Hi, it mentions in apr2017 that assets should have a sufficient illiquidity premium. why is that? thanks
Hi Dimitris This is so that it can get most benefit from the MA. If it were to invest in risk-free government bonds, there would be almost no MA. On the other hand, if it were to invest in corporate bonds with a spread over risk-free composed mainly of credit spread, then there would be little MA as the MA takes the above spread and deducts the fundamental spread, ie the credit spread component. So ideally, to benefit from the MA, the assets should contain a spread representing a material amount of illiquidity. Hope this helps. Thanks Em
