abstract: 

Asset managers usually define a policy portfolio to provide a long-term benchmark. However, the practical implementation of such a policy portfolio is not straightforward. While some investors are endowed with illiquid assets such as non-listed equity, other investors are effectively precluded from holding such assets. In this paper we analyze the equilibrium effects of non-tradeable assets on optimal policy portfolios. We  find that the existence of non-tradeable assets implies that investors do not hold the market portfolio. Investors with (without)access to non-tradeable assets tilt their portfolios away from (towards) assets to which non-tradeable assets exhibit positive betas.