Alternative Investments Flashcards
7 cards from real CFS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Alternative Investments flashcards as text
Which characteristic most distinguishes alternative investments from traditional investments?
Answer: Low correlation with traditional asset classes
Alternative investments typically have low correlation with stocks and bonds, making them valuable for diversification.
A hedge fund that uses the 'long/short equity' strategy will typically:
Answer: Buy stocks expected to rise and short-sell stocks expected to fall
Long/short equity funds take long positions in stocks expected to appreciate and short positions in stocks expected to decline, seeking returns in both directions.
Private equity funds differ from public equity primarily because they:
Answer: Invest in companies not listed on public exchanges
Private equity funds invest in companies not traded on public stock exchanges, giving them access to a different universe of investment opportunities.
What is the typical 'two and twenty' fee structure in a hedge fund?
Answer: 2% management fee on AUM and 20% performance fee on profits
The '2 and 20' structure means a 2% annual management fee on assets under management plus a 20% incentive fee on profits generated.
A 'fund of funds' in the context of alternative investments refers to:
Answer: A pooled vehicle that invests in multiple underlying hedge funds or private equity funds
A fund of funds pools investor capital and allocates it across multiple underlying alternative investment funds, providing diversification and professional manager selection.
Which investor classification typically permits participation in hedge funds and other private placement offerings under SEC regulations?
Answer: Accredited investors meeting income or net worth thresholds
The SEC defines accredited investors as individuals meeting specific income ($200,000/$300,000 joint) or net worth ($1 million excluding primary residence) thresholds, qualifying them for private offerings.
What is a 'lock-up period' in a hedge fund?
Answer: A minimum holding period during which investors cannot redeem their capital
A lock-up period restricts investors from withdrawing their capital for a specified time, typically 1–2 years, allowing managers to pursue illiquid strategies.