CAIA CAIA Alternative Investment Vehicles 3

Question 1

In a master-feeder fund structure, where does the actual trading of securities occur?

Accepted Answer

In the master fund

Answer

All trading occurs at the master fund level, while feeder funds (onshore and offshore) pool investor capital and pass it to the master for investment.

Question 2

Which of the following is a key disadvantage of investing in a fund-of-hedge-funds?

Accepted Answer

Double layer of fees reducing net returns

Answer

Fund-of-funds investors pay both the FoF management fee and the underlying hedge fund fees (typically 2 and 20), significantly eroding net returns.

Question 3

A separately managed account (SMA) in alternatives differs from a commingled fund primarily because:

Accepted Answer

SMAs give the investor direct ownership of the underlying assets

Answer

In an SMA, the investor owns the underlying securities directly rather than holding fund units, providing greater transparency and customization.

Question 4

Which type of alternative investment vehicle is most suitable for an endowment seeking illiquidity premium with a 20-year investment horizon?

Accepted Answer

Long-dated unlisted infrastructure or private equity fund

Answer

Endowments with long horizons can harvest illiquidity premiums through long-dated unlisted funds where capital is locked up in exchange for higher expected returns.

Question 5

Under SEC Regulation D, what exemption do most US private funds rely on to avoid registering their securities offerings?

Accepted Answer

Rule 506(b) or 506(c) of Regulation D

Answer

Most US private funds rely on Reg D Rule 506(b) (no general solicitation, up to 35 non-accredited investors) or 506(c) (general solicitation allowed, accredited only) to exempt their offerings from SEC registration.

CAIA - Chartered Alternative Investment Analyst Association Practice Test

CAIA - Chartered Alternative Investment Analyst Association Practice Test

CAIA CAIA Alternative Investment Vehicles 3