CFM Fund Administration & Operations 4

Question 1

In a fund of funds structure, what is 'double layering of fees' and why is it a concern for investors?

Accepted Answer

Paying management and performance fees at both the fund of funds level and the underlying fund level, compounding the fee burden

Answer

Fund of funds investors bear the fees of the fund of funds manager plus the fees of each underlying fund, significantly eroding net returns compared to direct fund investment.

Question 2

What is the primary function of a fund's 'compliance calendar' in daily operations?

Accepted Answer

To track regulatory filing deadlines, portfolio restriction tests, and required disclosures to ensure timely compliance

Answer

A compliance calendar centralizes all regulatory deadlines, portfolio constraint monitoring dates, and required reporting obligations to prevent violations from missed deadlines.

Question 3

Under FATCA, what obligation does a foreign fund administrator have when dealing with U.S. investors?

Accepted Answer

Identify and report U.S. account holders to the IRS or local tax authority under an IGA

Answer

Under FATCA, Foreign Financial Institutions (FFIs) must identify U.S. account holders and report their account information to the IRS, either directly or through their local government under an Intergovernmental Agreement (IGA).

Question 4

A hedge fund's high-water mark stands at $110 per share. The current NAV falls to $90. Which statement is correct regarding performance fees?

Accepted Answer

No performance fees are earned until NAV exceeds $110 per share

Answer

The high-water mark ensures the manager earns performance fees only after recovering all previous losses; the NAV must exceed $110 before any incentive fee is charged.

Question 5

Which of the following is a key operational consideration when a fund transitions from one administrator to another?

Accepted Answer

Ensuring complete and accurate transfer of all historical records, positions, and investor data

Answer

A clean data migration—including historical NAV records, investor registers, position history, and tax information—is the most critical operational requirement in an administrator transition.

(CFM) Certified Fund Manager Practice Test

(CFM) Certified Fund Manager Practice Test

CFM Fund Administration & Operations 4