CFM Fund Structuring & Legal Frameworks 3

Question 1

Which of the following is a key structural difference between a hedge fund and a private equity fund?

Accepted Answer

Hedge funds typically allow periodic redemptions; private equity funds lock up capital for the fund's life

Answer

Hedge funds generally offer liquidity windows while private equity funds employ long-term lockups matched to illiquid investment horizons.

Question 2

A Delaware Limited Partnership (DLP) is a popular domicile for U.S. private funds because:

Accepted Answer

Delaware partnership law is well-developed, flexible, and widely understood by institutional investors

Answer

Delaware's mature, precedent-rich partnership law and flexibility make it the preferred domestic jurisdiction for private funds.

Question 3

What does the term 'clawback provision' refer to in private equity fund agreements?

Accepted Answer

The obligation of the GP to return excess carried interest if LPs do not achieve their preferred return over the fund's life

Answer

A clawback requires the GP to return carried interest received in excess of what is warranted once overall fund performance is assessed.

Question 4

Which regulatory framework primarily governs the registration and reporting obligations of investment advisers managing private funds in the U.S.?

Accepted Answer

Investment Advisers Act of 1940

Answer

The Investment Advisers Act of 1940 establishes the registration, fiduciary duty, and reporting obligations for investment advisers.

Question 5

A '3(c)(7)' fund under the Investment Company Act of 1940 restricts ownership to:

Accepted Answer

Qualified purchasers, with no numerical limit on investor count beyond 2,000

Answer

Section 3(c)(7) exempts funds sold solely to 'qualified purchasers' and permits more than 100 investors, up to the 2,000-holder Reg D ceiling.

(CFM) Certified Fund Manager Practice Test