What defines a liquidity event?

A liquidity event is defined as a situation that allows the holder of an investment to convert it into cash or cash equivalents. This can occur through various means, such as selling a business, resolving an investment, or triggering a public offering. The key characteristic of a liquidity event is that it offers the opportunity to realize the value of an investment, facilitating the movement of capital and enhancing cash flow.

The options provided encompass various concepts related to market dynamics, but they do not specifically capture the essence of a liquidity event. An increase in market volatility may affect the timing and pricing of sales but does not inherently create liquidity. A significant change in market sentiment may influence investment decisions and valuations but does not directly facilitate cash conversion. Similarly, a government policy change could impact market conditions or specific sectors but does not in itself represent a liquidity event. In contrast, the correct answer directly addresses the nature of liquidity, which revolves around the capacity to convert investments into spendable money or assets.