CFM Fund Administration & Operations 2

Question 1

Which document serves as the primary legal contract between a hedge fund and its investors, outlining rights, fees, and redemption terms?

Accepted Answer

Limited Partnership Agreement

Answer

The Limited Partnership Agreement is the foundational legal document governing the relationship between the general partner and limited partners in a hedge fund.

Question 2

A fund administrator performs a 'shadow NAV' calculation. What is the primary purpose of this process?

Accepted Answer

To independently verify the manager's NAV calculation

Answer

Shadow NAV allows the administrator to independently cross-check the investment manager's own NAV calculation, providing an important control against errors or fraud.

Question 3

Under U.S. regulations, which entity is generally required to register as a transfer agent for a mutual fund?

Accepted Answer

The entity that maintains shareholder records and processes transactions

Answer

Transfer agents, which maintain shareholder records, process purchases and redemptions, and handle distributions, must register with the SEC under the Securities Exchange Act of 1934.

Question 4

What is a 'gate provision' in a hedge fund limited partnership agreement?

Accepted Answer

A restriction limiting the total redemptions processed in a given period

Answer

A gate provision allows a fund manager to limit redemptions in any given period—often expressed as a percentage of NAV—to protect remaining investors from forced asset liquidations.

Question 5

In fund operations, what does 'T+1 settlement' mean for a mutual fund redemption?

Accepted Answer

The investor receives redemption proceeds one business day after the trade date

Answer

T+1 settlement means the investor receives their redemption proceeds one business day after the trade date on which their redemption was processed.

(CFM) Certified Fund Manager Practice Test

(CFM) Certified Fund Manager Practice Test

CFM Fund Administration & Operations 2