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What is the The CFA Institute Asset Manager Code?

The CFA Institute Asset Manager Code (the Code) outlines the ethical and professional responsibilities of organizations that manage assets on behalf of clients. The principles and provisions address six broad categories. The Code outlines the ethical and professional responsibilities of organizations that manage assets on behalf of clients. It provides standards and supportive guidance based on general principles of conduct.

What is the independent body within the EU, responsible for macro-prudential oversight of the financial system within the EU?

The European Systemic Risk Board (ESRB)

The primary legislation for the regulation of asset management activity in Japan

The Financial Instruments and Exchange Act (FIEA). The Act on Investment Trust and Investment Corporation (ITIC)

The primary legislation for the regulation of asset management activity in South Korea? Who is the primary regulator?

The Financial Investment Services and Capital Markets Act (FSCMA) The FSC is the primary regulator in South Korea and directs the Financial Supervisory Service (FSS).

G4 Materiality Principle in the GRI Standards on ESG-related issues

The G4 includes enhanced coverage of ESG materiality including a "Materiality Principle," aimed at better informing markets and society on sustainability issues. It makes reports more relevant, credible, and user-friendly.

The Global Reporting Initiative (GRI)

The GRI was created by the Global Sustainability Board to demonstrate what an entity should report regarding ESG and how to report it.

Ensuring more transparency in financial statements so investors can make informed decisions about investments is one of two major goals of which U.S. act?

The Securities Act of 1933 has two main goals: (1) to ensure more transparency in financial statements so investors can make informed decisions about investments, and (2) to establish laws against misrepresentation and fraudulent activities in the securities markets.

The primary legislation for the regulation of asset management activity in Singapore? Who oversees it?

The Securities and Futures Act (SFA) The Monetary Authority of Singapore (MAS)

The primary legislation for the regulation of asset management activity in Hong Kong? Who oversees it?

The Securities and Futures Ordinance (SFO) The Securities and Futures Commission (SFC) oversees

What is the type of inspection that is used to review a compliance issue that the SEC considers a risk across multiple firms?

Sweep inspections

What are the three foundational principles of financial market regulation?

Transparency, fairness, and protection

What are the three requirements of transaction processing?

(1) transaction capability (2) transaction legitimacy (3) transaction consensus

What are the four rebalancing strategies? State where they are linear, convex, or concave.

1. Buy and hold (BH) - linear 2. Constant mix (CM) - concave 3. Constant-proportion portfolio insurance (CPPI) -convex 4. Option-based portfolio insurance (OBPI) - convex

The three-pronged approach to addressing longevity risk

1. Implement a robust framework to accurately measure and analyze the implications of longevity risk on plan outcomes. 2. Assess the toolbox of investment and protection actions that can mitigate the impact of longevity risk on the plan. 3. Evaluate the desirability, potential timing, and likely costs of risk transfer actions given the impact of longevity risk on plan liabilities and corporate balance sheet volatility

What are five actions LPs can take when building capacity to apply the PRI principles for private equity

1. Start a dialogue with your GPs 2. Leverage the work across an organization 3. Engage with industry peers and other LPs 4. Review resources and leverage existing tools 5. Identify and build current ESG processes

What are the six broad categories of the CFA Institute Asset Manager Code

A. Loyalty to Clients B. Investment Process and Actions C. Trading D. Risk Management, Compliance, and Support E. Performance and Valuation F. Disclosures

Access persons in the USA

Access persons include the adviser's directors, officers, partners, and supervised persons who have access to nonpublic information regarding securities transactions. Common shareholders do not have access to this information.

negative externalities

Adverse consequences for third-party entities caused by contracts or transactions controlled by two or more primary parties Negative externalities may include pollution, noise, congestion, and other harmful consequences.

What legislation provides a "passport" for hedge funds to conduct business across EU state borders?

Alternative Investment Fund Managers Directive (AIFMD) The Alternative Investment Fund Managers Directive (AIFMD) reflects the basic regulatory model of a directive and, in so doing, provides for each member state of the EU to carry out the following: adopt and implement the aims of AIFMD, provide regulatory supervision and enforcement over alternative managers within its jurisdiction, and certify that managers within its jurisdiction who desire an AIF work within AIFMD guidelines in resolving enforcement and oversight disputes with member states as well as the EU.

