A Survey of Institutional Investors’ Investment and Management Decisions on Illiquid Assets
Forthcoming: The Journal of Portfolio Management, Netspar Survey Paper 56, 2019
27 Pages Posted: 18 Oct 2019 Last revised: 11 Nov 2020
Date Written: October 8, 2019
This paper reports the results of a survey of nine Dutch (AUM EUR 342 billion) and five Canadian (AUM CAD 203 billion) pension funds and fiduciary managers on the investment and management decisions regarding illiquid assets. The Dutch pension funds in our sample invest 15% of their portfolio in illiquid assets, while for the Canadian pension funds this is 34%. We put forward three reasons for the stark difference in the average illiquid asset allocations: (1) the strong focus of Dutch survey participants on investment costs, which are made available to the public and higher for illiquid assets, (2) supervisory requirements, and (3) the division of Dutch pension fund assets into a liability matching portfolio and a return portfolio, which potentially leads to liquid assets crowding out illiquid assets. Regarding the management of illiquid assets, many survey participants report that they perform liquidity stress tests and have liquidity management policies to free up cash if necessary. We formulate four best practices based on these findings.
Keywords: illiquid assets, institutional investors, liquidity management, survey
JEL Classification: G11, G23
Suggested Citation: Suggested Citation