CIM CIM Alternative Investments 2

Question 1

A high-water mark provision in a hedge fund protects investors by:

Accepted Answer

Ensuring performance fees are only charged on new profits above prior peak NAV

Answer

A high-water mark ensures the manager earns performance fees only after recovering prior losses and surpassing the previous net asset value peak.

Question 2

Venture capital investments are best described as:

Accepted Answer

Equity investments in early-stage, high-growth potential companies

Answer

Venture capital provides equity funding to startups and early-stage companies with high growth potential in exchange for an ownership stake.

Question 3

Which of the following best describes a fund of funds structure?

Accepted Answer

A fund that allocates capital across multiple underlying hedge funds or private equity funds

Answer

A fund of funds invests in a diversified portfolio of other funds, providing broader exposure but adding an additional layer of fees.

Question 4

Illiquidity premium in alternative investments compensates investors for:

Accepted Answer

The inability to quickly convert the investment to cash without significant loss

Answer

Investors demand an illiquidity premium as additional expected return for accepting that they cannot easily exit the investment when desired.

Question 5

In the context of hedge fund strategies, a global macro fund primarily makes investment decisions based on:

Accepted Answer

Macroeconomic trends, geopolitical events, and policy changes across countries

Answer

Global macro funds take large directional positions in currencies, interest rates, equities, and commodities based on macroeconomic analysis.

CIM - Chartered Investment Manager Practice Test