Investment Jobs Alternative Investments Test 2

Question 1

What is a 'fund of funds' in the context of alternative investments?

Accepted Answer

An investment vehicle that allocates capital across multiple underlying hedge funds or PE funds

Answer

A fund of funds invests in a portfolio of other funds (hedge funds, PE funds) rather than directly in securities, offering diversification but adding an additional layer of fees.

Question 2

What is the 'J-curve effect' in private equity investing?

Accepted Answer

Negative returns in early years give way to positive returns as investments mature and are exited

Answer

The J-curve describes the typical pattern of private equity returns: early negative returns due to management fees and unrealized investments, followed by positive returns as portfolio companies grow and are exited.

Question 3

Commodities are included in investment portfolios primarily for which benefit?

Accepted Answer

Inflation hedging and low correlation with stocks and bonds

Answer

Commodities tend to perform well during inflationary periods and have historically low correlation with traditional asset classes, making them useful for portfolio diversification and inflation protection.

Question 4

What is a 'lock-up period' in the context of hedge fund investing?

Accepted Answer

A period during which investors cannot redeem their investment from the fund

Answer

A lock-up period restricts hedge fund investors from withdrawing their capital for a specified time (typically one to two years), giving managers time to execute their strategies.

Question 5

What distinguishes an 'accredited investor' under US securities law?

Accepted Answer

Has annual income exceeding $200K (or $300K joint) or net worth over $1M excluding primary residence

Answer

Under SEC Regulation D, an accredited investor must meet income thresholds ($200K individual or $300K joint for last two years) or have a net worth over $1M excluding their primary residence.

Investment Practice Test

Investment Practice Test

Investment Jobs Alternative Investments Test 2