Alternative Investments - Alternative Investments Section 1
- Option : C
- Explanation :
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Statement I is correct – Funds of funds invest in a variety of hedge funds, giving investors diversified exposure.
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Statement II is correct – Since they manage multiple hedge fund investments, they conduct due diligence on the underlying hedge funds.
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Statement III is correct – Due to their larger investments, funds of funds can negotiate better terms, including more favorable redemption options.
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12. Which of the following is least likely to be a hedge fund strategy?
- Option : B
- Explanation :
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.
- Option : A
- Explanation : 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:
- Option : A
- Explanation : 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.
- Option : B
- Explanation : 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.
