Which of the following is NOT a characteristic of Liquid Alternatives?

Liquid alternatives are investment strategies that offer liquidity similar to traditional mutual funds while employing alternative investment techniques. Understanding their characteristics is crucial for distinguishing them from traditional investments.

High compensation for fund managers is indeed a characteristic that is often associated with hedge funds and private equity funds, but it is not a defining feature of liquid alternatives specifically. Liquid alternatives tend to have compensation structures that are more aligned with traditional fund management, which typically results in lower fees and potentially less high compensation compared to more traditional hedge funds.

The other options reflect inherent traits of liquid alternatives. For example, constraints on permissible investment strategies are often placed on these funds to ensure compliance with regulatory frameworks, which is not as common in conventional hedge fund environments. The absence of incentive fees in many liquid alternatives can also differentiate them from traditional hedge funds, which frequently engage performance-based fee structures. Additionally, the inability to earn substantial illiquidity premiums is a distinction since liquid alternatives are designed to provide liquidity, making it difficult to capture the risk premium associated with illiquid investments.

Thus, the characteristic that high compensation for fund managers does not align as a defining trait of liquid alternatives makes it the correct choice in this context.