Evaluating Liquidity Risk in Alternative Investments

An institutional investor is reviewing a portfolio that contains several alternative investments, including hedge funds, private equity, and real estate. The investor is particularly concerned about liquidity risk associated with these assets. Each type of investment may exhibit different liquidity characteristics, which can impact their risk management strategy. The investor is determining how to best evaluate the liquidity of these alternative investments in order to make informed decisions regarding allocation and risk minimization. Which of the following statements best describes an effective approach for managing liquidity risk within an alternative investment portfolio?