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Portfolio Strategy

Hedge Fund Liquidity: Alpha Generator or Risk Factor?

Liquidity has been an ongoing concern for market participants since the financial crisis. This concern is partly due to structural changes, as well as the rise in High Frequency Trading. It is also due in part to the lessons investors learned about the dangers of investment illiquidity during market stress. Those with legacy side pockets from 2008 alternative investments know this all too well; some are still in the process of liquidating even today.

In our latest paper, the question we are essentially trying to answer is how funds with impaired liquidity profiles fare in periods of market stress, and discover whether hedge fund liquidity is an alpha generator or risk factor.