Alternative InvestmentS

Question 1

What is cross sectional momentum approach

Answer 1

Strategies which is carried out within a particular asset class

Question 2

What is time series momentum approach

Answer 2

Trend following, portfolio managers simply follow momentum

Question 3

Who are general partner?

Answer 3

The investment manager

Question 4

Who are limited partners?

Answer 4

The investors in the fund

Question 5

Norway’s sovereign wealth fund

Answer 5

Passively managed allocation to public equities and bonds
No exposure to alternative assets

Question 6

Yale University endowment

Answer 6

High allocation to alternative investments by
Externally managed assets

Question 7

Canada pension fund

Answer 7

Same as Yale model but with internally managed assets

Question 8

Equity related HF strategies

Answer 8

Focus primarily on stock market and majority of risk profiles involve equity oriented risk

Question 9

Long short equity fund

Answer 9

fund manager purchases (long) stocks that they think will rise in value and sells (shorts) stocks they believe will fall in value

Question 10

L/S characteristics

Answer 10

• does not seek to eliminate risk market exposure entirely
• will usually have a 40-60% net long exposure
• the funds take a sector specific focus. choose industry they are familiar with
• are comparitively market neutral, may need to use leverage for returns

Question 11

dedicated short biased funds

Answer 11

seek out securities that are overpriced to sell them short. short position is somewhat offset by a long position
- they however do not take any long position

Question 12

Activist short selling

Answer 12

fund manager not only takes a short position in a stock, but also presents research that the stock is overpriced

Question 13

dedicated short biased funds characteristics

Answer 13

• tends to have greater volatility
• relatively little leverage is used
• used for providing negative correlation

Question 14

short biased funds

Answer 14

they still make some long exposure

Question 15

equity market neutral strategies

Answer 15

• attain near zero overall exposure in the stock market
• take long short positions in various equities
• the betas of these positions should sum up to zero
• alpha from securities that are temporarily mispriced

Question 16

EMN points

Answer 16

Two stocks with similar characteristics are identified that are respectively overvalued and undervalued.
Uses a fairly good amount of leverage

Question 17

stub trading

Answer 17

going long and short shares of subsidiary and its parent company

Question 18

soft catalyst event driven

Answer 18

investment before an event is being announced

Question 19

Hard catalyst event driven

Answer 19

after event is being announced

Question 20

Distressed securities

Answer 20

Hedge funds that pursue a distressed securities strategy take positions in the securities of firms that are in financial distress, including firms that are in bankruptcy or near bankruptcy.

Question 21

realtive value hf strategies

Answer 21

• fixed income arbitrage
• convertible bond arbitrage

Question 22

yield curve trades

Answer 22

In this strategy, the hedge fund manager has a view of how the shape of the yield curve will evolve over time based on macroeconomic forecasts.

Question 23

Carry trades

Answer 23

In a carry trade, the portfolio manager shorts a low-yielding security and goes long a high-yielding security.

Question 24

• fixed income arbitrage

Answer 24

securities may be fixed income of many types
- extremely leveraged

Question 25

Global macro strategy

Answer 25

Managers of global macro strategy funds attempt to profit from making correct assessments and forecasts of various global economic variables including inflation, currency exchange rates, yield curves, central bank policies, and the general economic health of different countries.

Question 26

Managed futures

Answer 26

Hedge fund portfolio managers that pursue a managed futures strategy take long and short positions in a variety of derivatives contracts including futures, forwards, options on futures, swaps, and sometimes currencies and commodities.

Question 27

Investment oppurtunity set

Answer 27

investment opportunity set include classifying asset groups by liquidity or by how they perform over economic cycles.

Question 28

The risk factor based approach

Answer 28

risk factor based approach to defining asset classes involves statistically estimating their sensitivities to risk factors identified by the manager. Examples may include economic growth and inflation, interest rates and credit spreads, or currency values. They may also include factors such as liquidity, capitalization, and value versus-growth.

Question 29

Soft catalyst

Answer 29

Under a soft catalyst event driven approach, the hedge fund manager will aim to anticipate the deal announcement and enter the deal before the deal is announced