Alter Test - TE2

Hedge funds are similar to private equity funds in that both:

• A. are typically structured as partnerships.
• B. assess management fees based on assets under management.
• C. do not earn an incentive fee until the initial investment is repaid.

Which of the following is most likely a private real estate investment vehicle?

• A. Real estate limited partnership
• B. Real estate investment trust
• C. Collateralized mortgage obligation

If a commodity’s forward curve is in contango, the component of a commodities futures return most likely to reflect this is:

• A. spot prices.
• B. the roll yield.
• C. the collateral yield.

A hedge fund invests primarily in distressed debt. Quoted market prices are available for the underlying holdings but they trade infrequently. Which of the following will the hedge fund most likely use in calculating net asset value for trading purposes?

• A. Average quotes
• B. Average quotes adjusted for liquidity
• C. Bid prices for short positions and ask prices for long positions

At the first of the year, an investor decides to invest $1.5 million in a hedge fund with an incentive fee of 15% and a hard hurdle rate of 4%. At the end of the year, the fund has a return of 23.3%. The incentive fee payment that the general partner of the fund earned based on this client’s investment at the end of the year is closest to?

• A. $43,425
• B. $52,425
• C. $38,445

Commodity futures prices are most likely in backwardation when:

• A. interest rates are high.
• B. storage costs are high.
• C. the convenience yield is high.

The three main sources of return for commodities futures contracts most likely are:

• A. convenience yield, dividend yield, and spot price return.
• B. collateral yield, roll yield, and spot price return.
• C. collateral yield, convenience yield, and roll yield.

The first stage of financing at which a venture capital fund most likely invests is the:

• A. seed stage.
• B. mezzanine stage.
• C. angel investing stage.

An investor seeks a current income stream as a component of total return, and desires an investment that historically has low correlation with other asset classes. The investment most likely to achieve the investor’s goals is:

• A. timberland.
• B. collectibles.
• C. commodities.

An effective risk management process used by alternative investment funds most likely includes:

• A. in-house valuations.
• B. internal custody of assets.
• C. segregation of risk and investment process duties.