LIQUIDITY SHRINKS

Weekly Insights from Sol Berkoff
Principal at Charleston Capital, Inc.

While at a conference last week, Larry Fink, the CEO of Blackrock, said that investors may be over-allocating to alternatives.

He said: “Let’s be clear that with alternatives you’re trading liquidity for more return.”

Below, see a graph of Market Access’ High Grade Turnover Ratio.

4.15.19.png

Source: Market Access

First, note that this is a measure of HIGH GRADE liquidity.  It does not include high yield.

Next, note that liquidity declined dramatically during the crisis.

Finally, note that liquidity today is much worse than it was before the financial crisis.

We at CCM would never argue that a liquid secondary market exists within small business finance.

We like the idea, though, of being long senior loans backed by short duration, high APR small business finance contracts.

The next time liquidity shrinks, we are going to rely on our Secure Funding Ecosystem.

We will not have to hope that the rest of the buyside, or what is left of the sellside, shows up for our BWICs.