Alternative Investments MCQ - Alternative Investments Section 1

11 Which of the following statements is most likely to be correct about funds of funds? Statement I: Funds of funds are funds that hold a portfolio of hedge funds. Statement II: Funds of funds presumably have some expertise in conducting due diligence on hedge funds. Statement III: Funds of funds may be able to negotiate better redemption.

Statement I is correct – Funds of funds invest in a variety of hedge funds, giving investors diversified exposure.
Statement II is correct – Since they manage multiple hedge fund investments, they conduct due diligence on the underlying hedge funds.
Statement III is correct – Due to their larger investments, funds of funds can negotiate better terms, including more favorable redemption options.

12 Which of the following is least likely to be a hedge fund strategy?

Correct Answer: B. Micro

Event driven and relative value are common hedge fund strategies.

Micro is not a recognized hedge fund strategy; it's more of a market cap classification (e.g., micro-cap stocks), not a strategy.

13 A type of private equity fund that invests in established profitable and cash-generative companies with solid customer bases, proven products, and high-quality management is most likely described as a (an):

A type of private equity fund that invests in established profitable and cash generative companies with solid customer bases, proven products, and high quality management is most likely described as a leveraged buyout.

14 An investor may prefer a fund of funds to a single hedge fund if she:

Funds of funds presumably have some expertise in conducting due diligence on hedge funds and may be able to negotiate more favorable redemption terms than could an individual investor in a single hedge fund.

15 Analyst 1: The management fee for a private equity fund is based on assets under management.
Analyst 2: The management fee for a private equity fund is based on committed capital.
Which analyst’s statement is most likely correct?

The management fee for private equity funds is based on committed capital whereas for hedge funds the management fees are based on assets under management.