RECAP: 2019 FOX Global Investment Forum

2019 FOX Global Investment Forum - Recap


Breakout B: The Three L’s of Portfolio Construction: Liquidity, Liquidity, Liquidity

Patrick Parisi, BMO Family Office


Patrick Parisi, CIMA®, Director, Investment Advisory Services, BMO Family Office

Session Description: 

Understanding the role of liquidity is critical to effective portfolio management. This session provided guidance on how to build investment portfolios that incorporate liquidity needs and manage through market downturns. Participants learned how to manage “capital-in-waiting,” as they build out a private markets portfolio, among other considerations for liquidity management. 


Key Takeaways: 
  • To optimize liquidity management: comprehensively identify sources and uses of cash, analyzing how they behave during periods of market stress, reviewing the relationship between liquidity and market volatility and creating a framework that combines cash flow and investment portfolio analysis. 
  • Liquidity and volatility: If the portfolio is not required to make any liquidity distributions, then theoretically, portfolio volatility, should not be a consideration. If a portfolio is required to make significant distributions, volatility will impact its ability to grow over the long term. This is especially true if the distributions are dollar-based rather than percentage-based, and there is little or no flexibility to adjust the distribution level during economic and financial market stress. 
  • Liquidity planning is the process of understanding the sources and uses of portfolio liquidity and how they could be impacted during various types of market environments. Uses of liquidity should include, but are not limited to:  
    • Personal spending 
    • Operating company cash requirements 
    • Real estate development and capital requirements 
    • Private market capital calls (private equity, venture capital, distressed etc.) 
    • Taxes (State and Federal)—not just income 
    • Family office and professional expenses 
    • Philanthropy 
    • Loan repayments 
    • Investment opportunities (dry powder).
  • Families with high allocations to illiquid investments should understand the impact to portfolio and liquidity management of increasing their allocations to private market funds and direct investments.  

(FOX Members only)