Fund Structuring & Legal Frameworks Flashcards
7 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fund Structuring & Legal Frameworks flashcards as text
Which of the following is a key structural difference between a hedge fund and a private equity fund?
Answer: Hedge funds typically allow periodic redemptions; private equity funds lock up capital for the fund's life
Hedge funds generally offer liquidity windows while private equity funds employ long-term lockups matched to illiquid investment horizons.
A Delaware Limited Partnership (DLP) is a popular domicile for U.S. private funds because:
Answer: Delaware partnership law is well-developed, flexible, and widely understood by institutional investors
Delaware's mature, precedent-rich partnership law and flexibility make it the preferred domestic jurisdiction for private funds.
What does the term 'clawback provision' refer to in private equity fund agreements?
Answer: The obligation of the GP to return excess carried interest if LPs do not achieve their preferred return over the fund's life
A clawback requires the GP to return carried interest received in excess of what is warranted once overall fund performance is assessed.
Which regulatory framework primarily governs the registration and reporting obligations of investment advisers managing private funds in the U.S.?
Answer: Investment Advisers Act of 1940
The Investment Advisers Act of 1940 establishes the registration, fiduciary duty, and reporting obligations for investment advisers.
A '3(c)(7)' fund under the Investment Company Act of 1940 restricts ownership to:
Answer: Qualified purchasers, with no numerical limit on investor count beyond 2,000
Section 3(c)(7) exempts funds sold solely to 'qualified purchasers' and permits more than 100 investors, up to the 2,000-holder Reg D ceiling.
In a fund-of-funds structure, which of the following is a primary disadvantage for investors?
Answer: An additional layer of fees on top of underlying fund fees
Fund-of-funds investors pay management and performance fees at both the FoF level and the underlying fund level, creating a double fee burden.
What is the primary legal purpose of a 'subscription agreement' in a private fund?
Answer: To allow investors to formally commit capital and confirm their eligibility as accredited/qualified investors
The subscription agreement documents the investor's capital commitment and contains representations confirming their investor status and eligibility.