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The illiquid assets market is a substantial and increasingly significant part of the global financial landscape. Here’s a breakdown of its size and importance:
Size of the Global Illiquid Assets Market
* Significant Portion of Global Wealth: In 2021, global gross assets totaled approximately US809 trillion. Of this, roughly **US365 trillion (45%)** was held in gross illiquid assets. When considering net assets (after deducting debt), illiquid assets still represented a considerable US$290 trillion.
* Household Dominance: A large portion of illiquid assets, particularly around 80% of net illiquid assets, is held by individual households, primarily in the form of home ownership.
* Institutional Growth: While individuals hold the majority, institutional investors have significantly increased their allocation to illiquid assets over the years. For example, the average endowment’s portfolio weight in illiquid assets rose from around 5% in the early 1990s to over 25% by 2011.
* Projected Growth (Tokenization): The market for tokenized illiquid assets (where ownership is represented digitally on a blockchain) is projected to reach $16 trillion by 2030, representing 10% of global GDP. Some “best-case scenario” forecasts even suggest this could reach $68 trillion. This highlights a significant future trend that could unlock liquidity for many traditionally illiquid assets.
* Private Credit Market: A notable segment within illiquid assets is the private credit market, which topped $2.1 trillion globally in assets and committed capital last year.
Significance of the Illiquid Assets Market
Illiquid assets hold significant importance for several reasons:
* Illiquidity Premium: One of the primary attractions of illiquid assets for investors is the potential for an “illiquidity premium.” This refers to the additional return that investors expect to receive for locking up their capital for longer periods due to the difficulty of quickly converting these assets to cash. Historically, private equity, private credit, and private real estate have delivered substantial premiums relative to their public market equivalents.
* Diversification and Risk Reduction: Illiquid assets can offer valuable diversification benefits to a portfolio. They often have low correlation with traditional liquid assets like stocks and bonds, which can help reduce overall portfolio risk, especially during periods of market volatility. Their pricing is not adjusted as frequently as publicly traded securities, leading to more stable valuations over time.
* Long-Term Wealth Creation: Illiquid investments encourage a long-term investment horizon and can help mitigate emotional responses to market fluctuations. Investors are less likely to sell prematurely during volatile periods, allowing fund managers to execute strategies and unlock value over time.
* Access to Unique Opportunities: Illiquid markets, particularly in areas like private equity and private credit, provide access to a broader universe of companies, including high-growth potential businesses and middle-market companies that are not publicly traded. This allows investors to participate in growth stories not accessible through public markets.
* Market Inefficiency and Potential for Higher Returns: The less transparent and less efficient nature of private (illiquid) markets can create opportunities for skilled investors to identify undervalued assets and generate higher returns.
* Funding for Real Economy: Illiquid assets, especially in areas like real estate and infrastructure, are crucial for funding real economic development and projects that require long-term capital commitments.
In conclusion, the illiquid assets market is a massive and growing component of global wealth. Its significance lies in its potential for higher returns (illiquidity premium), diversification benefits, long-term wealth creation, and access to unique investment opportunities in the private markets. The increasing trend of asset tokenization suggests that the liquidity of these assets may evolve, further impacting their role in the global financial system.

Video courtesy of CSOB

Video courtesy of CSOB