There’s an interesting debate that has had increasing relevance for superannuation funds and their investors this year as markets have entered a new era of inflation and rising interest rates after more than a decade of minimal inflation, negligible interest rates and ever-rising markets. Is there a premium or discount for illiquidity?
The Australian Prudential Regulation Authority, perhaps motivated by controversy over competing valuations of a star Australian tech stock, Canva, wrote to super funds earlier this year questioning their valuation methodologies and has also updated its prudential standards on valuation governance and policies.
Some institutional investors find particular value in particular unlisted assets, notably infrastructure with pricing power where they can get direct access to long term, inflation-protected cashflows that match their long-term liabilities. They are less concerned about absolute returns than with their own balance sheets.
There has been a lot of chatter on Twitter this year about a paper produced by US hedge fund manager, Clifford Asness, a few years ago where he posed the question of whether conventional wisdom had it backwards and, rather than a premium for illiquidity, investors were paying higher prices and accepting lower returns for illiquid assets.
Source: Financial Digest (financialdigest.net)
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