The alternative investment regulation in Europe includes asset stripping rules. What are these rules?

Asset stripping rules prevent an alternative investment fund (AIF) from making a controlling private equity investment, having the nonlisted company take a loan, and then distributing the loan proceeds to itself. For a period of two years after acquiring control of a nonlisted company, the fund is not permitted to influence distributions, reductions in capital, or share redemptions.

In a volatile but nontrending market, which of these strategies will underperform and which will outperform the (benchmark) buy-and-hold strategy?

Buy and hold (BH) N/A (benchmark strategy) Constant mix (CM) Outperform Constant-proportion portfolio insurance (CPPI) Underperform Option-based portfolio insurance (OBPI) Underperform

In a trending market, which of these stratgies will underperform and which will outperform the (benchmark) buy-and-hold strategy?

Buy and hold (BH) N/A (benchmark strategy) Constant mix (CM) Underperform (contrarian) Constant-proportion portfolio insurance (CPPI) Check answer (momentum) Option-based portfolio insurance (OBPI) Check answer

What is the name of the government program regarding pollution or other externalities that specifies allowances on activity for each entity but allows each entity to exchange its pollution allotments?

Cap and trade

How ESG impacts natural resources?

Conserve water, reduce soil erosion, and maintain proper permits and licensing

Advantage to implementing ESG policies

ESG policies can produce better risk-adjusted returns and reduce reputational risk. Not having an ESG strategy can put companies at a competitive disadvantage.

What are the two core operating principles that govern the hedge fund regulatory scheme in the United States?

Discouragement of insider trading elimination of fraud

What are the three parts of the private equity investment process to evaluate relative to ESG?

Due diligence investment decision and agreement ownership

Which is a national regulatory body for the alternative investment funds in Europe?

Each state has a "competent authority" to act as a national regulator. The member states are responsible for the enforcement of AIFMD. If they do not do so, ESMA can bring violators before the EU. AIFMD provides a structure to resolve conflicts that may occur between a home state and a host country that a fund may be operating in.

Summary of the measures and metrics of organizational performance used to assess the effectiveness of long-term investors' processes.

Environmental Enablers • Metric #1 Governance/Board Engagement • Metric #2 Culture • Metric #3 Technology Production Inputs • Metric #4 Capital Leverage • Metric #5 People, Health, and Happy • Metric #6 Process • Metric #7 Information Intermediate Outputs • Metric #8 Commitment • Metric #9 Alignment • Metric #10 Knowledge Management Investment Results • Metric #11 Investment Performance

Environmental Enablers

Environmental enablers are the untraded or intangible advantages that derive from the given environment.

An action that companies can take to ensure efficient energy use and minimize environmental impact

Explore the development of becoming energy self-sufficient through the deployment of solar panels, wind turbines, and other forms of renewable energy.

Which of the following is true regarding US laws for ESG investing?

Fiduciaries can take ESG issues into consideration so long as they are directly relevant to the economic outlook.

Sin Stocks

Firms profiting from gambling, tobacco, or alcohol sales

What are three risks to blockchain technology?

Forks Energy Wastage Bitcoin Price Volatility

Describe Greenwashing

Greenwashing occurs when investment promoters mislead prospective investors with overstated claims regarding the likely social impact of an investment opportunity.

What are the factors inducing fund managers to set up in Hong Kong?

Hong Kong serves as the Asian hub for many of the world's leading prime brokers, custodians, and administrators. Hong Kong is a leading financial market for the greater China region. Hong Kong has a developed and sophisticated securities and banking infrastructure.

ESG lifecycle

In the emerging or "prefinancial" phase of the ESG life cycle, a shift commences that ultimately has environmental, social, and/or governance consequences for a sector. In the "transitional" phase of the ESG life cycle, the ESG shift becomes increasingly visible, although the ultimate financial impact is not clear. In the "financial" phase of the ESG life cycle, the full financial impacts of the ESG event are felt.

For commodities such as oil and gold, what percentage of outstanding contracts do noncommercial investors hold?

Noncommercial investors typically hold 70-90% of outstanding contracts in commodities such as oil and gold.

