Illiquidity Premiums in Real Estate and Private Equity | Erik Averill, Brandon Averill | AWM Insights #70

With the all-time market highs that we’re seeing despite fears of inflation, we’re also continuing to see the popularity of real estate investing and venture capital private equity. But whether you just dip your toe in or dive in headfirst to these kinds of investments – are you getting the returns you deserve? 

When investing in these spaces, they require more patient capital that can’t be pulled out very quickly. This is known as illiquid assets and can sometimes get a negative rap. However, we think illiquidity can be a great thing as long as you’re being compensated for it. 

This concept – known as an illiquidity premium – is the focus of Erik and Brandon’s discussion today where they discuss what it is, why it can be a good thing for investors, and the opportunity costs to consider of having your assets tied up in illiquidity.

EPISODE HIGHLIGHTS

• (00:24) The news you should know: MLB All-Star Game, All-time market highs
• (2:14) What is the illiquidity premium and what does it apply to?
• (3:12) Illiquidity premiums in real estate and venture capital
• (4:46) How should investors look at illiquidity?
• (5:48) What are the opportunity costs of illiquidity?
• (8:29) What are interval funds?
• (10:19) Elevator analogy
• (11:16) What does risk mean to you?