Wealth Management: Optimizing Defined Benefit Plan Liquidity

April 15, 2019

Understanding the potential benefits liquidity can bring the pension portfolio.

"Liquidity constraints can protect the underlying portfolio against forced, untimely redemptions."

Wealth Management discusses finding the right balance of liquidity for the defined benefit (DB) plan. Too little could mean you can’t pay participants’ benefits. But excess liquidity could mean the portfolio incurs opportunity costs in the form of forgone returns. 

The publication highlights our very own Tom Harvey’s recent white paper, "Investment Liquidity: Investments Lockups Investors Should Like," which talks about the appropriate circumstances DB plans should consider adding less-liquid assets to their portfolios. Potential benefits include:

  • Improve portfolio efficiency
  • Earn compensation for taking on the illiquidity risk factor
  • Enhance long-term diversification with a goal of improving risk-adjusted returns
  • Create opportunities for managers to create alpha
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Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.