Zachary Kester on the Asset-Liability Mismatch Problem: How Managing Directors of Illiquid Funds Navigate the Liquidity High-Wire Act

Zionsville, Indiana, U.S. - 25th August, 2026 - Every illiquid fund contains a quiet contradiction. Its assets may sit in investments that take years to resolve, such as long-dated notes, private companies, real property, or bespoke loans backed by specialized collateral with no ready market. Its liabilities, meanwhile, come with their own timelines: capital that needs to be deployed, distributions investors may be counting on, reporting obligations, and the operating costs that keep the organization running.

When those timelines stop lining up, a fund doesn't necessarily stumble because it chose bad assets. It can stumble because it runs out of time. That's why the tension between long-dated loans and near-term investor needs [https://zackester.com/] gets so much attention from managers who have actually had to navigate a stressed quarter.

Managing directors tend to describe the job in similar terms across strategies. They're not simply selecting investments. They're managing the gap between when money goes out and when it comes back, often with limited ability to speed up that second part. Public markets can rely on a bid on a screen; illiquid funds have to rely on structure, discipline, and foresight. The work can look less like trading and more like balancing a portfolio while making sure there's enough room to absorb whatever comes next.

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Where the Mismatch Actually Comes From

The mismatch itself isn't necessarily a design flaw. In many cases, it's part of what creates the return or, in mission-driven structures, the impact. Capital that can't move quickly can be put to work in situations that require patience: a loan that amortizes over years, a real estate repositioning that takes several years to complete, or a borrower whose collateral has real value but can't easily be sold on short notice.

Investors accept that lack of liquidity because the strategy is designed to compensate them for it either in raw returns or in philanthropic impact returns.

The trouble starts when a fund's liabilities begin to move out of step with its assets. That usually happens in one of three ways.

The first is structural. A vehicle that offers periodic liquidity while holding assets with little or no liquidity can work well in calm markets, when new subscriptions comfortably cover outflows. The equation changes when that flow reverses. That's why redemption caps, queues, and notice periods exist.

The second is behavioral. Investors don't necessarily seek liquidity one at a time or on a predictable schedule. They often need it at the same moment, particularly when another part of their portfolio has fallen, and their illiquid holdings suddenly represent a larger share of their overall assets. Individual decisions can become a coordinated wave, leaving a fund with far more near-term demand than its models anticipated.

The third is operational, and it's easy to underestimate. Unfunded commitments, follow-on obligations, and pipeline deals that assume a repayment will arrive on schedule are all real liabilities, even when they don't appear as debt on a balance sheet. A manager who has committed to fund three transactions next quarter still has a problem if the expected inflows don't arrive in time.

Long Assets, Patient Capital, and Mission-Driven Structures

Private credit makes this challenge particularly clear. A fund that originates bespoke, asset-backed loans and holds those notes long term may have a defined maturity schedule, but it still has little ability to sell those assets quickly. A repayment date may offer more visibility than most private equity investments, but it doesn't mean the asset can be sold at a fair price before maturity.

Mission-driven structures add another layer. The Advanta Charitable Lending Fund [https://cgf.loans/], where Zachary Kester [https://zacharykester.com/] serves as Managing Director, is organized and operated as a program-related investment. The structure puts charitable purpose ahead of financial return while still preserving enough capital to support future philanthropic work.

That doesn't make liquidity less important. It makes it even more important. Capital that's intended to be recycled has to come back. That puts greater emphasis on cash flow, collateral quality, and covenant enforcement throughout a loan's life.

The Tools on the Wire

Experienced managers tend to treat liquidity as a policy, not just a balance-sheet number. A cash balance by itself doesn't tell you much. What matters is how much flexibility the fund has, what each option costs, and which lever to pull first when conditions change.

Liquidity buffers are the first and least exciting line of defense. Holding part of the portfolio in short-duration instruments can absorb ordinary fluctuations in the timing of inflows and outflows. The tradeoff is obvious: idle cash can weigh on performance in good years, creating a constant temptation to run the buffer too thin. Managers who resist that temptation are often the ones who have experienced what happens when liquidity disappears.

Cash flow laddering is another important tool, particularly for credit funds. Structuring originations so amortization, interest payments, and maturities arrive at different points in time can create a more predictable cash flow. It's one of the few proactive liquidity decisions a manager can make at the portfolio level, although it can require giving up some flexibility on individual deals.

Borrowing sits further down the list and carries more risk. Credit facilities can smooth timing and allow a fund to close a transaction without scrambling for cash, but borrowing against a portfolio of illiquid and specialized assets can introduce the same correlation a manager is trying to avoid. If collateral values fall, the borrowing base can fall with them. The tool meant to provide flexibility can suddenly become the reason that flexibility disappears.

