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CFA level I > Alternavtive investments > Flashcards

Alternavtive investments Flashcards

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CFA flashcards
1
Q

What are alternative investments?

A

Various types of investments that do not fall under regular investments type

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2
Q

What are traditional invetments?

A

They are long-only investments in cash or publicly traded stocks/bonds

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3
Q

What are types of alternative investments? (3)

A

Private capital, real estate and hedge funds

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4
Q

What are real estate categories? (4)

A

Residential, commercial, properties and ABD

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5
Q

What are natural resources categories? (4)

A

Commodities, farmland, and timberland

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6
Q

What are infrastructures?

A

Long-lived assets that provide public services

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7
Q

What is fund investing?

A

Investing in a pool of assets alongside other investores, using fund manager who selecr and manages investments using upon agreed strategy

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8
Q

What is term-sheet?

A

It describrs investment policy, for strucuture and requirements

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9
Q

What is co-investing?

A

It is live fund investing, but investors can manage alongside the fund managers

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10
Q

What are side letters?

A

It is special terms that apply to one LP, but not the other

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11
Q

What is master limited partnership?

A

It is publicly traded, most common in natural resources and real estate

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12
Q

What fees of a fund consists of?

A

Management fee and performance fee

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13
Q

How is management fee calculated for hedge funds?

A

As % of assets under management

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14
Q

How is management fee calculated for PE funds?

A

As % of commited capital

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15
Q

What is soft hurdle rate?

A

It is performance fee as % of total increase in each partners investment

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16
Q

What is hard hurdle rate?

A

It is performance fee as % of gains above te hurdle rate

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17
Q

What is catch up clause?

A

It allows fund manager to receive higher share of profits over certain threshold received

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18
Q

What is high-water mark?

A

There is no performance fee paid on gains that only ofsset prior losses

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19
Q

What is deal-by-deal waterfall?

A

It is when profits are distributed as each fund investment is sold

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20
Q

What is whole of fund waterfall?

A

LPs receive all distributions until 100% of their initial investment & hurdle rate

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21
Q

What is clawback provision?

A

It is if GP accrues or receives incentive payments on gains that are reversed as deals exit, LPs can recover previous payments

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22
Q

What are lifecycles of alternative investments?

A

Capital commitment, deployment and distribution

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23
Q

What is capital commitment phase?

A

It is identifying investments and making capital calls

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24
Q

What is capital deployment stage?

A

It is when managers engage themselves in projects/firm they invest in

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25
Q

What is capital distribution phase?

A

It is when returs are positive and accelerate

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26
Q

Formula of multiple of invested capital

A

(total capital retained+value of remaining assets)/total capital paid in

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27
Q

Formula of levered return

A

(r(V0+Vb)-rbVb)/V0

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28
Q

What is fair value assumptions level 1?

A

Assets trade in active markets and have quoted prices readility available

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29
Q

What is fair value assumption level 2?

A

There are no quoted prices available, but they can be valued on directly or indirectly observable inputs

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30
Q

What is fair value level 3?

A

Assets require unobservable inputs to establish fair value

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31
Q

What is lockout period?

A

It is when LPs cannot request redemptions or incur significant fees for it

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32
Q

What is notice period?

A

It is timeframe within a fund has to fulfill redemption request

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33
Q

What is founder class shares?

A

It is interest in early who receives better terms

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34
Q

Formula of total fees

A

mV1+max[0; p(V1-V0)]

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35
Q

Formula of rate of return for investors

A

(V1-V0-total fees)/V0

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36
Q

What is pre-seed capital used for?

A

Idea stage

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37
Q

What is seed-stage used for?

A

Product, development, marketing, market research

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38
Q

What is early stage or start-up used for?

A

It is investments made for operations

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39
Q

What is later stage financing/expansion venture capital?

A

It is after productions and sales have begun

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40
Q

What is mezzanine-stage financing?

A

It is capital contributed for IPO

41
Q

What is trade sale?

A

It is sale of portion to a strategic buyer directly

42
Q

What is direct listing?

A

It is when only existing shares are sold with no underwritter

43
Q

What is special purpose aquisition company?

A

It is set up to raise capital that will be used to acquire on unspecified private company

44
Q

What is recapitalization?

A

It is issuing debt to funds dividend distribution to equity holders

45
Q

What is mezzanine debt?

A

It is private debt that is subordinated to senior secured debt

46
Q

What is distressed debt?

A

It is debt of mature companies in financial trouble

47
Q

What is unitranche debt?

A

It is combined debt of different types into a single loan

48
Q

What is vintage year?

A

It is the year the first investment was made by the fund

49
Q

What is core real estate strategies?

A

It is high quality properties with stable returns

50
Q

What is value-added real estate strategies?

A

It is development and redevelopment on larger scale than core-plus strategies

51
Q

What is opportunistic real estate strategies?

