CIMA Alternative Investments 1

Question 1

Which characteristic most distinguishes alternative investments from traditional asset classes?

Accepted Answer

Low correlation with public equities and bonds

Answer

Alternative investments typically exhibit low correlation with traditional assets, providing diversification benefits.

Question 2

A CIMA professional is evaluating a hedge fund with a 2-and-20 fee structure. What does '2-and-20' refer to?

Accepted Answer

2% management fee and 20% performance fee

Answer

The 2-and-20 structure charges 2% annually on AUM as a management fee and 20% of profits as a performance (incentive) fee.

Question 3

Which type of private equity strategy involves purchasing an entire company, often using significant debt financing?

Accepted Answer

Leveraged buyout (LBO)

Answer

A leveraged buyout uses borrowed funds to acquire a controlling interest in a mature company, with the target's assets often serving as collateral.

Question 4

In the context of hedge fund strategies, a long/short equity fund primarily seeks to profit by:

Accepted Answer

Buying undervalued stocks and shorting overvalued stocks

Answer

Long/short equity funds take long positions in stocks expected to rise and short positions in stocks expected to fall, seeking alpha on both sides.

Question 5

A limited partnership structure in private equity limits the liability of limited partners to:

Accepted Answer

Their invested capital only

Answer

Limited partners in a private equity fund can lose no more than the amount they invested, which is the defining protection of their 'limited' status.

(CIMA) Certified Investment Management Analyst Practice Test