Reading 27, EOC question 7

CFA Level III Portfolio Management
#1

C is correct. Park notes that the current macroeconomic environment could lead to a bear market within a few years. Liquidity planning should take into account that under a scenario in which public equities and fixed-income investments are expected to perform poorly, general partners may exercise an option to extend the life of the fund.

(Institute 169)

Institute, CFA. 2020 CFA Program Curriculum Level III Volume 5 . CFA Institute, 08/2019. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

why would GP extend the fund while when bear market is expected?

#2

It’s one of the scenarios that could happen. Gotta plan for rainy days.

Investors in private equity have to take a longer view and not just close and fund and liquidate everything at the lowest point. Extending the fund will prevent a massive liquidation of the portfolio and driving the fund to the grave.