CFA Alternative Investments. Questions with accurate answers. Rated A+.

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CFA Alternative Investments. Questions with accurate answers. Rated A+. Why are alternative investments different from traditional investments? - ✔✔Less liquidity in these investments, less t ... ransparency and regulation. More problematic and less transparent historical performances, as well as different legal and tax implications What are the potential benefits of Alternative Investments in portfolio management? - ✔✔Their performance is no correlated with the market, and therefore they are seen as a good hedge, also they have outperformed the traditional market in the past perhaps because of their illiquidity of these markets (skilled managers can find these mispricings) What is survivorship bias? - ✔✔the upwards bias of returns if data for the existing (survival) firms that would be included what is backfill bias? - ✔✔including the historical performance of funds that were recently added to a portfolio What is a prime broker? - ✔✔broker that a hedge fund trades through, can do short positions, take on leverage, and provide many other administrative services to their clients Are margin requirements set in stone for hedge funds with prime brokers? - ✔✔No, they can negotiate service parameters what is the difference between absolute basis and relative basis in terms of stating performance of a hedge fund? - ✔✔Absolute performance refers to the nominal performance of the fund (10%) and relative performance refers to performance over a benchmark (5% over a specific benchmark) How are investors into hedge funds usually treated by the law? - ✔✔They are usually seen as investors into a limited liability company (all investors are limited liability partners) What do you need to invest in a hedge fund? - ✔✔large sums of money, minimal liquidity needs, investment sophistication what is the lockup period when talking about hedge funds? - ✔✔the amount of time after your investment in which you cannot withdraw your money what is the notice period when talking about hedge funds? - ✔✔typically 30 to 90 days in which a hedge fund receives notice of a withdrawal and then delivers the cash describe an event driven strategy of a hedge fund. - ✔✔strategy based on a corporate restructuring or acquisition that creates a profit opportunity within the firm's capital structure describe merger arbitrage. - ✔✔buy the shares of the firm being acquired and short the shares of the firm being describe a distressed / restructuring strategy of a hedge fund. - ✔✔Buy the undervalued securities of a distressed company when analysis shows that a successful restructuring will increase the value of this asset significantly describe a special situations strategy of a hedge fund. - ✔✔they are investing in the securities of a firm that are issuing or repurchasing securities, spinning off a part of their business, selling assets, or distributing capital describe a relative value strategy of a hedge fund. - ✔✔buying a security and selling short a related security with the goal of profiting when the pricing discrepancy between the two assets is resolved describe a convertible arbitrage fixed income strategy of a hedge fund. - ✔✔exploit pricing discrepancies between convertible bonds and the common stock of the company describe a macro strategy of a hedge fund. - ✔✔strategy based on global macro economic trends, involve long or short positions in equities, fixed income, currencies, and commodities what does market neutral mean? - ✔✔a hedge fund has the same amount of money long as they do short, this gets rid of market risk what is a fundamental growth strategy? - ✔✔investing in companies with potential for massive growth what is a fundamental value strategy? - ✔✔investing in equities that are thought to be undervalued what is a short bias strategy? - ✔✔like prudent bear, primarily short stocks, can have a small amount long but for the most part they short when are hedge fund correlations with markets typically highest? - ✔✔periods of financial crisis how is hedge fund valuation usually treated? - ✔✔they try to create a compilation of all of the market values of their constituents by using the bid ask numbers or the average of the two, sometimes market value is decreased because of a illiquidity premium what are the different ways a PE firm can finance an LBO? - ✔✔bank debt, high yield bonds, or mezzanine financing what is mezzanine financing (in context of how PE firms finance an LBO)? - ✔✔refers to the debt or preferred shares that are subordinate to high yield bonds but give the investor exposure to change their debt into equity [Show More]

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