In 2008 investors suffered a tripple whammy. They were stung by losses as markets cratered, they found their exit from hedge funds barred by “gates,” and they got an unwelcome surprise when they tried in vain to discover what investments their funds held.
Investors are vowing not to be caught with blinders on again. They want investments that are easy to understand and also offer transparency and liquidity. Indeed, if there were a spectrum of investors’ wishes, it would have opaqueness, complexity and illiquidity — characteristics of many popular investments precrash — on the far end and transparency, simplicity and liquidity on the near end.
Roger Ibbotson, the famed Yale University finance professor who sold his advisory firm, Ibbotson Associates, to Morningstar in 2006, may have found a way to take advantage of this shift in sentiment. Through the quant-driven, market-neutral hedge fund firm he founded in 2001, Zebra Capital Management, Ibbotson is packaging investments built around research that he and a colleague conducted into liquidity premiums in — of all places — the public equity markets.
It’s been known for decades, of course, that private companies offered a so-called liquidity premium: If you’re willing to lock up your money — that is, forgo liquidity — for as long as a decade, you should be rewarded. Ibbotson, however, argues that an outperformance premium for sacrificing a certain amount of liquidity can be found in major public markets in which stocks trade actively. ....