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
Real estate investment through a Real Estate Limited Partnership (RELP) primarily offers investors:
Answer: Pass-through income and potential tax benefits with limited liability
RELPs allow investors to receive pass-through income and depreciation benefits while limiting personal liability to their invested capital amount.
Commodity futures contracts are used in portfolio management primarily to:
Answer: Provide inflation hedging and diversification through non-correlated returns
Commodities often move independently of stocks and bonds and historically provide a hedge against inflation, making them useful for diversification.
A 'venture capital' fund most commonly invests in:
Answer: Early-stage or startup companies with high growth potential
Venture capital funds focus on providing capital to early-stage companies in exchange for equity, accepting high risk in pursuit of potentially high returns.
Which of the following best describes a 'high-water mark' provision in a hedge fund?
Answer: A threshold ensuring performance fees are only paid on new net profits above previous peak NAV
A high-water mark ensures managers only collect performance fees when the fund exceeds its previous highest NAV, preventing double-charging for recovering lost ground.
Managed futures funds primarily derive returns by:
Answer: Trading futures contracts across asset classes based on systematic trend-following or discretionary strategies
Managed futures funds use systematic or discretionary approaches to trade futures contracts on commodities, currencies, interest rates, and equity indices.
The J-curve effect in private equity refers to:
Answer: Early negative returns due to fees and capital deployment, followed by positive returns as investments mature
The J-curve describes the pattern where private equity funds show negative early returns due to management fees and unrealized investments, then generate positive returns as portfolio companies mature and are exited.
Which of the following is a key risk unique to alternative investments compared to traditional mutual funds?
Answer: Illiquidity risk due to limited redemption opportunities
Alternative investments often have restricted redemption windows, lock-up periods, and limited secondary markets, making illiquidity a primary risk not typically found in open-end mutual funds.