CSC Alternative Investments 2

Question 1

What is the 'high-water mark' provision in a hedge fund?

Accepted Answer

A rule that prevents the fund from collecting performance fees until previous losses are recovered

Answer

The high-water mark ensures managers only collect performance fees on net new profits, not on gains that simply recover prior losses.

Question 2

Real estate investment trusts (REITs) traded on the TSX are best described as:

Accepted Answer

Liquid real estate investments that trade like stocks and distribute income

Answer

Publicly traded REITs allow retail investors to access real estate returns with daily liquidity, and they are required to distribute most of their taxable income.

Question 3

Which alternative investment strategy seeks to profit from price discrepancies in a company's securities around a merger or acquisition?

Accepted Answer

Merger arbitrage

Answer

Merger arbitrage (risk arbitrage) involves buying the target company's shares after a deal announcement and often shorting the acquirer, profiting from the spread between market price and deal price.

Question 4

Commodity investments are often included in a portfolio because they tend to:

Accepted Answer

Have low correlation with stocks and bonds and hedge against inflation

Answer

Commodities historically have low correlation to traditional asset classes and often rise in price during inflationary periods, providing portfolio diversification.

Question 5

A 'global macro' hedge fund strategy involves:

Accepted Answer

Making bets on macroeconomic trends across currencies, interest rates, and commodities worldwide

Answer

Global macro managers take positions in currencies, bonds, equities, and commodities based on their forecasts of broad macroeconomic trends and policy changes.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Alternative Investments 2