CFM Fund Administration & Operations 5

Question 1

A fund administrator discovers a NAV calculation error from three days ago that overstated NAV by 0.15%. What is the standard industry approach?

Accepted Answer

Assess the materiality of the error against the fund's error policy and compensate affected investors if the threshold is breached

Answer

Most funds apply a materiality threshold (commonly 0.5% for retail funds); errors below this threshold may be absorbed, while errors above require investor compensation and disclosure.

Question 2

What is 'in-specie' transfer in the context of fund operations?

Accepted Answer

Delivering actual securities rather than cash to satisfy a redemption or subscription

Answer

An in-specie transfer involves the delivery of securities (rather than cash) to fulfill a large redemption or to seed a fund at launch, avoiding the costs and market impact of selling and repurchasing assets.

Question 3

Which regulatory framework specifically governs the custody of assets for U.S. registered investment advisers managing client funds?

Accepted Answer

Investment Advisers Act of 1940, Rule 206(4)-2 (the 'Custody Rule')

Answer

Rule 206(4)-2 under the Investment Advisers Act imposes specific custody requirements on registered investment advisers, including use of qualified custodians and annual surprise audits.

Question 4

In a master-feeder fund structure, where does portfolio management and trading primarily occur?

Accepted Answer

In the master fund, with feeder funds investing as limited partners

Answer

In a master-feeder structure, all feeder funds pool their assets into the master fund, where all portfolio management, trading, and investment decisions are made centrally.

Question 5

What is the purpose of a 'subscription document's representations and warranties' section?

Accepted Answer

To have the investor affirm their eligibility, accredited status, and understanding of risks

Answer

Representations and warranties require the investor to confirm they meet eligibility criteria (e.g., accredited investor status), have reviewed risk disclosures, and have authority to invest—creating legal accountability.

(CFM) Certified Fund Manager Practice Test

(CFM) Certified Fund Manager Practice Test

CFM Fund Administration & Operations 5