All the new (illiquid) products

November 14, 2025

You are probably seeing the news about private credit, alternatives, and private real estate. Now specially available in 401k plans as well!

But remember, liquidity is thy friend.

Finance firms perceive value when they can get someone's cash and lock it up without that person having the ability to give them a pesky call saying "I need my money back." They can, for example, buy an asset that looks like it has great returns but kind of ignore the leverage attached to it. They can write lots and lots of covenant default terms into the fine print, hoping to protect the investment with a pile of legalese.

There is a lot of interest in this! In New York, all kinds of complex deals are now possible when you restrict liquidity. Let's face it, if you are toiling on the desk of a large investment house, you might be a little jealous when you learn that your classmate from a fancy college, who did worse than you on the Chemistry 202 final, got a job at a Silicon Valley venture capital firm and she has her investors locked in, with plenty of time to make decisions. To make matters worse, she is now ahead of you on the national leaderboard of Brawl Stars, and keeps texting you about it at work while you try to deal with client fund redemptions. This all seems unfair.

And your venture capitalist classmate doesn't have a market reporting on what her investments are worth every fifty milliseconds. So if things go badly, she has time to paper it over, kind of smooth out the returns curve, maybe have lunch with the auditor who determines the value of the private investment. Remind said auditor how much she loves the independence of the audit, oh and also the auditing fees charged are high but remember she hasn't negotiated them down.

So back in New York, this seems like a good idea and you mimic the principles with a private credit fund. You can package all kinds of fees that are hard to see into the investment, you have lots of time to deal with portfolio, you don't have a market reporting on you, and if investors want their money back, you can tell them sorry, they should have read the fine print.

But on the other side of the coin, the investor has given up a lot. It is common that clients need liquidity, and we get it for them, generally within 48 hours. Sometimes the time is not as short, but an asset shift is warranted, and we need to be able to make it.

If you give up the right to liquidity, you should get paid a substantial amount in exchange. This includes CDs from banks, which lock up capital, generally with only minimal extra compensation.

However, Cliff Asness at AQR Capital Management notes that too much liquidity can be a negative to the investor.¹ John Bogle, the founder of Vanguard, did not like ETFs because they tempted the investor to trade too much.

This dichotomy is something we think about a lot, and at One Day In July, we take seriously our role as advisors to preserve near-perfect liquidity for you, while creating some barrier to friction-free trading.

~ Dan Cunningham

1. Cliff Asness at AQR notes this:
"I mean, let’s get real, does anyone seriously doubt that at least part of the attraction of private equity, and its wildly growing popularity, is an increasing acceptance among investors that they will have to get very aggressive to reach their goals (e.g., underfunded pension plans and the like), but still possess an absolute aversion to living under the true reported volatility this aggression entails?"
This was from 2019, but still relevant today. Read more here.