easy · Frm Part 2 Risk & Investment Management
A sovereign wealth fund with a 50-year horizon argues that illiquidity risk is irrelevant because they never intend to sell.
Which factor most directly challenges this 'textbook holder' assumption?
- The fund will be unable to earn the illiquidity premium if they never sell the asset.
- Standard risk models like VaR cannot be computed for horizons longer than 10 years.
- A 50-year horizon is shorter than the average life of a private equity investment.
- Political or economic crises may create sudden, large-scale contingent liabilities for the fund.
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