Fund Structuring & Legal Frameworks Flashcards
7 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fund Structuring & Legal Frameworks flashcards as text
The 'preferred return' (hurdle rate) in a private equity fund is best defined as:
Answer: The minimum annual return LPs must earn before the GP receives any carried interest
The preferred return is the minimum compounded annual return LPs must receive before the GP begins participating in profits via carried interest.
Which of the following most accurately describes a 'co-investment' opportunity in private equity?
Answer: An offer by the GP for select LPs to invest directly alongside the fund in a specific deal, often with reduced fees
Co-investments allow favored LPs to invest directly in individual deals at lower or no fee, increasing their exposure to specific opportunities.
Under the Dodd-Frank Act, which category of investment adviser was newly required to register with the SEC that was previously exempt?
Answer: Advisers to private funds with at least $150 million in AUM
Dodd-Frank eliminated the 'private adviser' exemption and required advisers to private funds with $150M+ AUM to register with the SEC.
What is a 'key man' clause in a limited partnership agreement?
Answer: A clause that suspends or terminates the fund's investment period if specified key individuals leave the GP
A key man clause protects LPs by halting new investments if critical individuals identified as essential to the fund depart.
A fund structured as a 'series LLC' provides which distinct advantage?
Answer: It allows segregation of assets and liabilities into separate series within a single legal entity
A series LLC enables multiple segregated investment pools with independent assets and liabilities under one umbrella entity, reducing formation costs.
In fund governance, what is the primary function of a Limited Partner Advisory Committee (LPAC)?
Answer: To review and approve conflict-of-interest situations and provide oversight of the GP's conduct
The LPAC reviews conflicts of interest, approves waivers, and provides governance oversight without controlling investment decisions.
The 'recycling' provision in a private equity fund agreement allows the GP to:
Answer: Reinvest realized proceeds from early exits back into new investments during the investment period
Recycling lets the GP redeploy capital returned from early realizations so the committed capital is fully put to work rather than distributed immediately.