COVID changed everything about how I think about liquidity.
During the pandemic, I watched funds and investors panic about global macro stability. The specter of another financial crisis loomed large. People started looking for markers, taking precautionary measures.
Then crypto emerged as the game changer.
Digital assets showed us what traditional fiat systems couldn’t compete with. Money could move in ways that seemed impossible under the old banking infrastructure.
The Banking Trust Crisis
The UK high street banks became paranoid. Customers couldn’t transfer funds between family members without scrutiny.
Banks started threatening to close accounts for routine transactions. Cross-border transfers became nightmarish, especially with tightening SEC rules around international business.
You don’t feel like your money is actually yours anymore when it’s sitting in a bank. Accessing your own capital comes with questions that make you feel like a criminal.
If digital banks hadn’t emerged, most of us would be terrified of the current banking system’s stability.
The Escape Hatch Mentality
Investors are absolutely demanding an escape hatch every 30 days.
The uncertainty spans everything. Global macro conditions, emerging asset classes like crypto, high inflation environments where traditional products can’t deliver yield.
Interval fund assets under management surged nearly 40% annually over the past decade, reaching over $80 billion by September 2024. This growth coincided with three consecutive years of declining private markets fundraising.
Traditional products can’t pivot fast enough. New technologies and asset classes offer higher volatility but significantly more alpha potential.
When investors can’t get adequate returns, they need to escape substandard managers quickly and pivot into something new.
Technology Democratizes Competition
The old world made it easy for investment managers. Charge high fees for products that were essentially equity market trackers.
Technology became cheaper. Emerging managers gained market access that big traditional shops previously monopolized.
Pod shops and smaller managers with genuine alpha potential can now impact markets. Family offices willing to take larger risks are backing these nimble operators.
The big shops charging high fees for vanilla products are getting found out.
Two Species of Investing
I see a battle brewing between old guard and progress.
The traditional model focuses on research, balance sheet analysis, and long-term macro views. The liquid model trades systematically, algorithmically, potentially 1,000 times daily.
High-frequency trading eliminates overnight risk and exposure to macro market shifts. No more 4 AM Trump tweets destroying portfolios.
Will they coexist? Absolutely. Each provides something fundamentally different.
But there will always be a battle for domination.
The Future Landscape
You can’t stop progress.
Smaller managers now have competing abilities with larger, well-resourced entities. Forecasts suggest non-institutional allocations to alternatives could reach $12 trillion by 2034.
The traditional private equity model will survive because it’s needed. Warren Buffett’s approach remains reliable for backing businesses through long-term growth cycles.
But the highly liquid model allows cash flow generation and risk smoothing that long lock-ins never will.
Monthly liquidity puts control back in investors’ hands. It forces managers to work harder for their money, as they should.
The question isn’t whether this transformation will happen. The question is how quickly traditional firms will adapt their technology and operations to stay relevant.
Progress always wins.
