Fund Administration & Operations 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 Administration & Operations flashcards as text
A fund administrator discovers a NAV calculation error from three days ago that overstated NAV by 0.15%. What is the standard industry approach?
Answer: Assess the materiality of the error against the fund's error policy and compensate affected investors if the threshold is breached
Most funds apply a materiality threshold (commonly 0.5% for retail funds); errors below this threshold may be absorbed, while errors above require investor compensation and disclosure.
What is 'in-specie' transfer in the context of fund operations?
Answer: Delivering actual securities rather than cash to satisfy a redemption or subscription
An in-specie transfer involves the delivery of securities (rather than cash) to fulfill a large redemption or to seed a fund at launch, avoiding the costs and market impact of selling and repurchasing assets.
Which regulatory framework specifically governs the custody of assets for U.S. registered investment advisers managing client funds?
Answer: Investment Advisers Act of 1940, Rule 206(4)-2 (the 'Custody Rule')
Rule 206(4)-2 under the Investment Advisers Act imposes specific custody requirements on registered investment advisers, including use of qualified custodians and annual surprise audits.
In a master-feeder fund structure, where does portfolio management and trading primarily occur?
Answer: In the master fund, with feeder funds investing as limited partners
In a master-feeder structure, all feeder funds pool their assets into the master fund, where all portfolio management, trading, and investment decisions are made centrally.
What is the purpose of a 'subscription document's representations and warranties' section?
Answer: To have the investor affirm their eligibility, accredited status, and understanding of risks
Representations and warranties require the investor to confirm they meet eligibility criteria (e.g., accredited investor status), have reviewed risk disclosures, and have authority to invest—creating legal accountability.
How does a 'clawback provision' protect investors in a private equity fund context?
Answer: It requires the general partner to return previously paid carried interest if overall fund returns fall below the hurdle rate
A clawback ensures that if early profitable exits cause the GP to receive more carried interest than they are entitled to based on total fund performance, the GP must return the excess to limited partners.
Which of the following best describes 'operational due diligence' (ODD) conducted by institutional investors before allocating to a hedge fund?
Answer: Assessing the fund's back-office processes, controls, technology, service providers, and risk management infrastructure
ODD focuses specifically on non-investment risks—how the fund processes trades, safeguards assets, values positions, manages counterparty relationships, and maintains internal controls.