and finally compare and contrast the outcomes from these access points.
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Important Information:
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