SD-01.11 — Liquidity Strategy & Tiering

Business Domain: BD-01 Investment Strategy & Allocation (Front office) · Applies: BOTH

Purpose

Defines the institution’s liquidity strategy at the total-portfolio level — the liquidity-tier taxonomy and placement rules, the liquid-asset buffer, and the policy linking liquid holdings to illiquid funding needs. Where SD-07.3 Liquidity Risk Management classifies each holding into a tier and measures liquidity risk, SD-05.6 Liquidity-Aware Portfolio Management applies the tiering within a portfolio, and SD-11.2 Liquidity Management funds near-term needs, this Service Domain sets the policy the others operate beneath: the buckets and the rules by which holdings are placed in them, and how much liquid capital must stand behind the illiquid book. SD-01.11 sets the tier taxonomy; SD-07.3 applies it to produce the per-holding classification.

Service Operations

Define the liquidity-tier taxonomy and placement rules — the liquidity buckets (immediate, short-term, medium-term, illiquid) and the rules by which a holding is placed in a tier. This is the policy SD-07.3 applies when it classifies each holding; SD-01.11 sets the buckets and the placement rules, it does not run the per-holding classification.
Size the liquid-asset buffer — set the minimum liquid holdings needed to meet obligations, regulatory minimums and stress.
Plan for the denominator effect — model the interaction of a market drawdown with undrawn-commitment funding demand, when the illiquid share rises as the liquid base falls.
Set liquidity limits and the linking policy — the limits on the illiquid share and the policy tying liquid holdings to illiquid funding needs.
Stress-test portfolio liquidity — test the liquidity profile under combined market and cash-flow stress.

Inputs and outputs

Inputs: the portfolio composition and redemption terms; the SD-09.7 cash-flow forecast; the commitment plan (SD-01.10); regulatory liquidity requirements; the spending or benefit profile of the capital.
Outputs: the liquidity-tier taxonomy and placement rules, the buffer size and the liquidity limits — consumed by SD-07.3 (which applies the taxonomy to classify each holding and measure liquidity risk), SD-05.6 (portfolio application) and SD-11.2 (treasury funding).

Entities

Consumes: Holding / Position (E-04, book = ibor), Valuation (E-07, any method), Portfolio / Mandate (E-03); LP Commitment (PM-06) and Fund Investment (PM-09) for undrawn-commitment funding demand; the SD-01.10 commitment plan; the SD-09.7 cash-flow forecast.
Owns: the liquidity-tier taxonomy and placement rules — the liquidity-tier classifier type and its tier values, governed as Classification Type & Value (E-11) — as a policy artefact. SD-01.11 does not own the per-holding classification; SD-07.3 Liquidity Risk Management produces that, recorded as Risk Measurement (E-19, risk_type = liquidity).

Standards

No single external standard governs liquidity strategy. The liquidity stress-testing discipline draws on the risk-data and stress-testing principles applied across BD-07 Investment Risk. The denominator-effect failures of 2022–23 are the practitioner reference for what this capability must withstand.

Open extensions

The boundary with SD-07.3, SD-05.6 and SD-11.2 is recorded in the BD-01 README: SD-01.11 owns the tier taxonomy and placement rules; SD-07.3 produces the per-holding classification; SD-05.6 and SD-11.2 consume.
The liquidity tier is a classification governed through Classification Type & Value (E-11) — SD-01.11 governs the liquidity-tier classifier type and its values; the per-holding tier assignment is recorded against Classification History (E-12) where an implementation chooses to persist the slice, alongside the Risk Measurement (E-19) record SD-07.3 produces.