What we have learnt about liquidity over the past decade

Lessons from the global financial crisis

Liquidity risk is incredibly difficult to forecast and, if past experience is anything to go by, it is even trickier to predict during times of market stress. Ironically, it is often these times when liquidity is needed the most.

It is a complex issue, given that liquidity risk begins at the individual security which, in turn, is rolled up to the fund level. But what about the risks to outcomes for clients? Liabilities such as income need to be funded by a portfolio, but the portfolio may experience expected and unexpected demands for liquidity - particularly during challenging times for markets. These anticipated redemptions therefore need to be matched with the portfolio's ability to supply the liquidity and income.   This calls into question the role of fund performance, given that high returns do not eq...