profile can change dramatically during difficult market environments, tools that measure portfolio liquidity are an essential element of the stress analysis. For example, investors must be aware if a partial redemption could cause an illiquid asset to exceed some guideline.17 Since redemption risk can correlate with difficult markets, some illiquid situations (e.g., 144A securities, position concentrations, etc.) can coincide with unanticipated redemptions of capital.18 The risks associated with many of these situations are often apparent only if large stresses are assumed. A tool we use at GSAM to assess the potential implications of illiquidity is the "liquidity duration" statistic. To calculate this statistic, begin by estimating the average number of days required to liquidate a portfolio assuming that the firm does not wish to exceed a specified percent of the daily volume in any given security. The point here is that we wish to estimate how long it would take to liquidate a portfolio's holdings in an orderly fashion-that is, without material market impact. For example, suppose that we do not wish to exceed more than 15 percent of the daily volume in any given security holding. The number of days required to liquidate any given security we term the liquidity duration for that security. More precisely, the liquidity duration for security i can be defined as: LDt = Qj{.\5 V) where LD: = Liquidity duration statistic for security i, assuming that we do not wish to exceed 15% of the daily volume in that security Q = Number of shares held in security i V = Daily volume of security i An estimate of liquidity duration for the portfolio taken as a whole can be derived by weighting each security's liquidity duration by that security's weight in the portfolio. Liquidity duration is readily calculated for equity holdings, as volume data are easily available. In the case of fixed income securities, where volume information is not available, the estimate of the number of days required to liquidate a position-and an overall portfolio-in an orderly fashion (i.e., without a material adverse earnings impact) will likely result from discussions with portfolio managers. Credit Risk Monitoring For the purposes of this discussion, we assume that the credit risk of each instrument is researched and understood by the portfolio manager. We further assume 17As an example, a U.S. mutual fund cannot hold more than 15 percent of its assets in illiquid securities. 18An example of this statement is the acceleration of liabilities in a pension plan due to increases in early retirements in periods of recession.