What is the correct calculation of net-of-fee private equity (PE) expected return?

Levered yield of PE + Levered growth rate of PE − Interest expense + PE multiple expansion − PE fees

What are three ways longevity risk impacts pension plans?

Longevity risk impacts pension plans in three distinct but interrelated ways. • Forecasters often misjudge and undershoot actual increases in human life spans, and these small annual forecasting errors compound over time to become significant. • Demographic forecasts do not include the sharp, unanticipated increases in longevity that may result from significant medical breakthroughs. • Pension plans may not always apply the most conservative set of assumptions when analyzing funded status.

Summary of Additional Metrics (sub-metric of each metric)

Metric #1 Board Engagement • Opportunities Reviewed • Delegations Utilized Metric #2 Culture • Net Promotor Rankings • Success Focused • Investment Belief Metric #3 Technology • Percent of Budget • Technology Satisfaction Metric #4 Capital Leverage • Capitalizing on Capital Metric #5 People, Health, and Happy • Personnel Matters • Work Product Metric #6 Process • Risk Governance Metric #7 Information • Data-Ready Metric #8 Commitment • Time Horizons Metric #9 Alignment • Goal Focused • Goal Consistency Metric #10 Knowledge Management • Knowledge Sharing • Knowledge Quality Metric #11 Investment Performance • Portfolio Health • Cost Efficiency

The Four Modules of the PRI reporting and Assessment Framework

Module I: Responsible Investment Policy, Beliefs and Goal Setting - Module I covers elements such as investment policies and approaches and how responsible investment can be integrated. Module II: Governance - Module II discusses different points where responsible investment intersects with governance. Module III: Investment Process - Module III looks at the investment process focusing on diligence process and fund terms. Module IV: Monitoring and Reporting - Module IV is concerned with the monitoring during the life of the fund and exit

In the case of Hong Kong, funds offered on a private placement basis or unsolicited basis do not need to be authorized by the Securities and Futures Commission (SFC) when four conditions are met. What are they?

Offers are made to no more than 50 persons offers where the minimum subscription amount is HKD 500,000 offers where the maximum offering of shares is valued at HKD 5 million An offer made to a professional investor.

What process involves standardizing risk monitoring, managing, and reporting at the portfolio level to provide important information to investors while protecting specific asset allocation data for hedge fund investments?

Open protocol

Why is the general partner (GP)-limited partner (LP) relationship important to ESG?

Private equity firms that are interested in ESG activities need an organizational structure to create and support an ESG culture.

How to give developments proper waste management to avoid negative environmental impacts from Municipal Solid Waste (MSW).

Provide on-site diversion programs for recyclables, organic waste for composting, and specialty items like batteries, light bulbs, electronics, etc.

What are qualified opportunity zones in the United States?

Qualified opportunity zones are geographical areas in the United States designated for special income tax breaks for investors funding private equity projects and real estate developments in those zones.

What do ESG ratings and scores measure?

The extent to which an entity is operating in conformity with the best practices advocated from an ESG perspective

How is the market of fund interest regulated in Japan?

The marketing of fund interests in Japan is regulated heavily. Generally, any entity wanting to market funds to investors in Japan must be registered with Financial Services Agency of Japan.

The Code What are the six General Principles of Conduct

The principles and provisions address six broad categories. Managers must: 1. Act in a professional and ethical manner at all times. 2. Act for the benefit of clients. 3. Act with independence and objectivity. 4. Act with skill, competence, and diligence. 5. Communicate with clients in a timely and accurate manner. 6. Uphold the applicable rules governing capital markets.

What is ESG materiality?

The property of being considered important from a reasonable perspective of stakeholders in the context of ESG principles

Why are ESG issues important in real estate development?

There are major environmental implications around ESG issues and real estate. Environmental factors are the most important due to the strain placed on the environment from real estate development. Building construction activity accounts for 36% of global final energy use and is responsible for 39% of global CO2 emissions.

Why is cost one of the ESG challenges faced by institutional investors and asset managers?

There are no consistent and easily accessible data and tools for asset managers to use when considering ESG issues in investing.

