The Ins and Outs of Investing in Illiquid Assets

Robeco

Thijs Markwat, Roderick Molenaar

Research

22 Pages

Robeco examines why investors allocate capital to illiquid assets and whether the expected liquidity premium adequately compensates for the risks involved. The paper explores the tradeoff between higher expected returns, transaction costs, and liquidity constraints. One example suggests investors may require more than a 4% annual premium to justify a 5 year lockup.

Key Takeaways

Liquidity Premium Required: A 5 year illiquidity period required a 4.3% annual premium in one framework, while a 10 year lockup required 6.0%.
Hidden Cost Impact: An illiquid asset needed a 3.4% gross return versus 3.0% for a liquid asset to achieve comparable net outcomes after costs.
Stress Period Risks: During the 2008 crisis, some private equity interests traded at discounts approaching 50%, highlighting the potential cost of forced liquidity.
VIEW FULL REPORT

Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week

Related Content

Alternative Assets
Why Invest in Farmland?
Jul 2026
Alternative Assets
Rethinking Diversification: Bonds, Commodities and Trend in the Current Market Regime
Jul 2026
Alternative Assets
An Expanding Market Universe
Jul 2026

The information contained in this communication is of a general nature for informational purposes only, and does not constitute financial, investment, tax or legal advice. The information contained within this communication reflects the opinions of those referenced herein, and do not reflect the opinions of The Idea Farm, L.P. and its affiliates. Such opinions expressed herein are as of the date of production and are subject to change at any time without notice due to various factors, including changing market conditions or tax laws. Where data or information prepared by third parties is presented, no representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information by The Idea Farm, L.P. or any other person. While such sources are believed to be reliable, The Idea Farm, L.P. does not assume any responsibility for the accuracy or completeness of such information and does not undertake any obligation to update the information contained herein as of any future date. Any links to third party websites are offered only for use at your own discretion. The Idea Farm L.P., and its affiliates, are separate and unaffiliated from any third parties listed herein and are not responsible for their products, services, policies or the content of their website. All investments are subject to varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy or product referenced directly or indirectly in this communication will be profitable, perform equally to any corresponding indicated historical performance level(s), or be suitable for your portfolio. Past performance is not an indicator of future results.

Scroll to Top