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?
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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?
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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?
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An initial period (often one year) during which investors cannot withdraw their capital.- Define a redemption period for hedge fund investors.
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The time window (e.g., quarterly) when investors are allowed to withdraw capital from the fund.- What is a long-short equity strategy?
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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?
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Generating returns through security selection while minimizing exposure to systematic market risk.- What is a global macro hedge fund strategy?
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A strategy that takes positions based on macroeconomic trends across countries, currencies, and asset classes.- What is arbitrage as a hedge fund strategy?
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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?
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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?
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A clause allowing the fund to reclaim performance fees from the manager if subsequent losses wipe out gains.- What is private equity?
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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)?
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Acquiring a company using a significant amount of borrowed money to finance the purchase.- What are the typical stages of venture capital investment?
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Seed, Series A, Series B, Series C (and beyond), and exit (acquisition or IPO).- What is distressed investing in private equity?
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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?
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Multiple on Invested Capital; the total cash returned to investors divided by the amount of capital invested.
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