Liquidity risk

Bernd Fischer of Investment Data Services delivered a terrific presentation this week at the European meeting of the Performance Measurement Forum in London. Liquidity risk has been a rather difficult concept for me to get my arms around; granted, I haven't spent any time really reflecting on it, but conceptually it has been a challenge. Bernd's approach is a very thorough and reasonable one, that will provide asset managers and their clients with great insights into the changes taking place in their portfolio relative to liquidity, which can result from changes in daily trading volume, credit downgrades, and other factors.

There probably would be little interest in this subject had it not been for the huge downturn two years ago, which stemmed to some extent to the absence in liquidity for several asset types. We learned that a few asset managers have developed their own models to address this risk and it's great to learn that vendors are, too. We also learned that Statpro has a product, though we have no details on its capabilities.

I will go into this topic in a bit more detail in this month's newsletter. In addition, Bernd will be writing an article for The Journal of Performance Measurement(R) on this topic.