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CFA Level I · CFA Level I Exam · Alternative Investment Features, Methods, and Structures

Compared with a traditional long-only equity fund, an investment in a private real estate fund is most likely to expose the investor to greater:

The investor is most likely exposed to greater liquidity risk. Private real estate funds hold unique, infrequently traded assets and usually restrict redemptions through lockups or limited windows, so exiting is slow and costly. Daily pricing and large numbers of tradable securities are features of listed equity funds.

  1. Adaily mark-to-market price transparency
  2. Bliquidity risk because of limited exit opportunitiesCorrect
  3. Cdiversification benefits from a larger number of tradable securities

Explanation

Private real estate holdings are illiquid, with lockups, infrequent redemptions and thin secondary markets, so liquidity risk is greater. Daily pricing and a large number of tradable securities characterize listed equity funds.

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