The perceived — and in some cases required — need for daily liquidity among some investors is holding back innovation in the multiasset space, sources said.
"It instinctively feels wrong that all of your best investment ideas would be readily realizable the day after you bought them," said Paul Berriman, global head of funds at Willis Towers Watson PLC in London. "If you can allow yourself as a defined benefit fund the opportunity to go monthly or quarterly … there is no guarantee of success but you do … have an increased universe of potentially interesting things" in which to invest.
As well as potentially hindering investment return prospects, daily liquidity requirements also constrain managers in terms of their investment opportunities.
"The biggest constraint these multiasset funds have is daily liquidity," said Sara Rejal, global head of liquid diversifying strategies at Willis Towers Watson in London.
While some retirement plans, such as defined contribution plans, need daily liquidity, "for other clients we don't think you should constrain yourself … you won't get fully robust, diversified" allocations, she said.
Sources at money management firms agreed that, where able to, they want to exploit an illiquidity premium by moving into less liquid assets.
"If you were completely unfettered in an multiasset approach, you would want to benefit from the illiquidity premium available," said Shoqat Bunglawala, head of the global portfolio solutions group for Europe, Middle East and Africa and Asia-Pacific in London at Goldman Sachs Asset Management. "We have within our risk budget an allocation to private assets; to the extent that a client affords us the opportunity to go into private assets, we think there is value."
However, he recognized that it is common among retail, wealth and some institutional clients to have a daily liquidity provision in investment rules.
"There the private asset component of the risk budget jut falls out — we reallocate across other sources of return, using strategies that are daily liquid," Mr. Bunglawala said.