CFS Alternative Investments 1

Question 1

Which characteristic most distinguishes alternative investments from traditional investments?

Accepted Answer

Low correlation with traditional asset classes

Answer

Alternative investments typically have low correlation with stocks and bonds, making them valuable for diversification.

Question 2

A hedge fund that uses the 'long/short equity' strategy will typically:

Accepted Answer

Buy stocks expected to rise and short-sell stocks expected to fall

Answer

Long/short equity funds take long positions in stocks expected to appreciate and short positions in stocks expected to decline, seeking returns in both directions.

Question 3

Private equity funds differ from public equity primarily because they:

Accepted Answer

Invest in companies not listed on public exchanges

Answer

Private equity funds invest in companies not traded on public stock exchanges, giving them access to a different universe of investment opportunities.

Question 4

What is the typical 'two and twenty' fee structure in a hedge fund?

Accepted Answer

2% management fee on AUM and 20% performance fee on profits

Answer

The '2 and 20' structure means a 2% annual management fee on assets under management plus a 20% incentive fee on profits generated.

Question 5

A 'fund of funds' in the context of alternative investments refers to:

Accepted Answer

A pooled vehicle that invests in multiple underlying hedge funds or private equity funds

Answer

A fund of funds pools investor capital and allocates it across multiple underlying alternative investment funds, providing diversification and professional manager selection.

CFS - Certified Fund Specialist Practice Test

CFS - Certified Fund Specialist Practice Test

CFS Alternative Investments 1