CAIA CAIA Alternative Investment Vehicles 2 — Questions and Answers
Question 1: What distinguishes a closed-end fund from an open-end fund in the context of alternative investments?
- Closed-end funds redeem shares daily at NAV
- Closed-end funds issue a fixed number of shares and trade on exchanges (Correct answer)
- Closed-end funds are exempt from SEC registration
- Closed-end funds can only invest in government bonds
Correct answer: Closed-end funds issue a fixed number of shares and trade on exchanges
Closed-end funds raise a fixed amount of capital through an IPO and shares trade on secondary markets, potentially at a premium or discount to NAV.
Question 2: Which vehicle allows accredited investors to gain exposure to private equity without the long lock-up of a traditional PE fund?
- Tender offer fund
- Separately managed account
- Interval fund investing in PE secondaries (Correct answer)
- Open-end mutual fund
Correct answer: Interval fund investing in PE secondaries
Interval funds investing in PE secondaries offer periodic liquidity windows, reducing the typical 10-year lock-up associated with direct PE fund commitments.
Question 3: A co-investment opportunity in private equity refers to:
- Two general partners managing the same fund
- An LP investing directly alongside the GP in a specific deal outside the main fund (Correct answer)
- A fund that invests in two asset classes simultaneously
- A sub-advisory arrangement between two fund managers
Correct answer: An LP investing directly alongside the GP in a specific deal outside the main fund
Co-investments allow LPs to invest directly in specific deals alongside the GP, typically with reduced or no fees on that co-invest capital.
Question 4: Which structure is typically used for infrastructure investments requiring long-dated, stable cash flows?
- Hedge fund limited partnership
- Listed infrastructure fund or unlisted core infrastructure fund (Correct answer)
- Short-selling vehicle
- Commodity trading advisor pool
Correct answer: Listed infrastructure fund or unlisted core infrastructure fund
Infrastructure investments are typically held in listed infrastructure funds or unlisted core funds that match the long-duration, stable cash flow nature of infrastructure assets.
Question 5: What is the primary regulatory framework governing private fund advisers with over $150 million AUM in the United States?
- Employee Retirement Income Security Act (ERISA)
- Investment Advisers Act of 1940 with SEC registration (Correct answer)
- Securities Act of 1933
- Commodity Exchange Act only
Correct answer: Investment Advisers Act of 1940 with SEC registration
Private fund advisers managing over $150 million must register with the SEC under the Investment Advisers Act of 1940 and comply with Form ADV and other reporting requirements.
Question 6: A liquid alternative fund (liquid alt) is best described as:
- A hedge fund with daily redemptions for institutional investors only
- A registered investment vehicle (e.g., '40 Act fund) employing hedge fund-like strategies with daily liquidity (Correct answer)
- A private equity fund with quarterly redemptions
- An offshore fund domiciled in the Cayman Islands
Correct answer: A registered investment vehicle (e.g., '40 Act fund) employing hedge fund-like strategies with daily liquidity
Liquid alts are registered funds under the Investment Company Act of 1940 that offer hedge fund strategies (long/short, managed futures) with daily liquidity for retail investors.
CAIA CAIA Alternative Investment Vehicles 2
What distinguishes a closed-end fund from an open-end fund in the context of alternative investments?