Liquidity Budget

Definition

A liquidity budget defines how much of a portfolio must be available within specific time horizons (days, months, years) to meet spending needs, benefit payments, capital calls, and contingencies. It is a practical constraint that governs how much illiquidity an allocator can تحمل, even if long-term returns appear attractive. Allocator Context Pensions, endowments, and foundations typically manage liquidity budgets formally because they have predictable obligations. Family offices may manage liquidity more informally, but the constraint still exists through taxes, lifestyle needs, and opportunistic capital deployment. Liquidity budgets often tighten during stress, when public markets fall and capital calls continue. Decision Authority Liquidity budgets are enforced through IPS rules, sleeve limits, and committee oversight. Proposed allocations that increase illiquidity beyond budget or create “liquidity cliffs” often require escalation and may be rejected regardless of manager quality. Why It Matters for Fundraising Many “great meetings” do not convert because liquidity budgets are binding. Managers improve conversion by addressing liquidity directly: lockups, calls, distribution timing, and how the strategy behaves during stress when liquidity is scarce. Key Takeaways Liquidity is governed, not optional Budgets tighten in stress periods Drives feasibility and sizing of illiquid allocations Clear cash-flow expectations improve approval speed