Alternative Investments

Question 1

Alternative Investment Life Cycle

Answer 1

**1. Capital commitment phase: **Managers identify investments and make capital calls from partners.
**2. Capital deployment phase: **Managers fund and involve themselves in projects.
3. Capital distribution phase: Successful investments generate income and cash flows.

Question 2

Leveraged Return =

Answer 2

V0 = Initial Portfolio Value

Question 3

Fair Value Hierarchy

Answer 3

**Level 1: **Active market, quoted prices readily available.
**Level 2: **Can be valued based on observable inputs or with models.
**Level 3: **Require unobservable inputs to establish a fair value; few or no market transactions.

Question 4

Lockup period

Answer 4

Time after initial investment during which limited partners cannot request redemptions or incur significant penalties.

Question 5

Notice period

Answer 5

Time within which a fund must fulfill a redemption (typically 30-90 days).

Question 6

Gate

Answer 6

Temporary restriction of redemptions.

Question 7

Management fee and performance fee

Answer 7

“2 and 20”: 2% management fee plus 20% performance fee. Management fee is typically a
percentage of assets under management for hedge funds, percentage of committed capital for private equity.