A Primer on Liquidity in Private Markets

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Private Markets investments are often thought of as illiquid. But this is not always the case. Liquidity comes in many flavors and is driven by each fund’s underlying investments.

In this post, the team from TIFIN Private Markets guides you through the range of liquidity options available to advisors and their clients.

The Liquidity Spectrum

The two key phrases to understand are “lockup” and “notice period.” Lockup means the initial period when an investment cannot be redeemed, or redemption attracts a penalty. Notice Period is the minimum amount of time before an investment can be redeemed (e.g. A 90 day notice period implies three months between submitting a redemption request and receiving the funds). Here are some possible scenarios an investor may find when exploring private market investments:

Full Liquidity (with or without a notice period)

Typically, hedge funds or other private market vehicles that invest in liquid underlying securities offer clients liquidity with no lock-up and 30 or 90 days notice period.

Liquidity After a “Lock-up” Period

Lock ups allow a Fund Manger to invest in more illiquid assets or harder to trade assets that may offer superior returns. Upon a redemption request, the Fund Manager is able to exit their investments without causing price disruptions in the market (e.g. sell assets with limited liquidity to other market parties.

Income Distributions

This scenarios is typically found in Private Credit funds that invest in shorter duration receivables (e.g. loans). These funds offer periodic income streams (e.g. monthly or quarterly) similar to a share dividend or bond coupon. The client can choose to take income distributions, or reinvest the cash return back in the fund and benefit from compounding at the fund’s rate of return

Illiquid Investments

Certain funds require longer time frames for the underlying investment to develop or mature. For example, a venture capital firm may invest in growth stage private companies that need a few years to achieve their full potential. Such funds are typically illiquid during the investment period, but have the potential to offer significant and uncorrelated returns to the patient.

Next Steps

Ready to get started? TIFIN Private Markets provides extensive research to help you pick the right private market investments for your clients. Discover and select investments with AI-driven analytics through our platform, featuring opportunities in the hedge fund, private equity, venture capital, private credit, and private real estate spaces. All with direct access, so you don’t pay access or brokerage fees. Book a complimentary consultation with our team to learn more about our curated fund offerings.

 

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