CFM Fund Administration & Operations 3

Question 1

A fund's expense ratio is 1.25%. If the fund has $500 million in average net assets for the year, what is the annual expense amount charged to the fund?

Accepted Answer

$6,250,000

Answer

Annual expenses = $500 million × 1.25% = $6,250,000, which is accrued daily and deducted from the fund's gross returns.

Question 2

Which operational risk is most directly mitigated by requiring dual authorization (four-eyes principle) for wire transfers?

Accepted Answer

Fraud or unauthorized disbursement of fund assets

Answer

Requiring two authorized individuals to approve wire transfers significantly reduces the risk of fraudulent or unauthorized transfer of fund assets.

Question 3

In the context of U.S. mutual funds, what is the significance of the '4 p.m. ET cutoff' for purchase and redemption orders?

Accepted Answer

Orders received before 4 p.m. ET receive the current day's NAV; later orders receive the next business day's NAV

Answer

Under the SEC's forward pricing rule, mutual fund orders received before the 4 p.m. ET close receive that day's closing NAV; orders after that cutoff receive the next day's NAV.

Question 4

What is 'side pocket' accounting in a hedge fund?

Accepted Answer

A segregated portfolio used to hold illiquid or hard-to-value assets

Answer

Side pockets segregate illiquid or difficult-to-value investments from the main fund, ensuring that only investors present when the illiquid investment was made share in its outcome.

Question 5

A fund administrator receives a subscription agreement with an incomplete AML/KYC section. What is the appropriate action?

Accepted Answer

Place the subscription on hold and request the missing AML/KYC documentation before onboarding the investor

Answer

AML/KYC regulations require complete investor due diligence before onboarding; subscriptions must be held pending receipt and verification of all required documentation.

(CFM) Certified Fund Manager Practice Test

(CFM) Certified Fund Manager Practice Test

CFM Fund Administration & Operations 3