2016 PM MOCK Q21
Hey guys, i am wondering whether private equity could provide diversification effect to the protfolio as when i did the 2016 mock Q21, the question is below:
1. Private equity has low correlations with public equity, so it can greatly contribute to a portfolio’s ability to diversify risks.
2. The asset class’s low liquidity generally implies a smaller allocation.
3. Small pension funds should invest in a fund-of-funds structure to help increase diversification without increasing expenses
The question is asking which statement is most likely correct and the Ans is 2. But why 1 is wrong?