Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

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Which of the following is NOT a constraint against achieving alternative investment benefits through liquid products?

Leverage
Regulatory constraints on concentration
Illiquidity constraints
Market volatility

The correct answer is: Market volatility

Market volatility is not considered a constraint against achieving alternative investment benefits through liquid products because it relates to price fluctuations in the market, rather than inherent limitations of the investment itself. Liquid products are designed to provide more access to capital and quicker transaction times, which typically allows for better adjustment to market conditions. While market volatility can affect the performance of liquid products, it does not prevent investors from realizing the unique benefits associated with alternative investments, such as diversification and potential for higher returns. In contrast, leverage, regulatory constraints on concentration, and illiquidity constraints are more directly tied to the structure and limitations of specific investment vehicles, posing more significant hurdles in realizing the full benefits of alternative investments.