CSC Alternative Investments 1

Question 1

Which of the following is considered an alternative investment?

Accepted Answer

Hedge funds

Answer

Hedge funds are classified as alternative investments because they use strategies like short selling and leverage not typically available in traditional funds.

Question 2

A hedge fund that uses a 'long/short equity' strategy will:

Accepted Answer

Buy securities expected to rise and short-sell securities expected to fall

Answer

Long/short equity managers take long positions in stocks they expect to outperform while shorting stocks they expect to underperform, aiming for market-neutral or directional returns.

Question 3

Private equity investments are typically characterized by:

Accepted Answer

Illiquidity and long investment horizons of 5–10 years

Answer

Private equity involves investing in non-publicly traded companies and typically requires capital to be locked up for 5–10 years until the fund exits its positions.

Question 4

What is a 'fund of hedge funds'?

Accepted Answer

A fund that allocates capital across multiple underlying hedge funds

Answer

A fund of hedge funds pools investor capital and diversifies it across several hedge funds, providing diversification but adding an extra layer of fees.

Question 5

The '2 and 20' fee structure commonly used by hedge funds refers to:

Accepted Answer

2% management fee and 20% performance fee on profits

Answer

The '2 and 20' structure charges a 2% annual management fee on assets under management and a 20% performance fee on profits above a hurdle rate.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Alternative Investments 1