CIM Alternative Investments Flashcards

Which characteristic most distinguishes alternative investments from traditional asset classes?

Answer: Low correlation with public equities and bonds

Alternative investments typically exhibit low correlation with traditional asset classes, making them valuable for portfolio diversification.

A hedge fund employing a long/short equity strategy aims to profit by:

Answer: Buying undervalued stocks and short-selling overvalued stocks simultaneously

Long/short equity strategies seek alpha by taking long positions in undervalued securities and short positions in overvalued ones.

Private equity buyout funds primarily create value by:

Answer: Acquiring companies, improving operations, and selling at a profit

Buyout funds acquire companies using leverage and operational improvements to increase value before exiting through a sale or IPO.

The J-curve effect in private equity refers to:

Answer: Initial negative returns followed by positive returns as investments mature

The J-curve describes the pattern where early fees and capital calls produce negative returns before investments mature and generate positive gains.

Real assets as an alternative investment class include which of the following?

Answer: Infrastructure, commodities, and timberland

Real assets encompass physical or tangible assets such as infrastructure, commodities, real estate, and natural resources.

Which fee structure is most common among hedge funds?

Answer: 2% management fee, 20% performance fee

The '2 and 20' structure — 2% annual management fee and 20% of profits — is the traditional hedge fund fee model.