Research area 03
Illiquid & Mandate-Constrained Portfolio Design
private markets · allocation ceilings · semi-liquid funds
The question
For allocators holding an untradeable private-markets sleeve under a drawdown mandate: derives the maximum allocation to illiquid assets the mandate can actually sustain, and shows how capital calls draining the liquid sleeve — faster than distributions replenish it — can make a mandate structurally infeasible regardless of manager skill. Extends to semi-liquid funds — interval and tender-offer funds, non-traded BDCs — where a quarterly repurchase cap acts as a speed limit on redemptions, and characterises which gate designs are run-proof.
Private-Markets Allocation Ceiling
η* = A / v − 1, v = (1−x)σY
- A
- safety margin implied by the ergodic drawdown barrier
- v
- volatility floor induced by the untradeable sleeve
- x, σY
- liquid wealth share; illiquid-sleeve volatility