• Platforms offered by large bank, broker/dealer or wealth management firms
• Listed securities, which includes closed-end funds.
Cliffwater found that for the 10-year period ending March 2013, the average annualized difference in return between private and liquid alternative products was 0.98 percent. Or, as Cliffwater described it in its study, “The average investor is paying, in reduced return, approximately 1% per year for the preferential liquidity found in retail oriented alternative products versus their institutional private partnership counterparts.”
In its study, Cliffwater said it can’t comment on whether the average 1 percent difference is a fair price to pay for greater liquidity, but noted that it’s consistent with other public/private liquidity comparisons such as yield differences between private and public debt.
According to the study, event-driven and market-neutral strategies had the largest differences––or the highest cost of liquidity––at 2.26 percent and 2.24 percent, respectively.
Macro and managed futures strategies had the lowest differentials at 0.22 percent and 0.48 percent, respectively.
Among the other strategies analyzed in the study, the average cost of liquidity was 1.07 percent for long/short equity; 0.95 percent for credit and 0.61 percent for multi-strategy.
Cliffwater’s study didn’t include commodity, currency and short-biased strategies because they didn’t have significant enough private/liquid pairings.