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
Which type of alternative investment involves buying controlling interests in private companies with the intent to improve and sell them?
Answer: Private equity (buyout funds)
Private equity buyout funds acquire controlling stakes in established companies, typically using leverage, improve operations, and exit via sale or IPO.
What is the standard fee structure for most hedge funds (the '2 and 20' model)?
Answer: 2% management fee and 20% performance fee on profits
The '2 and 20' fee structure means hedge funds charge a 2% annual management fee on assets under management plus a 20% performance fee on any profits generated.
What is a Real Estate Investment Trust (REIT) and what tax advantage does it offer?
Answer: A publicly traded company that owns income-producing real estate; must distribute 90% of taxable income to avoid corporate tax
A REIT is a company that owns income-producing real estate and must distribute at least 90% of its taxable income as dividends to qualify for pass-through tax treatment, avoiding corporate-level tax.
In venture capital, what does 'Series A' funding typically represent?
Answer: The first significant round of institutional financing after early-stage proof of concept
Series A is typically the first significant round of venture capital financing, coming after seed funding, and is used by startups that have demonstrated early traction to scale operations.
What is 'carried interest' in private equity and hedge funds?
Answer: The fund manager's share of profits above a specified return threshold
Carried interest (or 'carry') is the share of investment profits, typically 20%, that fund managers receive as performance compensation once returns exceed the hurdle rate.
Which type of hedge fund strategy aims to profit regardless of market direction by being simultaneously long and short?
Answer: Long/short equity strategy
Long/short equity strategies hold long positions in stocks expected to appreciate and short positions in stocks expected to decline, aiming to generate returns uncorrelated with market direction.