Practice Test Geeks(CFM) Certified Fund Manager Practice Test
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Hedge Fund Strategies & Operations 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.

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  1. A long/short equity fund has a gross exposure of 200% and a net exposure of 20%. If the portfolio is $100M in AUM, what is the approximate dollar value of the short book?

    Answer: $90M

    With gross = long + short = 200% = $200M and net = long - short = 20% = $20M, solving gives long = $110M and short = $90M.

  2. Which hedge fund strategy tends to exhibit the lowest correlation to broad equity markets during normal market conditions?

    Answer: Global macro

    Global macro funds trade across asset classes including currencies, rates, and commodities based on macroeconomic themes, typically resulting in lower equity market correlation.

  3. A fund of hedge funds charges a 1% management fee and 10% performance fee on top of the underlying funds' '2 and 20' structure. This layering is commonly called:

    Answer: Double fee structure

    The double fee structure (or double layer of fees) refers to investors paying fees at both the fund-of-funds level and the underlying fund level, significantly eroding net returns.

  4. Under the AIFMD in Europe, what is the leverage limit typically imposed on alternative investment funds using the commitment method?

    Answer: No hard limit; regulators set fund-specific limits

    AIFMD does not impose a fixed leverage cap; instead, national regulators can impose fund-specific leverage limits based on risk assessments.

  5. A distressed debt hedge fund purchases senior secured bonds of a bankrupt company at 40 cents on the dollar. The fund's primary risk is:

    Answer: Recovery rate uncertainty and reorganization timeline

    Distressed investing risk centers on what recovery rate creditors will receive through reorganization and how long the bankruptcy process will take, affecting IRR.

  6. A hedge fund's 'hurdle rate' in its fee structure means the fund:

    Answer: Only charges performance fees on returns above a specified minimum return

    A hurdle rate is a minimum return threshold that must be exceeded before the manager can collect performance fees on any gains.

  7. Which of the following best describes a 'quantitative long/short equity' hedge fund strategy?

    Answer: Uses statistical models and factor signals to systematically rank and trade large stock universes

    Quantitative long/short equity funds use systematic factor models — such as value, momentum, and quality — to rank and trade broad universes of equities with minimal discretionary input.