Hedge funds, private equity, real estate, and commodities investment concepts tested on CFA Level 1.
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- What is the primary defining characteristic of a hedge fund?
- An investment fund that uses leveraged positions, derivatives, and short selling to generate returns regardless of market direction.
- What does the '2 and 20' fee structure mean?
- A 2 percent annual management fee on assets under management plus a 20 percent performance fee on gains.
- What is a lock-up period in a hedge fund?
- An initial period (often one year) during which investors cannot withdraw their capital.
- Define a redemption period for hedge fund investors.
- The time window (e.g., quarterly) when investors are allowed to withdraw capital from the fund.
- What is a long-short equity strategy?
- A hedge fund strategy that takes long positions in undervalued securities and short positions in overvalued securities.
- What does a market neutral strategy aim to achieve?
- Generating returns through security selection while minimizing exposure to systematic market risk.
- What is a global macro hedge fund strategy?
- A strategy that takes positions based on macroeconomic trends across countries, currencies, and asset classes.
- What is arbitrage as a hedge fund strategy?
- Exploiting price inefficiencies between related securities or markets to lock in risk-free or near-risk-free profits.
- What is a side pocket in hedge fund operations?
- A segregated account holding illiquid or hard-to-value investments, preventing other investors from redeeming until it is resolved.
- What is a clawback provision in a hedge fund?
- A clause allowing the fund to reclaim performance fees from the manager if subsequent losses wipe out gains.
- What is private equity?
- Capital invested in companies not listed on public stock exchanges, with the goal of improving performance and exiting for profit.
- What is a leveraged buyout (LBO)?
- Acquiring a company using a significant amount of borrowed money to finance the purchase.
- What are the typical stages of venture capital investment?
- Seed, Series A, Series B, Series C (and beyond), and exit (acquisition or IPO).
- What is distressed investing in private equity?
- Acquiring debt or equity of financially troubled companies at a discount and restructuring them for profit.
- What does MOIC stand for and what does it measure?
- Multiple on Invested Capital; the total cash returned to investors divided by the amount of capital invested.