Cost Incurred in Portfolio Liquidation

In this white paper, Navigant's Gene Deetz, Rizwan Hussain, Vikram Kapoor, Pawan Malik, Andy Miller, and David Saunders discuss Navigant's research on the costs involved portfolio liquidation and offer a hypothesis for further analysis based on market volatility. The authors describe the five factors that contribute to the associated costs and risks when a portfolio is liquidated: base liquidity discount, change in market prices, liquidity impact, information leakage and commissions. Further, Deetz, et al., provides a framework to assess the positive or negative delta achieved to liquidate a particular fund and analyze the delta of the liquidation manager. The authors also explain why and how, in volatile markets, the typical costs of liquidation are likely greater than in benign market conditions.
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