An illiquid investment is an asset that cannot be quickly bought or sold at a fair market price, meaning converting it to cash typically requires more time, effort, or a discount compared to a publicly traded security. Private real estate is a common example: an investor generally cannot sell a stake in a property or fund on demand the way they could sell a public stock, since there is no continuous trading market and any sale usually depends on finding a specific buyer or waiting for a scheduled liquidity event such as a refinancing or disposition.
Illiquidity is not inherently a drawback. Investors are often compensated for accepting it through an illiquidity premium, a higher potential return that can come from assets not subject to the constant price swings of daily-traded markets. The tradeoff is that capital committed to an illiquid investment is generally unavailable for unplanned needs during the hold period, which is why illiquid assets are usually sized as a portion of a portfolio an investor can afford to leave untouched for several years, rather than funds needed for near-term expenses.
Further reading: Lightstone's Track Record
ACCESS
