Investing in illiquid asset classes has become increasingly widespread among pension funds in the last few decades. There are a number of reasons for its increasing popularity, including the notions of higher expected returns and the potentially greater diversification opportunities that illiquid investments can offer. However, it is not always clear what the required extra return or diversification advantage of illiquidity should be. Robeco researchers Thijs Markwat and Roderick Molenaar and portfolio strategist Jaap Hoek delved into the basic principles of the assumed liquidity premium to give investors insight into investing in illiquid asset classes.
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