CFM Hedge Fund Strategies & Operations 3

Question 1

A long/short equity fund has a gross exposure of 200% and a net exposure of 20%. If the portfolio is $100M in AUM, what is the approximate dollar value of the short book?

Accepted Answer

$90M

Answer

With gross = long + short = 200% = $200M and net = long - short = 20% = $20M, solving gives long = $110M and short = $90M.

Question 2

Which hedge fund strategy tends to exhibit the lowest correlation to broad equity markets during normal market conditions?

Accepted Answer

Global macro

Answer

Global macro funds trade across asset classes including currencies, rates, and commodities based on macroeconomic themes, typically resulting in lower equity market correlation.

Question 3

A fund of hedge funds charges a 1% management fee and 10% performance fee on top of the underlying funds' '2 and 20' structure. This layering is commonly called:

Accepted Answer

Double fee structure

Answer

The double fee structure (or double layer of fees) refers to investors paying fees at both the fund-of-funds level and the underlying fund level, significantly eroding net returns.

Question 4

Under the AIFMD in Europe, what is the leverage limit typically imposed on alternative investment funds using the commitment method?

Accepted Answer

No hard limit; regulators set fund-specific limits

Answer

AIFMD does not impose a fixed leverage cap; instead, national regulators can impose fund-specific leverage limits based on risk assessments.

Question 5

A distressed debt hedge fund purchases senior secured bonds of a bankrupt company at 40 cents on the dollar. The fund's primary risk is:

Accepted Answer

Recovery rate uncertainty and reorganization timeline

Answer

Distressed investing risk centers on what recovery rate creditors will receive through reorganization and how long the bankruptcy process will take, affecting IRR.

(CFM) Certified Fund Manager Practice Test

(CFM) Certified Fund Manager Practice Test

CFM Hedge Fund Strategies & Operations 3