IFC - Investment Funds in Canada Alternative Managed Products Questions and Answers

Question 1

An investor with a moderate risk tolerance wants to add diversification to their portfolio of traditional stocks and bonds.
They are interested in hedge fund-like strategies but require the ability to redeem their investment on a daily basis.
Which of the following products is MOST suitable for this investor?

Accepted Answer

An alternative mutual fund (liquid alt)

Answer

A private equity fund

Answer

A traditional hedge fund sold via offering memorandum

Answer

A direct investment in commodity futures contracts

Question 2

Which of the following is a key distinction between alternative mutual funds (liquid alts) regulated under NI 81-102 and traditional hedge funds sold by offering memorandum in Canada?

Accepted Answer

Alternative mutual funds have regulatory limits on leverage and short selling, while traditional hedge funds generally have more flexibility.

Answer

Alternative mutual funds are restricted to accredited investors, while hedge funds are available to all retail investors.

Answer

Hedge funds are required to offer daily liquidity, whereas alternative mutual funds typically have long lock-up periods.

Answer

Alternative mutual funds can use unlimited leverage, while traditional hedge funds are restricted by regulation.

Question 3

Which of the following is a primary risk specifically associated with investing in a private credit fund that is not as prevalent in a publicly-traded government bond fund?

Accepted Answer

Liquidity risk

Answer

Interest rate risk

Answer

Inflation risk

Answer

Market risk

Question 4

An alternative fund manager employs a strategy that involves taking long positions in undervalued stocks and short positions in overvalued stocks within the same sector. The goal is to profit from the relative performance of these stocks, not the overall direction of the market. What is this strategy called?

Accepted Answer

Market neutral

Answer

Global macro

Answer

Event-driven

Answer

Merger arbitrage

Question 5

An accredited investor has a very long-term time horizon and a high tolerance for risk. They are seeking potentially higher returns with low correlation to public markets and are willing to have their capital locked in for several years. Which alternative product is most suitable for this client's profile?

Accepted Answer

A private equity fund

Answer

A high-yield bond ETF

Answer

A liquid alternative mutual fund

Answer

An S&P/TSX 60 index fund

Question 6

What does the '2 and 20' fee structure, commonly associated with traditional hedge funds, typically represent?

Accepted Answer

A 2% annual management fee on assets and a 20% performance fee on profits.

Answer

A 2% redemption fee if assets are withdrawn within 20 months.

Answer

A 2% front-end load and a 20% back-end load on redemptions.

Answer

A flat management expense ratio (MER) of 2.20%.