Alternative Managed Products Flashcards
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Read the first 7 Alternative Managed Products flashcards as text
Under NI 81-102, which regulatory change in 2019 allowed retail investors in Canada to access hedge-fund-like strategies through conventional mutual funds?
Answer: Creation of the alternative mutual fund category
The 2019 amendments to NI 81-102 established the 'alternative mutual fund' category, allowing retail investors to access liquid alternative strategies within a regulated mutual fund wrapper.
An alternative mutual fund in Canada may use leverage up to what maximum gross exposure relative to its net asset value?
Answer: 300%
NI 81-102 permits alternative mutual funds to leverage up to 300% of NAV through borrowing, short selling, and derivatives combined.
Which of the following best describes a 'commodity pool' under Canadian securities regulation?
Answer: A mutual fund that invests primarily in physical commodities or commodity futures
A commodity pool is a mutual fund that primarily invests in physical commodities, commodity futures, or other commodity-related derivatives.
A hedge fund charges a 2% management fee and a 20% performance fee with a high-water mark. If the fund loses 15% in year one and gains 25% in year two, in which year does the manager collect the performance fee?
Answer: Year two only, but only on gains above the previous high-water mark
The high-water mark ensures the performance fee is only charged on gains that exceed the fund's previous peak NAV, so no fee is earned until losses are recovered.
Which distribution channel is most commonly used for hedge funds sold to Canadian retail investors seeking liquid alternative exposure?
Answer: Alternative mutual funds distributed under a simplified prospectus
Since 2019, alternative mutual funds filed under a simplified prospectus provide retail investors with liquid, regulated access to hedge-fund strategies.
A fund of hedge funds provides investors with which primary advantage compared with investing in a single hedge fund?
Answer: Diversification across multiple hedge fund managers and strategies
A fund of hedge funds spreads capital across multiple managers and strategies, reducing the impact of any single manager's underperformance or fraud.
Short selling within an alternative mutual fund exposes investors to which unique risk NOT present in a conventional long-only mutual fund?
Answer: Theoretically unlimited loss potential if the shorted security rises indefinitely
Short selling carries theoretically unlimited downside because a shorted security's price can rise without limit, unlike a long position where the maximum loss is the amount invested.