The Perils of Illiquid Assets and Liquidity Risk

“Liquidity risk is not important until it is. And then it becomes the only thing that matters. Fund managers can no longer ignore liquidity risk management.

Over the past few weeks we have heard and read the news on Neil Woodford’s Equity Income fund and how it ploughed funds into illiquid assets. On 3rd June, the fund was closed to redemptions which left thousands of investors locked in the fund for at least 4 weeks. The issue is not that the fund was investing in illiquid assets - UK funds are allowed to invest up to 10% of its assets in unlisted assets. The issue is did Neil Woodford and his team understand the liquidity risk associated with these assets, moreover, did they have the appropriate liquidity management framework in place in order to facilitate the event of significant redemption risk.” Continue reading.

Source: Family Office Magazine & Voly, Ltd.