CPM Alternative Investments in Portfolios 3

Question 1

The vintage year in private equity refers to:

Accepted Answer

The year the private equity fund made its first investment or began deploying capital

Answer

The year the fund was liquidated

Answer

The calendar year with the best fund returns

Answer

The year of the fund manager's founding

Question 2

In the context of alternative investments, what does 'carried interest' represent?

Accepted Answer

The performance fee (typically 20% of profits) earned by the private equity or hedge fund manager above a hurdle rate

Answer

The interest rate charged on borrowed capital

Answer

The annual management fee

Answer

The fund's total expense ratio

Question 3

Which of the following best describes a distressed debt strategy?

Accepted Answer

Purchasing the debt of financially troubled companies at a deep discount, with the expectation of recovery or restructuring gains

Answer

Investing in highly rated investment-grade bonds

Answer

Investing in government securities

Answer

Short-selling equities of bankrupt companies

Question 4

Gold is often added to an institutional portfolio to:

Accepted Answer

Serve as a store of value and portfolio hedge during periods of market stress and currency debasement

Answer

Generate high dividend income

Answer

Track equity market returns

Answer

Reduce interest rate duration

Question 5

Which of the following fee structures is most commonly associated with hedge funds?

Accepted Answer

2% annual management fee and 20% performance fee above a hurdle rate

Answer

No management fee, 10% performance fee

Answer

1% management fee only

Answer

Fixed fee regardless of performance

Question 6

Which of the following best describes the role of alternative investments in a total portfolio context for a CPM certification candidate?

Accepted Answer

Serve as a complement to traditional assets, reducing correlation, improving risk-adjusted returns, and addressing specific objectives such as inflation protection or income stability

Answer

Replace all traditional assets to maximize returns

Answer

Replace active management entirely

Answer

Be used only by retail investors with short time horizons