Liquidity's slippery slope

As hedge funds seek out the less-liquid markets to make money, they are employing strategies to match their portfolio's liquidity with its instruments'. While illiquidity can bring returns, it also brings risk, as Conyers Dill & Pearman's Richard Finlay explains

Hedge funds and their managers face the challenge of reconciling their objective of achieving above-average market returns relative to risk with their investors' desire for liquidity through periodic exit routes.

To allow for the latter, hedge funds typically provide investors the option to redeem at regular intervals. This distinguishes the hedge fund from the traditional private equity fund, where investor liquidity was far more restricted, generally to the point of being tied to the