A

It is large scale redeveloping&repurchasing of assets, distressed properties and speculate on upturns in real estate markets

52
Q

How can you invest in infrastructure assets? (3)

A

-Construct and sell or lease to the government
-Operate directly
-Buy from gov and operate or lease

53
Q

What is take or pay arrangements?

A

You are required to pay minimum purchase price for agreed upon value

54
Q

What are brownfield investments?

A

Infrastructure already constructed

55
Q

What are greenfield investments?

A

Assets that are to be constructed

56
Q

What are alternative ways for exposure besides futures, forwards and options?

A

ETFs, ETNs and managed future funds

57
Q

Formula of the future prices

A

spot prices*(1+risk-free rate)+storage costs-convenience yield

58
Q

What is contago?

A

When convenience yield is small, future prices>sport prices

59
Q

What is backwardation?

A

It is when convenience yield is high, future prices<spot prices

60
Q

What are fundamental long/short hedge fund strategy?

A

Long positions in undervalued security based on fundamental analysis also having short position portfolio of stocks/index

61
Q

What are fundamental growth hedge fund strategy?

A

Fundamental analysis to find high growth companies

62
Q

What are fundamental value hedge fund strategy?

A

Buy undervalued, short overvalued

63
Q

What are marekt neutral hedge fund strategy?

A

Hold equal amount in long and short positions so it cancels out

64
Q

What are short bias hedge fund strategy?

A

Take mostly short positions

65
Q

What are margin arbitrage hedge fund strategy?

A

Buy shares of the firm being aquired and short firm making aquisition

66
Q

What are distressed/restructuring hedge fund strategy?

A

Buy securities of a distressed company and short overvalued securities

67
Q

What are activist shareholder hedge fund strategy?

A

Buy equity shares to make influence

68
Q

What are relative value strategies?

A

It is buying a security and selling short related security with goal of profiting when pricing discrepancy is resolved

69
Q

What are opportunistic strategies?

A

They focus on macro events

70
Q

What are funds of funds?

A

It is investment company that invests in hedge funds

71
Q

What is market beta?

A

It is return attributable to broad market index

72
Q

What is strategy beta?

A

It is return attributable to specific sector

73
Q

What is alpha?

A

It is additional return delivered by the manager

74
Q

What is survivorship bias?

A

Hedge fund might not be included in the index unless it has existed for a minimum time or reached minimum risk

75
Q

What is selection bias?

A

Index providers assigning funds to categories inconsistently or having different requriements

76
Q

What is backfill bias?

A

It is effect on historical index return of adding fund returns for prior years to index returns when fund in added to an index

77
Q

What are smart contracts?

A

Self-executed contracts based on predetermined terms and conditions

78
Q

What is blockchain?

A

It is digital ledger that records information sequentially within blocks that are linked together and information is secured

79
Q

What is consesus protocols?

A

They determine how blocks are chained together

80
Q

What is proof of work protocol?

A

Miners use computers to solve cryptographic problem which verifies transactions

81
Q

What is proof of stake protocol?

A

It is network participants that pledge collateral to guarantee validity of the block

82
Q

What are permisionless network?

A

Transactions that are visible to all users within the network and any user can execute transaction

83
Q

What are permissioned network?

A

Users might be restricted from some network activities and permissions can modify the level of ledger accessibility

84
Q

What is cryptocurrency?

A

It is digital currency issued privately with no backing from a central bank

85
Q

What are stablecoins?

A

They offer stable digital currency values and are linked to the value of another asset secured by a basket of assets

86
Q

What is central bank digital currency?

A

It is digital version of banknote or coin issued by central bank

87
Q

What is tokenization?

A

It uses DLT to streamline tracking historical record of ownership

88
Q

What is security token?

A

It tracks ownership rights in publicly traded securities

89
Q

What are governance tokens?

A

They offer permissionless networks and act as voting rights to determine how networks should operate

90
Q

What are inheritent value differences?

A

Digital assets have no fundamental value

91
Q

What are transaction validation differences?

A

Digital assets are recorded on decentralized DL.

92
Q

What are medium of exchange differences?

A

Digital assets are used as alternative fiat currencies, mainly for online transactions

93
Q

What are centralized exchanges?

A

They are privately held and offer trading platforms for price transparency and value information

94
Q

What are decentralized exchanges?

A

It does not have a centralized authority and operates on distributed network

95
Q

What is crypto coin trust?

A

It offer shares in trust that holds large amount of crypto and futures

96
Q

What is crypto exchanged-traded products?

A

It aims to mimic returns of digital assets

97
Q

What are crypto stocks?

A

It is indirect exposure through business connection to digital assets

98
Q

What are asset-backed tokens?

A

It is digital ownership of physical or digital assets

99
Q

What is decentralized finance?

A

It seeks to develop sophisticated financial products and services using open-source financial applications

CFA level I (12 decks)

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