medium · CFA Level I alts
Ironvale Mining's private equity sponsor reports a quarterly return series with a standard deviation of 6%. An analyst notes that the underlying assets are appraised annually. The analyst's most appropriate conclusion is that the reported volatility:
- Understates the true economic risk due to appraisal smoothing
- Accurately reflects the risk because private markets are less efficient
- Overstates the true economic risk due to the J-curve effect
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