Three main advantages long-term investors have relative to other investors

Time Horizon Idiosyncratic Advantages Organizational Ambidexterity

Undertakings for Collective Investments in Transferable Securities (UCITS) in Europe

UCITS funds must be open-ended and liquid and typically invest in securities listed on public stock exchanges and regulated markets.

What are the four main areas of emphasis for the Alternative Investment Fund Managers Directive (AIMFD)?

Valuation Counterparty risk Operational risk Liquidity

What is an engagement strategy?

When an investor uses their position to prompt a change in a company regarding its ESG standing In an engagement strategy, an investor with a long position in the stock starts a dialogue with the company with a specific agenda on how to improve the company's ESG standing.

What are the four production inputs?

• Capital • People • Process • Information Investors combine these four inputs - internally, externally or in some hybrid manner - to generate a desired risk-adjusted rate of return.

What are the three 'intermediate' outputs and what do they indicate?

• Commitment • Alignment • Knowledge management These measures or metrics are indicators of organizational performance - key outputs of the effective combination of environmental enablers and production inputs.

What are the three elements of Interdisciplinarity?

• Economics • Cryptography • Computer Science

What are the four factor tilts PE has over public equities? (Drivers for PE returns)

• Equity Risk • Illiquidity Premium • Size • Value

What are the three Environmental Enablers? (Inputs)

• Governance • Culture • Technology Whereas these enablers are often treated as passive (inherited), LTIs can, in fact, cultivate and develop their enablers, thereby sustaining innovation and investment performance in ways not immediately available to other, similar organizations.

What are the three measurements of PE returns?

• IRR • PME method • Yield-Based Approach

Creating Value through Responsible Investment Give 5 examples of how revenue could be increased.

• Identifying new, sustainable product lines • Attracting and retaining top talent through strong company values • Acquiring new customers as a result of a better brand image • Increasing the competitiveness of the company due to brand positioning • Increasing engagement, and therefore productivity, of the workforce

What are the Opportunities of the DeFi Ecosystem? (4 opportunities)

• Increased efficiency • increased transparency • Increased accessibility • Composability

Dynamic trading has some advantages and disadvantages compared to the purchase of calls or puts. The advantages are:

• It can be implemented when marketable options are not available. • It avoids counterparty risk if the investor has to use over-the-counter options. • It avoids paying the risk premium embedded in implied volatilities.

Dynamic trading has some advantages and disadvantages compared to the purchase of calls or puts. The disadvantages of dynamic rebalancing are:

• It could be costly because frequent rebalancing increases transaction costs. • It is exposed to Gap Risk, which is avoided when options are used. • It is exposed to estimation risk because the underlying asset's volatility needs to be estimated.

Advantages to the decentralization of the system

• It makes the system extremely robust • There is neither a central point of failure that can be attacked nor any system-relevant nodes that could cause the system to collapse. Therefore, the system functions even when some network nodes are unreachable, and it can always establish new connections and communication channels.

To which five components can the private equity (PE) net-of-fee return edge over public equity be attributed?

• Levered yield differential • Levered growth differential • Multiple expansion differential • Fee differential • PE payout to debt holders

Creating Value through Responsible Investment Give 5 examples of how costs and liabilities could be reduced.

• Reducing potential liabilities, such as those stemming from environmental contamination • Using resources (e.g. energy and water) more efficiently • Avoiding increased capital or operating expenditures by proactively identifying damaging environmental or social conditions • Increasing resiliency of the firm to avoid disrupted operations • Ensuring access to capital

List the five key drivers for increased interest in ESG investment

• Regulatory and Legal Developments • Industry Evolution • Increased Competition and Complexity • Reporting • Industry Collaboration

List the five building blocks (Layers) of Defi

• The settlement layer (Layer 1) • The asset layer (Layer 2) • The protocol layer (Layer 3) • The application layer (Layer 4) • The aggregation layer (Layer 5)

What are the features of bitcoin?

• Trades 24/7 • Volatile • Transparent • Liquid

What are the factors leading to underestimation of longevity?

• rapid and unforeseen advances in medicine • health care delivery • poverty alleviation

What are the risks of the DeFi Ecosystem? (6 risks)

• smart contract execution risk • operational security • dependencies on other protocols • external data • illicit activity • scalability