How Liquidity Can Enable Performance-Driven Decision-Making
In late October, the CEO of Harvard’s endowment, the largest of any university in the world at $40.9 billion, stated he was not pleased with the fund’s 6.5% returns in fiscal 2019. CEO N.P. Narvekar identified illiquid holdings as one of the drivers for the disappointing results. The Harvard fund is not unique in wanting to obtain liquidity for seemingly illiquid asset classes. While illiquid investments are a core component to many of these long-term investment portfolios, they can often remove the ability to make dynamic decisions when the investments are not performing as anticipated.
Over the past few years, we’ve identified this issue as a pain point for many large institutions looking to invest in illiquid alternatives. In the case of Harvard, when there is a change in its investment strategy, they are forced to undergo a slow and protracted restructuring period in order to reallocate capital to different investment opportunities while still beholden to established performance estimates during this period. As endowments and other institutions are looking to adjust portfolios to address shifts in investment priorities or growing uncertainty of economic conditions, they chafe against illiquidity more and more.
However, through the digitization of these funds or investments on the blockchain, investors are granted greater control over their portfolio performance because they can more simply transfer ownership to interested parties. Provided the necessary demand is available, investors and institutions can access liquidity through a network of prospective sellers and buyers in order to enable performance-driven decision-making.
At RealBlocks, we’re seeing major demand for investment in the alternatives markets. A recent Preqin study states that the market size in 2017 was $8.8 trillion, and is anticipated to grow to $14 trillion by 2023. With immense growth in the alternatives market, we expect the demand for investor liquidity to also increase due to the reasons outlined above. Through our solution, we hope to help lead the transformation in developing a more open and accessible market for alternative investments.
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