CFM Fund Structuring & Legal Frameworks 5

Question 1

The 'preferred return' (hurdle rate) in a private equity fund is best defined as:

Accepted Answer

The minimum annual return LPs must earn before the GP receives any carried interest

Answer

The preferred return is the minimum compounded annual return LPs must receive before the GP begins participating in profits via carried interest.

Question 2

Which of the following most accurately describes a 'co-investment' opportunity in private equity?

Accepted Answer

An offer by the GP for select LPs to invest directly alongside the fund in a specific deal, often with reduced fees

Answer

Co-investments allow favored LPs to invest directly in individual deals at lower or no fee, increasing their exposure to specific opportunities.

Question 3

Under the Dodd-Frank Act, which category of investment adviser was newly required to register with the SEC that was previously exempt?

Accepted Answer

Advisers to private funds with at least $150 million in AUM

Answer

Dodd-Frank eliminated the 'private adviser' exemption and required advisers to private funds with $150M+ AUM to register with the SEC.

Question 4

What is a 'key man' clause in a limited partnership agreement?

Accepted Answer

A clause that suspends or terminates the fund's investment period if specified key individuals leave the GP

Answer

A key man clause protects LPs by halting new investments if critical individuals identified as essential to the fund depart.

Question 5

A fund structured as a 'series LLC' provides which distinct advantage?

Accepted Answer

It allows segregation of assets and liabilities into separate series within a single legal entity

Answer

A series LLC enables multiple segregated investment pools with independent assets and liabilities under one umbrella entity, reducing formation costs.

(CFM) Certified Fund Manager Practice Test

(CFM) Certified Fund Manager Practice Test

CFM Fund Structuring & Legal Frameworks 5