How to face liquidity risks across alternatives

Alternative strategies, such as hedge funds, are considered to be the liquid end of the alternative-investment spectrum. This is as opposed to privately traded alternative assets, such as private equity and property. However, there are a few issues to bear in mind when looking at the liquidity of alternative investments.

Understand the liquidity of your investments

For new investors, we believe the process of identifying the right funds and minimising risk comes down to regularly communicating with fund managers and finding those who weigh up the need for liquidity both from their underlying investments and liabilities.

Liquid alternatives may offer substantial benefits from a risk management perspective and an absolute return, as their low market correlation means they minimise market exposure. However, investors may need to look beyond the Undertakings for the Collective Investment in Transferable Securities (UCITS) stamps and conduct their own research into whether a fund has the appropriate liquidity.

There may be benefits to illiquidity

Illiquidity, however, doesn’t have to be a bad thing. Long-term investors can tap into the income stream and capital growth illiquid alternatives, such as real estate, offer. In addition, you may benefit from an illiquidity premium (the expectation of higher returns from securities that may take longer to buy or sell).

Read the full article here:  https://www.blackrock.com/za/individual/themes/alternative-investments/insights/liquidity-risks-alternatives

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of June 2020 and may change as subsequent conditions vary.

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