Covenants matter here, too. Well-documented and consistently monitored collateral covenants can turn a slow-moving credit problem into an early warning. Covenants that exist only on paper, however, provide more comfort than protection.

Real-Time Monitoring and Stress Testing

Managers who handle asset-liability mismatches well don't wait for a liquidity problem to appear before testing the structure. They run the portfolio through different scenarios: several consecutive quarters without expected repayments, a credit facility that isn't renewed, a sharp repricing of specialized collateral, or multiple borrowers experiencing trouble at the same time.

The goal isn't to predict which scenario will happen. It's to identify which combination could put the fund under the most pressure and address those vulnerabilities while there's still time to act.

Real-time collateral monitoring makes those exercises more useful. When loans are backed by assets that trade in narrow or specialized markets, an annual valuation can quickly become outdated. Kester works with lending, underwriting, treasury, and risk management teams to evaluate the assets supporting the fund's loans and assess whether that collateral would continue to support the loans if market conditions changed or a borrower defaulted.

Coverage ratios can then turn that analysis into something a committee can actually monitor. Comparing available liquidity and expected repayments against anticipated outflows and pending obligations gives the team a number it can track over time. When that ratio starts moving in the wrong direction, the response can be a small early adjustment instead of a much larger intervention after the problem becomes urgent.

Incentives Are a Liquidity Control

Compensation is one of the less obvious factors that can contribute to an asset-liability mismatch. When originators are rewarded primarily for volume, a portfolio can fill up with deals that closed successfully but may not perform as expected years later. The bonus arrives quickly. The liquidity consequences don't.

Tying compensation to the long-term performance of loans and their underlying collateral changes the incentives. So does bringing sales, credit, and compliance teams into the review process early enough to evaluate a transaction before significant time is invested.

That's how Kester approaches deal review. Both practices push toward the same goal: building a portfolio of loans that look sound at origination and continue to behave well through maturity.

Communication Is Part of the Structure

One of the least technical tools in liquidity management may also be one of the most important: communication.

Liquidity constraints, notice periods, and pacing decisions can easily be interpreted as signs that something has gone wrong. In many cases, they're actually mechanisms designed to protect the remaining investors from a forced sale. The difference between a constraint investors understand and one that causes alarm usually comes down to how clearly it was explained in the first place.

Managers who explain their liquidity policies in plain language when investors subscribe, reinforce those policies through regular reporting, and communicate potential pressure early are more likely to have rational conversations when conditions become difficult.

Investor reporting, financial controls, and audit readiness all play a role here, particularly when investors include charitable and institutional organizations with their own fiduciary responsibilities. Trust can be an important liquidity asset, and like every other asset in a portfolio, it can't be created at the last minute.

The Balance Holds When It's Designed To

The asset-liability mismatch problem isn't something a manager can eliminate. Eliminating it would also mean giving up some of the patient capital that makes illiquid strategies possible in the first place.

Managers can build the structure to account for it. That means terms that reflect the underlying assets, liquidity buffers sized for difficult quarters rather than average ones, borrowing used as a bridge when appropriate, incentives tied to long-term performance, and reporting that keeps investors informed before uncertainty turns into anxiety.

Handled well, the high-wire act starts to look less like a stunt and more like what it really is: a professional discipline built around planning for the moments when the timing of money coming in and money going out doesn't line up.

About Zachary Kester

Zachary Kester is the Managing Director of Advanta Management, the manager of the Advanta Charitable Lending Fund LLC. The private credit facility provides bespoke charitable gift financing loans to individuals. Kester joined the firm in 2025 as Executive Vice President and was promoted within six months after working with accredited charitable institutional investors through their due diligence process and securing $50 million in new investments during his first year.

His experience spans accredited charitable pooled investing through private placements, private credit lending, and private debt fund management.

He's also a Director of Advanta Philanthropic, an organization focused on democratizing complex charitable giving [https://bs.gravatar.com/zackester0] through expertise, technology, and partnerships with professional advisors. He also serves as a Director of a large charitable regranting organization.

His work leading a mission-driven credit fund [https://www.crunchbase.com/person/zac-kester] draws on a Certificate in Fundraising Management and Philanthropic Studies from the Indiana University Lilly Family School of Philanthropy and the Chartered Advisor in Philanthropy (CAP) designation from The American College of Financial Services. He is also pursuing the Chartered Life Underwriter (CLU) designation.

Disclaimer: This press release may contain forward-looking statements. Forward-looking statements describe future expectations, plans, results, or strategies (including product offerings, regulatory plans and business plans) and may change without notice. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements.
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City: Zionsville
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Website: https://cgf.loans/

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