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Long-Term Investors Need Short-Term Liquidity
Long-term investors must plan for the short and medium term in order to avoid forced selling in distressed markets, according to a recent analysis by BNY Mellon Asset Management. "This is exactly what happened to many university endowments during the 2008 market meltdown," said Robert A. Jaeger, senior market strategist for BNY Mellon Asset Management and co-author of the study. "Every long-term investor is also a short-term investor and a medium-term investor. We believe that endowments and other long-term investors would be well-served to explicitly divide their portfolios into long-term, medium-term, and short-term components."
The long-term component can aggressively seek out risk and give up liquidity, but the other components cannot, Jaeger said. He added, "If you don't have short-term liquidity, you can't be an effective long-term investor. You become a forced seller in distressed markets."
The co-authors of the study are Michael Rausch, assistant director of research and analysis for BNY Mellon Asset Management, and Margaret Foley, director of the endowments and foundations resource center for BNY Mellon Asset Management.
BNY Mellon Asset Management suggests that long-term investors create at least three sub-portfolios, which have different investment objectives, different expected returns, different liquidity constraints, and may even be based on different capital market expectations. The short-term sub-portfolio is designed to deliver a positive nominal return; the medium-term sub-portfolio is designed to deliver a positive return after inflation; the long-term portfolio is designed to deliver a positive return after inflation and spending. The long-term portfolio is the most aggressive and least liquid of the three. The relative size of the three portfolios is determined by the spending needs of the institution.
Datum: 10 November 2009
Bron: Press release BNY Mellon Asset Management
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