Liquidity is a position, and it should be sized like one

In most portfolios, cash is whatever is left after the interesting decisions have been made. It is described as a drag, apologised for in quarterly letters, and minimised on principle.

We size it deliberately, and we think the framing matters more than the number.

What liquidity actually buys

An unlevered, undrawn liquidity buffer is not idle capital. It is an option to transact when other participants cannot — and in private markets, the periods when others cannot transact are precisely when pricing is most attractive.

The 2023 window is the clearest illustration in our own history. Several assets we had previously declined on price became available from sellers facing refinancing deadlines rather than fundamental deterioration. Buying them required no cleverness whatsoever. It required having the money on the day.

Every distressed seller is somebody's liquidity mistake. The buyer's only edge is not having made the same one.

Sizing it

We hold a buffer calibrated to the larger of: twelve months of committed capital calls, or the capital required to defend the three largest positions through a refinancing under stressed terms. In practice that has ranged between four and nine per cent of the book.

The cost is transparent — it is the return differential between the buffer and the marginal deployment we did not make. We disclose that drag explicitly in the annual review rather than netting it quietly into performance, because an investor is entitled to see what the insurance costs.

It is the least exciting line in the portfolio. It is also the reason the rest of it has never had to be sold at someone else's price.