Alternative Investments Flashcards
6 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Alternative Investments flashcards as text
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 assets, providing diversification benefits.
A CIMA professional is evaluating a hedge fund with a 2-and-20 fee structure. What does '2-and-20' refer to?
Answer: 2% management fee and 20% performance fee
The 2-and-20 structure charges 2% annually on AUM as a management fee and 20% of profits as a performance (incentive) fee.
Which type of private equity strategy involves purchasing an entire company, often using significant debt financing?
Answer: Leveraged buyout (LBO)
A leveraged buyout uses borrowed funds to acquire a controlling interest in a mature company, with the target's assets often serving as collateral.
In the context of hedge fund strategies, a long/short equity fund primarily seeks to profit by:
Answer: Buying undervalued stocks and shorting overvalued stocks
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.
A limited partnership structure in private equity limits the liability of limited partners to:
Answer: Their invested capital only
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.
Which of the following is a key characteristic of real assets as an alternative investment?
Answer: They often provide a hedge against inflation
Real assets such as commodities, real estate, and infrastructure tend to increase in value with inflation, providing a natural inflation hedge.