Financial Risk Manager Part 2
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A pension fund, constrained by the limited investment options available in public markets, has decided to hire an investment consultant to explore potential investment opportunities within the liquid markets of the United States. As part of the evaluation process, what specific characteristics and features of the illiquid markets in the U.S. should the consultant highlight and discuss with the pension fund managers?
A pension fund, constrained by the limited investment options available in public markets, has decided to hire an investment consultant to explore potential investment opportunities within the liquid markets of the United States. As part of the evaluation process, what specific characteristics and features of the illiquid markets in the U.S. should the consultant highlight and discuss with the pension fund managers?
Explanation:
C is correct. Both pensions and endowments have increased their holdings of alternative assets from about 5% to 20-25%.
A is incorrect. Municipal bonds have less than 10% turnover, much lower than approximately 35% for OTC equities.
B is incorrect. US real estate markets are large compared to the size of US stocks/bonds.
D is incorrect. Liquidity dried up in both markets.