Alternative Investments Test Flashcards

What is a 'Special Purpose Acquisition Company' (SPAC)?

Answer: A blank-check company that raises capital via IPO to acquire a private company

A SPAC is a shell company that raises capital through an IPO with the sole purpose of using the funds to acquire an unspecified private company within a set timeframe.

Which alternative asset class involves lending directly to borrowers without a traditional bank intermediary?

Answer: Private credit (direct lending)

Private credit (direct lending) involves non-bank lenders providing loans directly to businesses, often to middle-market companies that cannot access public debt markets.

In infrastructure investing, what makes it attractive as an alternative asset class?

Answer: Stable, long-term cash flows from essential services with inflation-linked revenues

Infrastructure assets like toll roads, airports, and utilities generate stable, predictable cash flows from essential services often backed by long-term contracts with inflation escalators.

What is the 'hurdle rate' in private equity fund structures?

Answer: The minimum return investors must receive before fund managers earn carried interest

The hurdle rate (or preferred return) is the minimum annualized return investors must receive before the fund manager begins earning carried interest, typically set at 8%.

What does 'net asset value' (NAV) represent in a private equity or hedge fund context?

Answer: The total fair market value of a fund's assets minus its liabilities

NAV is the total fair value of all assets held by the fund minus its liabilities, divided by the number of shares or units outstanding, representing the per-share value of the fund.

What is 'dry powder' in private equity terminology?

Answer: Uninvested capital committed by investors but not yet deployed

Dry powder refers to the committed but uninvested capital in a private equity fund that is available and ready to be deployed into new investments.