Portfolio Management Practice Exam

Engaging in private equity investments often entails a long holding period and significant time commitment, which can be a notable downside for investors. Typically, private equity investments involve a strategy where funds are raised to acquire and manage private companies or take public companies private. This process typically requires investors to lock up their capital for several years, often ranging from 5 to 10 years or more, without the possibility of easily selling their stake. This long-term commitment can restrict liquidity and may limit the investor's ability to respond to changes in the market or in the performance of the investment.

Moreover, during this holding period, investors may have limited access to detailed reports on their investment's progress, as private companies are not mandated to disclose information as publicly traded companies are. This lack of market visibility can also add to the uncertainty for investors. Thus, while private equity can offer substantial returns, the requirement for a lengthy investment horizon and the associated time commitment can deter some investors who prefer more liquid and shorter-term investments.