Alt Inv: Hedge Funds EOC - Event Driven Funds

CFAI Alt Inv Page 129: A) How does an Event Driven Fund capture a significant liquidity premium (related to EOC #2)? B) Why does’t Event Driven Fund’s alpha take into consideration the returns earned by taking significant risks in ‘untraditional market’? In other words, are we to assume that the Fund’s alpha only accounts for returns from ‘traditional market’? (related to EOC #3) C) What exactly is an ‘untraditional market’ as stated in B above?

A) event driven funds tend to invest in bankrupt (or close to bankrupt) companies, when you buy a distressed company you are able to claim some of the cashflows but those cashflows may not be available to you for quite some time (for example if the firm goes bankrupt, you have to wait until stuff settles in court to get paid). As such there is a signifiacnt premium offered for having your money locked up (lack of liquidity).