Alter 1.12 Test

A hedge fund with $98 million of initial capital charges a management fee of 2% and an incentive fee of 20%. The management fee is based on assets under management at year end and the incentive fee is calculated independently from the management fee. The fee structure has a high-water mark provision. The fund value is $112 million at the end of Year 1, $100 million at the end of Year, and $116 million at the end of Year 3. The net-of-fees return earned by the fund in Year 3 is closest to:

• A. 14.15%.
• B. 12.33%.
• C. 11.87%.

Q. Compared with direct investment in infrastructure, publicly traded infrastructure securities are characterized by:

• A. higher concentration risk.
• B. more transparent governance.
• C. greater control over the infrastructure assets.

Q. What is the most significant drawback of a repeat sales index to measure returns to real estate? (2020 Q14)

• A. Sample selection bias
• B. Understatement of volatility
• C. Reliance on subjective appraisals

Q. Which approach is most commonly used by equity hedge strategies?

• A. Top down
• B. Bottom up
• C. Market timing

Q. From the perspective of the investor, the most active approach to investing in alternative investments is:

• A. co-investing.
• B. fund investing.
• C. direct investing.

The return on a commodity index is likely to be different from returns on the underlying commodities because:

• A. data are subject to survivorship bias.
• B. indices are constructed using futures contracts.
• C. assets are not marked to market.

A hedge fund limited partnership agreement describes the general partner’s total fees for each year as follows: The general partner will measure the fair value of the fund’s assets at the beginning of the year (net of fees from the previous year) and the fair value of the fund’s assets at the end of the year. The general partner will receive 15% of any increase in fair value in excess of the 1-year US Treasury yield at the beginning of the year. This fee structure most likely includes a:

• A. hard hurdle rate.
• B. management fee.
• C. high-water mark provision.

Q. The potential benefits of allocating a portion of a portfolio to alternative investments include:

• A. ease of manager selection.
• B. improvement in the portfolio’s risk–return relationship.
• C. accessible and reliable measures of risk and return.

Q. As the loan-to-value ratio increases for a real estate investment, risk most likely increases for: (2020 Q19)

• A. debt investors only.
• B. equity investors only.
• C. both debt and equity investors.

Q. The majority of real estate property may be classified as either:

• A. debt or equity.
• B. commercial or residential.
• C. direct ownership or indirect ownership.