RT Journal Article SR Electronic T1 Alternatives and Liquidity: Will Spending and Capital Calls Eat Your “Modern” Portfolio? JF The Journal of Portfolio Management FD Institutional Investor Journals SP 103 OP 114 DO 10.3905/JPM.2008.35.1.103 VO 35 IS 1 A1 Laurence B Siegel YR 2008 UL https://pm-research.com/content/35/1/103.abstract AB High allocations to alternative investments by investors, such as foundations and endowments, raise infrequently discussed concerns about liquidity. As the percentage of assets under management invested in alternatives rises, the availability of liquid equities and bonds available to meet spending requirements, capital calls, and margin calls plummets. A series of simulations shows how severe this problem can become in bear markets. The remedy for this problem is to ladder gradually into illiquid assets, so that expected future cash flows from these assets partially or fully offset capital calls and other cash requirements. New and enthusiastic investors in illiquid alternative investments sometimes forget this principle. By adhering to it, an alternatives program can be successful, but not on an unlimited scale. It is also necessary to hold a considerable portion of a portfolio in liquid stocks and bonds.TOPICS: Portfolio theory, real estate, pension funds