

The illiquidity premium? - siruva07
http://www.aaronkharris.com/post/1126412662/the-illiquidity-premium

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eru
Interesting article. The title is misleading, though. The author talks about
why the liquidity premium may go down, but it won't become negative.

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akharris
Thanks for pointing that out. My point is not that the liquidity premium will
go negative, but that there could be just as much (or as little) premium for
illiquid assets as for liquid assets when SWFs are driving force in the
market.

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eru
Are we using the same definitions? I thought the liquidity premium is the
differential in return people are willing to incur for the convenience of
liquid over illiquid assets?

What meaning of premium are you using? I want to make sense of "[...] just as
much (or as little) premium for illiquid assets as for liquid assets [...]".
Thanks.

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akharris
Same definition. Right now markets pay a premium for the convenience of liquid
assets as you say. What I'm saying is that the investment profiles of the SWFs
may lower that premium/raise the price of illiquid assets such that the two
are effectively the same price. Feels like two sides of the same coin.

I could probably have been clearer, but I kindof liked the way the title
sounded. Appreciate the feedback.

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Retric
Perhaps a better way of stating it would be:

Illiquid investments currently need to pay a premium over their more liquid
counterparts. However, an increase in long term investors may reduce this
requirement over time.

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eru
Yes, that's clear. The clever title "Illiquidity premium" is OK.

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matrix
If I understand this blog post correctly, it seems to be suggesting that
sovereign wealth funds would be potential investors for startups and that they
would be ideal investors because they would not be seeking a short-term
exit/liquidity event.

That seems unlikely to me, given the risks inherent in startups, and the fact
that the VCs drive for rapid ROI is arguably an important source of focus for
proving/disproving a business model before you burn through too much capital.

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DomreiRoam
I think that the characteristics described in the article would make this
funds very good VC. They could divert some money to invest in specific domains
funds.

They would probably get some good return in money but also achieve some
strategic goals and some middle-term economic growth.

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greg_holsclaw
Too much cash infused into a new or developing start-up can actually destroy
the incentives needed for the start-up to be successful. Not needing to budget
well and prioritize features (because we have cash to do them all) fights
against the do the first things first, and do them well mentality needed to
move a budding idea into an actual revenue stream.

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ddlatham
SWF seeking long term relationship.

