Alternative Investments Flashcards
7 cards from real CFS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Alternative Investments flashcards as text
A 'distressed debt' hedge fund strategy involves:
Answer: Buying debt securities of companies in or near bankruptcy at discounted prices
Distressed debt funds purchase discounted bonds or loans of financially troubled companies, seeking to profit from restructuring or recovery of the debt's value.
Under Regulation D of the Securities Act, Rule 506(b) allows issuers to sell securities to a maximum of how many non-accredited but sophisticated investors?
Answer: 35
Rule 506(b) permits sales to up to 35 non-accredited but sophisticated investors, in addition to unlimited accredited investors, without general solicitation.
Infrastructure investments (such as toll roads, airports, and utilities) are attractive to long-term investors primarily because they offer:
Answer: Stable, predictable cash flows with inflation-linked revenue streams
Infrastructure assets typically generate stable, long-term cash flows often linked to inflation through regulated pricing or concession agreements, making them suitable for pension funds and endowments.
A CFS practitioner recommending alternative investments must ensure the investment is 'suitable' by considering all of the following EXCEPT:
Answer: Whether the investment's historical returns exceed the S&P 500
Suitability is based on client-specific factors such as risk tolerance, liquidity needs, time horizon, and financial status — not on whether returns exceed a benchmark index.
What distinguishes a 'market neutral' hedge fund strategy from a traditional long-only equity fund?
Answer: It maintains balanced long and short equity positions to eliminate broad market beta
Market neutral strategies offset long and short equity positions to achieve near-zero net market exposure (beta), generating returns from stock selection rather than overall market direction.
An investor in a master limited partnership (MLP) focused on energy infrastructure primarily benefits from:
Answer: Pass-through cash distributions and potential tax-deferred income through depreciation deductions
MLPs pass through income directly to unit holders without corporate-level taxation and often offer tax-deferred distributions through depreciation deductions on pipeline and storage assets.
The primary purpose of a 'hurdle rate' in a private equity fund is to:
Answer: Ensure the fund manager only earns carried interest after delivering a minimum return to investors
A hurdle rate (typically 7–8%) is the minimum annual return investors must receive before the general partner begins earning carried interest (performance compensation).