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Hedge Funds: Portfolio, Investor, and Financing Liquidity

May 17, 2017

George O. Aragon, Tolga Ergun, Mila Getmansky, and Giulio Girardi


By some estimates, hedge funds held net assets in excess of $3 trillion at the end of 2016. Despite the economic importance of this industry, very little is known publicly about the illiquidity of a hedge fund’s assets (portfolio illiquidity) and the liquidity terms the fund has arranged with its investors (investor illiquidity) and creditors (financing illiquidity). We shed light on hedge fund liquidity using the quarterly filings of recently instituted Form PF over 2013-2015. Regarding this sample our main findings can be summarized as follows: 1) on average, it appears that 34% of a fund’s assets can reasonably be liquidated within one day without fire sale discounting, and the average portfolio illiquidity is 71 days; 2) nearly 80% of a typical fund’s investors are “locked in” beyond 30 days, and the average investor illiquidity is 173 days; 3) 100% of borrowing and cash financing is committed for only one day for 51% of our sample, and the average financing illiquidity is 53 days; and 4) in 84% of our sample, hedge fund balance sheets  display a liquidity cushion, such that portfolio illiquidity is strictly less than the combined investor and financing illiquidity. We also find that average illiquidity varies significantly across funds in our sample, but less so over our time.