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

Vintage year identifies the year a private equity fund began investing; it is used to benchmark performance against other funds that deployed capital in the same economic environment.

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

Carried interest is the share of profits (typically 20%) that alternative investment fund managers receive once returns exceed the hurdle rate, aligning manager and investor interests.

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

Distressed debt investors buy the bonds or loans of financially stressed companies at a discount, betting that the company will restructure or recover, generating capital gains as prices rise.

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

Gold historically retains value during periods of economic uncertainty, market stress, and currency debasement, making it a traditional safe-haven asset and portfolio hedge.

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

The '2 and 20' structure — a 2% annual management fee on assets under management plus a 20% performance fee on profits above the hurdle rate — is the traditional hedge fund fee model.

CPM - Certified Portfolio Manager Practice Test

CPM - Certified Portfolio Manager Practice Test

CPM Alternative Investments in Portfolios 3