Focus: Liquidity is essential

Certainly following Lehmans' collapse, investors who had concentrated very heavily on performance realised they were, in effect, taking an extra risk because the performance they hoped to capture came at the cost of lower liquidity. There is a balance to be struck between potential performance and a squeeze on liquidity, and investors need to factor this into their decisions.

MAIN POINTS:

Liquidity should be treated as a desireable feature of their portfolio. Investors need to consider the trade off of potentially lower returns for the peace of mind that they can get their money out of an investment if need be

If one is too exposed to illiquid holdings, investors often end up having to sell other preferred and more liquid assets that still attract buyers. In the managed fund world this can lead to the suspension of the vehicle, as the manager can no longer meet redemptions without compromising the interests of remaining shareholders. This was seen in the liquidity crisis of 2008, particularly affecting property funds

However, one argument is that by having a thorough understanding of the characteristics of a given asset classes, investors can still ensure positive liquidity. For example, a good property team would have been well placed to foresee the commercial squeeze coming. It also is important to have more general views in the team to help tie specialist input into a sound, cohesive portfolio