A Survey of Institutional Investors’ Investment and Management Decisions on Illiquid Assets

This article reports the results of a survey of nine Dutch (assets under management [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, whereas the Canadian pension funds invest 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 are 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.

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