Displaying items by tag: liquidity

Structured notes, once reserved for hedge funds and ultra-wealthy investors, have surged in popularity among retail clients thanks to bite-sized offerings, generous yields, and downside protection amid volatile markets. 

These bank-manufactured products, linked to indexes or stocks, use derivatives to offer tailored exposure—whether for income, growth, or buffered loss protection—with some notes capping upside while guarding against market drops. Products like Bank of Montreal’s Nasdaq 100-linked notes offer a fixed return if markets rise, and principal protection if they fall, while others—like buffered or contingent income notes—offer periodic income with defined loss limits. 

As volatility climbs, advisors increasingly recommend these notes to generate income without taking full equity risk, with firms like iCapital reporting major spikes in interest following market shocks. 

Finsum: It’s interesting that high level investors are using structured notes like buffer products in this high volatility environment. 

Private credit managers often tout their locked-up capital as a key strength, insulating them from the kind of liquidity runs that plagued banks like Silicon Valley Bank. However, the rise of evergreen vehicles—funds allowing periodic redemptions—has introduced new vulnerabilities, especially as firms like Blackstone and Apollo have raised nearly $300 billion from retail investors. 

While evergreen funds offer some liquidity and mass appeal, especially through wealth advisors, their structure forces managers to continuously invest and meet redemptions, reducing the strategic flexibility that once defined private credit’s advantage. 

This could erode returns, particularly if managers are pressured to lend during inopportune times or sell illiquid assets at discounts to meet withdrawals. Though redemptions are capped and many investments naturally mature over time, a crisis could still lead to redemption surges that slow new lending and strain fund performance. 

Finsum: As evergreens attract less experienced investors and chase more capital, the sector risks undermining its own resilience unless managers remain disciplined and transparent.

The rapid growth of open-end funds investing in illiquid assets—like real estate, private equity, and credit—has introduced both opportunity and fragility, particularly due to stale pricing risks that can lead to wealth transfers between investors. 

Research shows that these funds often experience artificially smooth and lagged returns, which can mislead investors about actual performance and risk, enabling NAV-timing strategies that exploit predictable price movements. Spencer Couts and colleagues developed a more advanced return unsmoothing method to correct for spurious autocorrelation and better measure fund risk and performance, especially in highly illiquid private credit funds. 

However, interval and tender-offer funds help manage these risks by limiting capital flows and allowing managers to avoid forced sales or purchases of illiquid assets.

Finsum: Pooling capital through regulated open-end structures with controlled liquidity offers a more stable way to invest in illiquid markets.

Once considered obscure and underutilized, interval funds are emerging as powerful tools for investors seeking access to private markets without sacrificing structure or transparency. 

Kimberly Flynn, President of XA Investments, has long believed in their potential, seeing them as a middle ground between illiquid alternatives and mainstream accessibility. With investor interest in non-traditional assets on the rise, these funds are experiencing a surge in growth, gaining attention for their ability to offer periodic liquidity while deploying capital efficiently. 

Unlike mutual funds, which must maintain daily liquidity, interval funds can hold private assets and still meet redemption requests through built-in buffers and structured liquidity schedules. The uptick in SEC filings, new entrants like KKR and Hamilton Lane, and record inflows suggest that momentum is accelerating, positioning interval funds as a cornerstone of the alternative investing landscape. 

Finsum: Interval funds are meeting a specific need right now, and investors willing to sacrifice a little liquidity might be able to get better returns. 

Closed-end funds (CEFs) can be valuable additions to a diversified portfolio, offering the potential for capital growth and income through both investment performance and regular distributions. 

Unlike open-end mutual funds, CEFs typically provide higher distribution rates, often paid monthly or quarterly, and allow reinvestment that may enhance long-term returns.  Their fixed-share structure after IPOs means managers aren’t forced to hold cash for redemptions, allowing for more efficient and fully invested portfolios. 

CEFs also give investors exposure to the illiquidity premium by enabling access to less liquid, potentially higher-yielding investments that open-end funds often avoid. 

Finsum: Many CEFs may use leverage to try to boost returns, though this adds risk and volatility.