Following 2008 investors became savvier about liquidity options. Prior to the financial crash it had been commonplace to have two year lockups on hedge fund investments but now investors expect, even demand, a more frequent schedule. Annual lockups have come down to quarterly, in some cases monthly. For the funds of funds and institutional investors managing portfolios, it has become something of a risk and liquidity headache.
Liquidity risk is the ability to match investor liquidity with the underlying manager liquidity. If you allow investors to redeem more, then managers must have that liquidity available. "That liquidity risk, or matching, is a struggle for every one of our clients." says Ledgex Systems managing director Brian Macallister. Ledgex is a provider of portfolio management solutions for fund of funds and multi-fund managers.
"If your investor liquidity does not match portfolio liquidity there is a risk that investors could redeem more than you have available." To be competitive managers are trying to understand how much liquidity they have and provide optimal liquidity to investors. "It's a competitive space. Firms are trying to offer investors more frequent liquidity offerings… Some are starting to offer monthly liquidity with certain limits, but investors don't even want limits," Macallister adds.
[For more on industry changes, read: HWhere are the Technologists' Voices in Global Financial Reform?]
Managers find significant value in identifying where the money is, and when they can and cannot redeem it. Firms want to know, if I add X manager to the portfolio, what would be the new liquidity risk? What does this do to our liquidity risk on the investor side?
Firms are also offering up individual investment liquidity, mirroring requests of incoming investors. For firms with multiple clients and 60+ funds in a portfolio, each with their own liquidity terms, this can be tricky to equate and report without the proper tools.
Tuesday morning Ledgex publicly announced the launch of a new liquidity manager and research modules on their portfolio management platform. The liquidity manager will give firms "real-time visibility into their existing and proposed portfolio liquidity options while providing the research and analytics that support the manager selection process," according to the press release.
"Increasingly complex fund and investment structures combined with changing regulations have dramatically shifted the liquidity and portfolio management requirements of fund of funds, institutional investors and other multi-fund managers," said Macallister in the release. "Ledgex addresses this new paradigm by delivering a single, comprehensive platform for portfolio management, liquidity management, manager research and investor relationship management."