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Harnessing the illiquidity premium

There is a general consensus that an illiquidity premium exists and the benefits of investing in illiquid credit are well understood. Yet illiquidity constraints create risks and restrict the ability of investors to react quickly to market movements. In order to harness the illiquidity premium while remaining mindful of the inherent risks, investors need to challenge assumptions about current liquidity conditions and maintain flexibility and an open mind.

In the second instalment of our two-part paper, we discuss our approach to capturing the illiquidity premium in a multi-asset credit framework. This involves assessing how observations about the illiquidity premium can affect asset allocation, relative-value analysis among credit assets and portfolio-management decisions.

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