In the second part of Aviva Investors’ article series on liquidity optimisation, Alastair Sewell investigates how investors can find the right mix of assets for their liquidity pools. Read this article to understand: how liquidity pools can be segmented, the importance of capital stability, yield, capital efficiency, and ESG in building liquidity portfolios, and the different liquidity asset classes.

The topic of liquidity has come into greater focus in the wake of recent market events and regulatory changes. Regulators around the world are asking investors to hold more liquidity and are placing greater emphasis on existing rules. Recent liquidity risk events have pushed many investors towards higher liquidity allocations.

The first article in our liquidity optimisation series addressed the amount of liquidity investors need to hold. You can find out more on this topic in “A bigger splash”.1 In our view, the amount of liquidity any investor should hold represents a delicate balancing act between potential liquidity needs and wider allocation choices. No easy task, but one that can be approached through a combination of scenario analysis and good liquidity risk governance. Liquidity needs to be valued appropriately in a broader strategic asset allocation…

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