Alternative Investments

Question 1

6 Criteria for investments to be considered Alternative

Answer 1

• Different performance characteristics from traditional assets
• rarely traded in public markets
• Illiquid compared to public securities
• Uncommon
• Limited history
• Requires unconventional investment skills

Question 2

4 Types of Alternative investments

Answer 2

• Hedge funds
• Private Equity
• Real Estate
• Commodity

Question 3

3 examples of Relative Value Strategies

Answer 3

• Equity market neutral
• Convertible arbitrage
• Fixed income arbitrage

Question 4

3 examples Event-Driven Strategies

Answer 4

• Merger or risk arbitrage
• Distressed securities
• High-yield bond

Question 5

4 examples Directional Strategies

Answer 5

• Long/short equity
• Global macro
• Emerging markets
• Dedicated short bias

Question 6

Merger arbitrage, how is it done

Answer 6

long position in the company being acquired and a short position in the acquiring company

Question 7

To be classified as ____ , the fund’s net position must always be short. In other words, the fund may have long positions, but on a net basis, it must constantly be short.

Answer 7

Dedicated short bias

Question 8

two main types of fund of hedge funds (FoHF)

Answer 8

1. Single-strategy, multi-manager funds

2. Multi-strategy, multi-manager funds

Question 9

most popular method of commodity investment is through a pooled fund vehicle called a

Answer 9

managed futures fund.

Question 10

How does a managed futures fund invest?

Answer 10

In listed financial and commodity futures markets and currency markets around the world.

Question 11

time period when an initial investment cannot be redeemed from an alternative investment
fund or product

Answer 11

Lockup

Question 12

Pre-specified times of the year when investors may be allowed to redeem units in an alternative investment fund

Answer 12

Liquidity dates

Question 13

4 Factors when investing in Alternative Fund

Answer 13

1. Expertise and capabilities
2. investment strategies, processes & systems.
3. historic performance
4. corporate, tax, regulatory and custodial structure

Question 14

4 major issues and challenges of alternative investment management

Answer 14

1- How much should be allocated to alternatives
2- hard to determine Security pricing / valuation
3- need experience short selling
4- must be aware of amount of leverage

Question 15

3 main problems to determine performance of alternatives

Answer 15

Lack of:
1- suitable performance benchmarks
2- mandate definition and standardization
3- investment strategy transparency

Question 16

The due diligence process has four steps or stages

Answer 16

1- screening potential investment funds
2- identifying investment opportunities
3- conducting due diligence
4- monitoring fund and investment manager.

Question 17

A comprehensive due diligence process involves eight main areas of enquiry

Answer 17

1- structure of the investment
2- management organization, 
3- personnel and experience
4- fund or product risk analysis
5- assessment of operational risks
6- investment performance and attribution analysis 
7- investment manager’s account structure and composition
8- compensation and fee structure.