Alternative Investments Flashcards
6 cards from real CSC 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
What is the 'high-water mark' provision in a hedge fund?
Answer: A rule that prevents the fund from collecting performance fees until previous losses are recovered
The high-water mark ensures managers only collect performance fees on net new profits, not on gains that simply recover prior losses.
Real estate investment trusts (REITs) traded on the TSX are best described as:
Answer: Liquid real estate investments that trade like stocks and distribute income
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.
Which alternative investment strategy seeks to profit from price discrepancies in a company's securities around a merger or acquisition?
Answer: Merger arbitrage
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.
Commodity investments are often included in a portfolio because they tend to:
Answer: Have low correlation with stocks and bonds and hedge against inflation
Commodities historically have low correlation to traditional asset classes and often rise in price during inflationary periods, providing portfolio diversification.
A 'global macro' hedge fund strategy involves:
Answer: Making bets on macroeconomic trends across currencies, interest rates, and commodities worldwide
Global macro managers take positions in currencies, bonds, equities, and commodities based on their forecasts of broad macroeconomic trends and policy changes.
'Distressed debt' investing involves purchasing:
Answer: Securities of companies near or in bankruptcy at a significant discount
Distressed debt investors buy the bonds or loans of financially troubled companies at steep discounts, hoping to profit from restructuring, recovery, or liquidation.