Private credit and the illiquidity premium

I HAVE not been a fan of illiquid investments, and that’s putting it mildly.

I’ve argued before that liquidity is the most under-rated quality of an investment. In every crisis, fortunes are lost due to illiquidity. Leveraged real estate, businesses, and private equity (PE) investments all require additional cash liquidity to pull through an economic crisis.

In Asia, investors typically hold less than 20 per cent of their total net worth in liquid investments, and, in many cases, less than 10 per cent. In a crisis when prices of investments fall precipitously at the same time, 10 per cent to 20 per cent of liquidity will never be able to support the cash needs of the balance of 80 per cent to 90 per cent of assets.