October 30, 2023

Liquidity - Essential Throughout the Economic Cycle

Liquidity -  Essential in a Downturn, but Equally Important in the Good Times

It was around 2008 when the real genesis of Syndex came about. Offering liquidity in a fair and transparent way has always been at the crux of what we do. 2008 was, of course, mid-GFC and the need for liquidity solutions became hugely apparent. NZ investors may remember more than one Property Fund that froze redemptions in the late 2000’s when some investors were desperately requiring access to their funds. Unfortunately, the wait for those funds in one case lasted through to 2017 - a source of frustration for both investors and the issuer. While this may stand as an extreme example, it mirrored a broader trend of funds putting the brakes on distributions and redemptions at that time.

A recent watch of the Australian media shows numerous headlines that indicate that illiquidity in funds, particularly in the office property sector, is once again becoming a problem. These headlines suggest that the current economic climate, that of a highly inflationary environment and elevated interest rates, is not only driving investors' need for cash but making it difficult for issuers to respond.

What was needed back in the GFC when funds were freezing redemptions and distributions, is what is needed in this cyclical downturn - effective liquidity mechanisms to allow investors to access the cash they need. 

Secondary market trading 

Syndex has secondary market options offering liquidity for investors in private markets. The periodic market is real-time trading in a transparent and fair, smart-tech environment. An investor enters the trading event with the ability to buy or sell a financial asset product. An investor seeking liquidity has the opportunity to sell units or shares, at a price that they are prepared to, offering investing opportunities to new investors. In turn, it offers fund managers additional solutions to ensure the ongoing operation of the fund and perhaps avoid asset sales in difficult markets.

Beyond crisis moments, this mechanism unveils many multi-stakeholder advantages. It bestows fairness and transparency upon outgoing shareholders seeking an exit, facilitates owner transitions as part of succession planning, invites new investors into the fold, eases the transition to public listing, fulfils regulator guidance by offering liquidity, highlights the demand for company funds and assets, and expands the pool of potential investors.

Investor's risk profiles and personal circumstances change over time and it's important to be able to respond to that without jeopardising other shareholders and fund managers.

Ross Verry

Ross Verry is CEO of Syndex and a shareholder. The views expressed above are purely his own. Please assess and research all your investment.

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