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Answer: Allocating a portion of a portfolio to illiquid asset classes.
## Explanation **Allocating a portion of a portfolio to illiquid asset classes** is the most passive strategy because: - It involves a strategic asset allocation decision that doesn't require ongoing active management - Once the allocation is made, the investor can hold the positions without frequent trading - This approach captures the illiquidity premium through long-term holding periods **The other options are more active strategies**: - **A**: Requires active selection and monitoring of specific illiquid securities - **B**: Involves dynamic factor timing and active portfolio adjustments - **C**: Market making is an extremely active strategy requiring continuous trading and risk management Passive illiquidity harvesting typically involves accepting illiquidity as a structural feature of certain asset classes (like private equity, real estate, or infrastructure) rather than actively seeking out illiquid opportunities within liquid markets.
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Regarding the following strategies to harvest illiquidity premiums, which one is most likely a passive strategy?
A
Choosing the most illiquid assets within an asset class, even if the asset class is generally considered to be liquid.
B
Using dynamic factor strategies at the aggregate portfolio level.
C
Acting as a market maker for individual securities.
D
Allocating a portion of a portfolio to illiquid asset classes.