Alternative Investments Test Flashcards
6 cards from real Investment 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 Test flashcards as text
What is a 'fund of funds' in the context of alternative investments?
Answer: An investment vehicle that allocates capital across multiple underlying hedge funds or PE funds
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.
What is the 'J-curve effect' in private equity investing?
Answer: Negative returns in early years give way to positive returns as investments mature and are exited
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.
Commodities are included in investment portfolios primarily for which benefit?
Answer: Inflation hedging and low correlation with stocks and bonds
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.
What is a 'lock-up period' in the context of hedge fund investing?
Answer: A period during which investors cannot redeem their investment from the fund
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.
What distinguishes an 'accredited investor' under US securities law?
Answer: Has annual income exceeding $200K (or $300K joint) or net worth over $1M excluding primary residence
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.
What is 'distressed debt investing'?
Answer: Purchasing the debt of companies near or in bankruptcy at deep discounts to profit from recovery or restructuring
Distressed debt investors buy the bonds or loans of financially troubled companies at significant discounts, profiting if the company successfully restructures or the assets are worth more than the purchase price.