Liquidity Rules Long Term Finance
Liquidity is key.The reason is that few investors are willing to tie up funds, without recourse, for years at a time.
Liquidity, the degree to which a security can be quickly bought or sold without affecting the asset's price, has been a stumbling block for infrastructure funds, as investors assume that their assets will not be available to them in a timely manner. This is, however, a misnomer. As Bill Campbell, Equilibrium Capital’s Head of Structuring and Sustainability, explained:
“Assets are often going to be adding value, perhaps dramatically, for a development period, and then entering a longer period of stability. The former are ‘value added’ funds and the latter, ‘core funds’. Either way buyers have to be able to get in, and out. If they are going to be tying up their capital for up to longer periods without liquidity, they expect to get paid for it, and there’s a place for that in their portfolios.”
Infographic by Thomas Cairns, with input from TGEink staff and experts.