Self liquidating asset implies that
If an investor stops committing to new private equity funds then his residual net asset value (NAV) eventually decreases as the underlying investments are exited.
For mature private equity portfolios, the investor’s net cash flow is likely to be positive, indicating that distributions are larger than capital calls.
The above-mentioned forces mutually reinforce each other during a liquidity crisis.
Market participants in need of cash find it hard to locate potential trading partners to sell their assets.
The NAV is transformed into cash without requiring any action from the investor; we refer to this process as the self-liquidation property of private equity portfolios.
The purpose of this paper is to have a closer look at this characteristic.
For example, they do not make sense for fixed assets, such as real estate, or depreciable assets, such as machinery.
Asset accounts on the balance sheet are listed in the order of...?
A type of short- or intermediate-term credit that is repaid with money generated by the assets it is used to purchase.
Borrowers typically face higher loan costs and collateral requirements, compared to periods of ample liquidity, and unsecured debt is nearly impossible to obtain.
Typically, during a liquidity crisis, the interbank lending market does not function smoothly either.