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CFA > Alternate Investments > Flashcards

Alternate Investments Flashcards

1
Q

What is more riskier-
a) Equity vs Debt
b) Private Equity vs Public Equity?

A

a) Equity
b) Private Equity

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2
Q

True or False?
Real estate are homogenous

A

False, they are heterogeneous

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3
Q

Which type of property requires the most day to day attention and has the highest rate of return on management?

A

Hotels

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4
Q

What is the risk return classification of real estate in asset class?

A

Between stock and bonds.
Since they act as a hedge against inflation through increasing rents.

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5
Q

Which type of commercial property demand is most affected by import/export and which type of lease is common, net or gross?

A

Industrial where net lease is common.

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6
Q

Which of the following has lower ‘r’ with stock and bonds-
Private equity RE vs publicly traded REIT?

A

Private Equity RE

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7
Q

What is gross income multiplier?

A

It is inverse of cap rate.
It ignores vacancy rates and op. expense

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8
Q

What is term and revision and layer method?

A

In these methods, different cap rate are used to term rent and current rent. However, a single rate can also be used named as equivalent yield which is the average (not simple average) of 2 different cap rates.

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9
Q

What are the adjustments for curable and incurable detoriation?

A

Curable - Benefit>Cost
Deduct from replacement cost
Incurable - Benefit<Cost
Charge additional depreciation. Has more effective age than average age.

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10
Q

What are the types of RE investment index?

A

a) Appraisal based - have lower volatility and correlation with other asset classes. Lag in actual return.
b) Repeat Sales - Regression developed to allocate change in value
c) Hedonic - Regression for only one sale developed for adj.

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11
Q

What are the types of publicly traded RE?

A

a) REITS - only invest in income generating properties, tax advantageous.
b) REOC - generates CF primarily from sale of property.
c) Mortgage backed securities.

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12
Q

Which of the following are tax advantageous=-
REIT vs REOC

A

REIT.

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13
Q

What is upreit REIT?

A

Umbrella partnership is most common in US.
Avoids CG tax on sale of property. REIT is the general partner & holds a controlling interest in partnership.

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14
Q

What is downreit REIT?

A

Sale of portion & not whole of property.
Can own properties at both partnership & REIT level. An ownership interest in more than one partnershp.

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15
Q

Which method to value REIT is best to value current economic return to SH?

A

P/Adj. FFO
Subject to more error than P/FFO

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16
Q

What are the most risky sectors for REIT?

A

a) Where significant mismatch between SS & DD. (hotel)
b) occupant rate vary over short period of time.

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17
Q

What is the largest driver of economic value of REIT?

A

National GDP growth

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18
Q

Which industry is highly sensitive to -
a) Population growth
b) Job creation
c) Retail sales growth

A

a) Storage
b) Office
c) Industries

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19
Q

Private equity fund experience __ curve effect in earning?

A

J curve

20
Q

Whose amongst the following has predictable CF?
Early Stage venture cap vs mature stage buyout

A

Early stage venture cap

21
Q

What exit route in private equity leads to maximum value?

A

IPO
The means and timing of exit strongly influence the exit value

22
Q

What is meant by ratchet?

A

Allocation of equity between stockholder and management.

23
Q

What are the two types of distribution waterfall?

A

Deal by deal - combined with clawback (true up)
Total return -
a) Entire committed capital is returned
b) Value of portfolio exceed invested capital by 20%

24
Q

What is tag along drag along?

A

It gives management the right to sellES if private equity sells its shares.

25
Q

What is co-investment?
Who values a fund?

A

Co-investment allows LP to invest in other funds of General Partner at low or no management fees.
It is GP who values a fund.

26
Q

What does demand for energy commodities depend upon?

A

Economic growth
The energy sector is the sector with the greatest market value and is a very important source of revenue to many countries and regions.

27
Q

Which commodity provides hedge against inflation?

A

Precious metals like gold

28
Q

What is the difference between equity and commodity valuation?

A

In commodity valuation-
a) Storage is costly
b) No periodic regular CF

29
Q

Who amongst the participants in commodities prefer-
a) Net settlement
b) takes delivery of goods

A

a) Speculator
b) Arbitraugeur

30
Q

What does positive basis and calendar spread signifies?

A

Backwardation market

31
Q

Which commodity theory states market is at backwardation?

A

Insurance theory

32
Q

Which theory suggests that due to storage cost, market is contango?

A

Theory of storage.
However, if storage cost are minimal, this implies current DD is more, thus SP higher leading to backwardation.

33
Q

What does Hedging pressure hypothesis states?

A

It is similar to insurance theory but,
If consumer pressure is more, chances of rise in price thus contango. Long hedger dominates
If producer pressure is more, chances of fall in price more thus backwardation. Short hedger dominates

34
Q

What is total return swap and basis swap?

A

Total return swap = Receive return on gold and pay fixed amount
Basis swap = Receive return of gold and pay return on silver.

35
Q

Does index weighting and components affect index return?

A

Yes

36
Q

What are the effects of frequent rebalancing in-
a) trending market
b) choppy mean reverting market

A

a) decrease return
b) increase return

37
Q

True or False-
It is possible that positions with negative roll return may outperform positions with positive roll return depending on price & collateral return.

A

True

38
Q

True or false-
REITs are, however, required to distribute almost all (usually >90%) of their taxable income in dividends to the shareholders.

A

True

39
Q

True or false
The cost approach is sometimes considered the lower limit of value.

A

False, upper limit of value
because an investor would never pay more than the cost to build a comparable building.

40
Q

True or False
Real estate debt securities represent a far larger aggregate market value than do publicly traded real estate equity securities.

A

True

41
Q

True or False
Generally, deferred financing expenses, deferred tax assets, and goodwill are included in total assets.

A

False, They are excluded so as to only include “hard economic assets.”

42
Q

True or False
Cell towers are generally excluded from commercial property category.

A

True

43
Q

In Venture Capital Investments, ____ cash burn rate is required due to company and product immaturity.
a) High B) Low

A

High
The required rate of return is determined by the return on investment (ROI) multiple. Venture capital ROI tends to be 10× to 30×, compared with 1× to 2× for buyout transactions.

44
Q

What is trailer fees?

A

A trailer fee is the compensation paid by the fund manager to the person selling the fund to investors.

45
Q

What is Public market equivalent method?

A

The private equity IRR is cash flow weighted, whereas most other asset class index returns are time weighted. One solution to this problem, known as the Public Market Equivalent (PME) method, has been to convert publicly traded equity benchmark returns to cash weighted returns using the cash flow patterns of private equity funds.

46
Q

A production value weighted index will have ____ exposure to energy than to livestock or soft.
a) more
b) less

A

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CFA (10 decks)

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