Alternative Investments EOCQ

What is the most significant drawback of a repeat sales index to measure returns to real estate? a. Sample selection bias b. Understatement of volatility c. Reliance on subjective appraisals

a. Sample selection bias

Alternative investment funds are typically managed: a. actively b. to generate positive beta returns c. assuming that markets are efficient

a. actively

Hedge funds are similar to private equity funds in that both: a. are typically structured as partnerships b. assess management fees based on assets under management c. do not earn an incentive fee until the initial investment is repaid

a. are typically structured as partnerships

Risks in infrastructure investing are most likely greatest when the project involves: a. construction of infrastructure assets b. investment in existing infrastructure assets c. investing in assets that will be leased back to a government

a. construction of infrastructure assets

Compared with traditional investments, alternative investments are more likely to have: a. greater use of leverage b. long-only positions in liquid assets c. more transparent and reliable risk and return data

a. greater use of leverage

Relative to traditional investments, alternative investments are least likely to be characterized by: a. high levels of transparency b. limited historical return data c. significant restrictions on redemptions

a. high levels of transparency

Both event-driven and macro hedge fund strategies use: a. long-short positions b. a top-down approach c. long-term market cycles

a. long-short positions

Hedge fund losses are most likely to be magnified by a: a. margin call b. lockup period c. redemption period notice

a. margin call

The first stage of funding at which a venture capital fund most likely invests is the: a. seed stage b. mezzanine stage c. angel investing stage

a. seed stage

Which of the following is most likely to be available when conducting hedge fund due diligence? a. the benchmark used by the fund b. information on systems risk management c. details of investment strategies and processes

a. the benchmark used by the fund

An investor seeks a current income stream as a component of total return, and desires an investment that historically has low correlation with other asset classes. The investment most likely to achieve the investor's goals is: a. timberland b. collectibles c. commodities

a. timberland all 3 have low correlation, but timberland is the only one with an income stream.

An investor in a private equity fund is concerned that the general partner can receive incentive fees in excess of the agreed-on incentive fees by making distributions over time based on profits earned rather than making distributions only at exit from investments of the fund. Which of the following is most likely to protect the investor from the general partner receiving excess fees? a. A high hurdle rate b. A clawback provision c. A lower capital commitment

b. A clawback provision

Angel investing capital is typically provided in which state of financing? a. Later-stage b. Formative-stage c. Mezzanine-stage

b. Formative-stage

The privatization of an existing hospital is best described as: a. a greenfield investment b. a brownfield investment c. an economic infrastructure investment

b. a brownfield investment

Until the committed capital is fully drawn down and invested, the management fee for a private equity fund is based on: a. invested capital b. committed capital c. assets under management

b. committed capital management fee is always based on committed capital until they are fully invested, then it will be invested capital.

The potential benefits of allocating a portion of a portfolio to alternative investments include: a. ease of manager selection b. improvement in the portfolio's risk-return relationship c. accessible and reliable measures of risk and return

b. improvement in the portfolio's risk-return relationship

Private Equity funds are most likely to use: a. merger arbitrage strategies b. leveraged buyouts c. market-neutral strategies

b. leveraged buyouts

Compared with direct investment in infrastructure, publicly traded infrastructure securities are characterized by: a. higher concentration risk b. more-transparent governance c. greater control over the infrastructure assets

b. more-transparent governance

An investor chooses to invest in a brownfield rather than a greenfield infrastructure project. The investor is most likely motivated by: a. growth opportunities b. predictable cash flows c. higher expected returns

b. predictable cash flows

A private equity fund desiring to realize an immediate and complete cash exit from a portfolio company is most likely to pursue a(n): a. IPO b. trade sale c. recapitalization

b. trade sale a. IPO will take time c. recapitalization will provide cash but not exit.

An investor may prefer a single hedge fund to a fund of funds if he seeks: a. due diligence expertise b. better redemption terms c. a less complex fee structure

c. a less complex fee structure

Which of the following forms of infrastructure investments is the most liquid? a. unlisted infrastructure mutual fund b. a direct investment in a greenfield project c. an exchange-traded limited partnership

c. an exchange-traded limited partnership

As the loan-to-value ratio increases for a real estate investment, risk most likely increases for: a. debt investors only b. equity investors only c. both debt and equity investors

c. both debt and equity investors

An equity hedge fund following a fundamental growth strategy uses fundamental analysis to identify companies that are most likely to: a. be undervalues b. be either undervalued or overvalued c. experience high growth and capital appreciation

c. experience high growth and capital appreciation

Which of the following is least likely to be considered an alternative investment? a. real estate b. commodities c. long-only equity funds

c. long-only equity funds

An effective risk management process used by alternative investment funds most likely includes: a. in-house valuations b. internal custody of assets c. segregation of risk and investment process duties

c. segregation of risk and investment process duties

An analyst wanting to assess the downside risk of an alternative investment is least likely to use the investment's: a. Sortino ratio b. value at risk (VaR) c. standard deviation of returns

c. standard deviation of returns a. Sortino ratio does measure downside risk b. value at risk (VaR) does measure downside risk