Explain why planning for liquidity is central when committing money to alternatives

Private funds draw committed capital over several years through capital calls and return it later as distributions, so the investor holds an unfunded commitment that must be paid on demand. If cash is short, the investor may have to sell liquid assets at bad prices or default on commitments. Liquidity planning models expected calls, distributions and valuations, often with a cash flow projection model such as the Takahashi–Alexander model, and uses a pacing plan to reach and maintain the target allocation. Investors often overcommit, since calls are spread out and distributions recycle cash. Stress tests should consider falling public markets, when calls may continue while distributions dry up. A trap is the denominator effect: when public assets fall, the private share rises above target.