Liquidity is the ability to convert an investment to cash quickly, at a price close to its fair value. Both halves matter: almost anything can be sold fast at some price — liquidity is selling fast without the discount — and the alternatives market is, at bottom, the market for accepting less of it in exchange for expected return.
The liquidity spectrum in alternatives
Advised portfolios span the full range: daily-traded funds and listed REITs; interval funds and NAV products with capped periodic repurchases; hedge funds with lock-ups, notice periods, and gates; drawdown funds returning capital only as assets sell, with secondaries as a discounted escape; and direct holdings — property, DST interests — where the exit is a transaction. The compensation thesis (the illiquidity premium) is real but not automatic: locked capital lets managers hold assets through cycles and harvest complexity, and it earns nothing extra when overpaid entry prices or fees consume the premium — illiquidity is a cost that can be paid for, not a return source in itself. The reading disciplines this glossary keeps returning to: liquidity terms are what documents say, not what marketing implies (caps, gates, suspensions, and board discretion define the real exit); stated liquidity is a ceiling that compresses exactly when demand peaks — the recurring lesson of every stress episode from 2008’s gates to the 2022–24 redemption queues; and portfolio construction, not product selection, is where liquidity risk is actually managed: matching each holding’s realistic exit against the client’s spending horizon, sizing illiquids so a frozen exit is tolerable, and treating the liquid sleeve as the shock absorber it will someday need to be.
Related terms
Redemption Program · Gate Provision · Lock-Up Period · Secondaries · Interval Fund
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