Another client, Lars Velky, represents Velky Partners (VP), a large institutional investor with $500 million in investable assets. Velky is interested in adding less liquid asset classes, such as direct real estate, infrastructure, and private equity, to VP’s portfolio. Velky and Monteo discuss the considerations involved in applying many of the common asset allocation techniques, such as MVO, to these asset classes. Before making any changes to the portfolio, Monteo asks Velky about his knowledge of risk budgeting. Velky makes the following statements:
In their discussion of the asset classes that Velky is interested in adding to the VP portfolio, Monteo should tell Velky that:
A.these asset classes can be readily diversified to eliminate idiosyncratic risk.
B.indexes are available for these asset classes that do an outstanding job of representing the performance characteristics of the asset classes.
C.the risk and return characteristics associated with actual investment vehicles for these asset classes are typically significantly different from the characteristics of the asset classes themselves.
Solution
C is correct. Less liquid asset classes—such as direct real estate, infrastructure, and private equity—represent unique challenges when applying many of the common asset allocation techniques. Common illiquid asset classes cannot be readily diversified to eliminate idiosyncratic risk, so representing overall asset class performance is problematic. Furthermore, there are far fewer indexes that attempt to represent aggregate performance for these less liquid asset classes than indexes of traditional highly liquid asset classes. Finally, the risk and return characteristics associated with actual investment vehicles—such as direct real estate funds, infrastructure funds, and private equity funds—are typically significantly different from the characteristics of the asset classes themselves.
这题的A主要错在哪几点？
是不是1）eliminate这个词就错了，只能用reduce，而不可能eliminate无论是不是流动还是非流动资产？
2）illiquid asset的增加可以降低idiosyncratic risk（非系统性风险）吗？我理解系统性风险是无法分散的，投资收益都是靠承担系统性风险获得的（这里是否可以和portfolio construction里面的知识点结合？underweight or overweight rewarded factor），而非系统性风险是可以分散掉的。
这里分散或者降低非系统性风险通过加入和组合相关性较低的资产类别可以完成？那么为什么说“因为投资PE、房地产、infrastructure获得的超额收益来自于承担了额外的非系统性风险。所以非系统性风险不能通过投资 illiquid asset来消除。”
所以又回到1）的问题，这里的错误更多是消除这个词的错误，还是说illiquid asset本身无法降低非系统性风险？麻烦解答一下，如果是后者的话我就不太理解了，这是个结论吗？我以为是加入相关性低的资产就可以降低，那么illiquid asset如果加入到股票类资产组合中是可以分散的呀。
