Alternative Managed Products Flashcards
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Read the first 7 Alternative Managed Products flashcards as text
A managed futures fund predominantly trades exchange-traded commodity and financial futures contracts using systematic, trend-following models. This strategy is often called:
Answer: Commodity trading advisor (CTA) or trend-following strategy
Managed futures funds operated by commodity trading advisors typically use quantitative, trend-following algorithms to take long or short positions across diversified futures markets.
One commonly cited benefit of managed futures strategies in a diversified portfolio is that they have historically shown:
Answer: Low or negative correlation with traditional equities, especially during equity market crises
Managed futures have historically exhibited crisis alpha — tending to perform well or exhibit low correlation to equities during sharp equity market downturns — improving portfolio diversification.
The 'hurdle rate' in a hedge fund performance fee arrangement refers to:
Answer: The minimum return the fund must achieve before the performance fee begins to accrue
A hurdle rate sets a return threshold (often linked to a benchmark such as a T-bill rate) that the fund must exceed before the manager earns any performance fee.
Under the client-focused reforms (CFRs) effective in Canada since 2021, a registrant recommending an alternative managed product must ensure the recommendation:
Answer: Is in the best interest of the client and suitable given their complete financial profile
The CFRs introduced a best-interest-aligned suitability standard requiring registrants to put clients' interests first when making product recommendations, including alternative products.
An investor comparing two alternative mutual funds notices Fund A uses a 'master-feeder' structure while Fund B is a stand-alone fund. What is the primary purpose of a master-feeder structure?
Answer: To pool assets from multiple feeder funds into a single master fund for economies of scale and centralized portfolio management
A master-feeder structure routes assets from multiple feeder funds (each serving different investor types or jurisdictions) into a single master fund, reducing trading costs and simplifying portfolio management.
Which of the following is an accurate description of the 'accredited investor' exemption in Canadian securities law as it commonly applies to alternative managed products?
Answer: Individuals with net financial assets exceeding $1 million or net income above $200,000 may invest without a prospectus
The accredited investor exemption permits individuals meeting specific income or asset thresholds (e.g., $1M in net financial assets or $200K annual income) to invest in exempt-market products without a prospectus.
A dealer registrant sells an exempt-market alternative fund to a client using the offering memorandum exemption. Which ongoing obligation does the registrant have regarding this investment?
Answer: The registrant must conduct annual suitability reviews to ensure the investment remains appropriate as the client's circumstances change
Under the CFRs, registrants have an ongoing suitability obligation, meaning they must periodically review client holdings — including exempt-market alternatives — to confirm continued suitability.