CFA
ALTERNATIVE INVESTMENT FEATURES,
78
METHODS, AND STRUCTURES
1. An alternative investment fund's term sheet describes its:
(A) fee structure and investor requirements.
(B) fee structure and management biographies.
(C) management biographies and investor requirements.
2. Compared to traditional investments, alternative investments are most likely to be more:
(A) transparent.
(B) leveraged.
(C) liquid.
3. Robert Aaron would like to start investing a relatively small amount of capital into
commercial real estate, and diversification among these investments is important to
him. Which investment method is Aaron most likely to use?
(A) Direct investing.
(B) Co-investing.
(C) Fund investing.
4. Which of the following is a challenge that alternative investments have?
(A) Same information between managers and investors.
(B) High correlation with traditional investments.
(C) Little availability of performance information.
5. Alternative investments most likely have which of the following characteristics
compared to traditional investments?
(A) Unique legal structures and tax treatments.
(B) Higher levels of regulation and transparency.
(C) Lower leverage and higher liquidity.
6. Victrix is a hedge fund that has a 3-and-15 fee structure. Compared to hedge funds
with 2-and-20 fee structures, Victrix charges higher:
(A) management fees.
(B) redemption fees.
(C) incentive fees.
Alternative Investment 1 Alternative Investment Features, Methods, & Structures
CFA
7. The most likely perceived benefit of alternative investments is:
(A) accessibility.
(B) diversification.
(C) liquidity.
8. Hedge fund management fees are most commonly structured as a percentage of:
(A) invested capital.
(B) assets under management.
(C) committed capital.
9. An alternative investment fund generated an 18% return during 20X2. The manager
has a 20% performance fee, subject to an 8% soft hurdle rate and a catch-up clause.
What performance fee did the manager earn for 20X2?
(A) 3.6%.
(B) 3.2%.
(C) 2.0%.
10. What is another name for a performance fee paid by investors in alternative
investment funds?
(A) Preferred return.
(B) Management fee.
(C) Carried interest.
11. A private equity provision that requires managers to return any periodic incentive fees
resulting in investors receiving less than 80% of profits is a:
(A) high water mark.
(B) drawdown.
(C) clawback
12. In a 2-and-20 hedge fund fee structure, the "2" refers to a hedge fund's:
(A) hurdle rate.
(B) incentive fee.
(C) management fee.
13. Which private capital fund waterfall structure involves distributing profits as each
investment is sold and subsequently shared according to the partnership agreement?
(A) Deal-by-deal waterfall.
(B) European waterfall.
(C) Whole-of-fund waterfall.
Alternative Investment 2 Alternative Investment Features, Methods, & Structures
CFA
14. Which alternative investment incentive fee feature is most likely to benefit the
manager?
(A) High-water mark.
(B) Clawback provision.
(C) Catch-up clause.
15. Compared to fund investing, direct investing most likely has:
(A) more diversification.
(B) lower investment amounts.
(C) lower fees.
16. Compared to a traditional mutual fund, a hedge fund is more likely to feature:
(A) lower leverage.
(B) higher fees.
(C) higher liquidity.
17. When compared to traditional investments, alternative investments are characterized
by:
(A) less concentrated portfolios.
(B) less liquidity of assets held.
(C) more regulation and transparency.
18. In the context of alternative investments, an investor has the most control over an
asset
Through.
(A) direct investing.
(B) fund investing.
(C) co-investing.
Alternative Investment 3 Alternative Investment Features, Methods, & Structures
