5 min read
Liquidity describes how easily an asset can be converted into cash at a predictable price. Private-company shares sit at the illiquid end of that spectrum.
Why liquidity is constrained
- There is no exchange or continuous order book for private shares.
- A sale requires locating a willing, eligible buyer independently.
- Company transfer rules may restrict or block a sale.
- Information asymmetry makes pricing harder to agree.
- Transaction sizes and processes make small, quick sales impractical.
Implications for an investment horizon
An investor should assume that capital committed to a private-company share may be inaccessible for an extended and undefined period. There is no guarantee of a future listing, acquisition or other exit event, and secondary shares may be difficult or impossible to resell.
For this reason, private-market exposure is generally considered only for capital that an investor is able to leave invested indefinitely and, if necessary, lose in full.
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