What is a liquidity sleeve?

A liquidity sleeve is a portion of a fund's portfolio allocated to highly liquid assets, such as cash, money market instruments, or short-term government bonds. It is designed to help the fund manage redemptions, operational expenses, or other short-term liquidity needs without having to sell less liquid investments. In semi-liquid funds, which invest in illiquid assets like private equity or real estate, a liquidity sleeve is crucial. Since the primary investments cannot be quickly sold, the liquidity sleeve acts as a buffer to handle redemption requests or other immediate cash needs. A liquidity sleeve strategy and composition will vary from fund to fund, but generally will make up 10-20% of the portfolio.