Liquidity refers to how quickly and efficiently an asset or fund can be converted into cash without significantly affecting its price — a critical factor for allocators and managers alike.
Highly liquid instruments like large-cap equities or futures can be traded instantly with minimal slippage, while illiquid assets like venture capital or real estate may take months or years to sell. Fund liquidity also dictates investor access — open-ended funds may offer monthly redemptions, while closed-end funds often lock capital for years. Liquidity is tightly linked to drawdown potential, redemption terms, and risk management frameworks like stress testing. For institutional investors, aligning liquidity terms with liability schedules is vital.
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