CAIA - 09 - Fund Manager Selection And Monitoring Flashcards
The ___ phase takes place at the fund level and focuses on financial performance and the fund manager’s structural and behavioral developments.
The monitoring phase takes place at the fund level and focuses on financial performance and the fund manager’s structural and behavioral developments.
There are 2 issues related to selecting top quartile managers: ___ and ___them.
There are 2 issues related to selecting top quartile managers: identifying and accessing them.
A solution to access top quartile managers is to use a ___ of ___.
A solution to access top quartile managers is to use a fund of funds.
Performance persistence has ___ since the early 2000s
Performance persistence has decreased since the early 2000s
There are three capabilities that support performance persistence for managers:
- ___
- ___ ___
- ___ ___
There are three capabilities that support performance persistence for managers:
- Networks
- Domain Expertise
- Operational Improvement
___ ___is having specialized knowledge of a sector.
Domain expertise is having specialized knowledge of a sector.
There are six key challenges to the performance persistence hypothesis:
- ___ regarding “top performance” measure
- Comparing ___to ___
- ___or ___
- ___fund size
- ___market trends
- Performance relates to different ___
There are six key challenges to the performance persistence hypothesis:
- Ambiguity regarding “top performance” measure
- Comparing apples to oranges
- Luck or skill
- Larger fund size
- Secular market trends
- Performance relates to different niches
The relationship between PE fund size and performance is found to be ___. This means that larger funds have ___returns, but when funds become very large, their performance tends to ___.
The relationship between PE fund size and performance is found to be concave. This means that larger funds have higher returns, but when funds become very large, their performance tends to decline.
When all market participants make money at the same time, performance is likely to be driven by a ___ trend.
When all market participants make money at the same time, performance is likely to be driven by a secular trend.
In the post 2000 period, persistence among poorly performing funds was ___.
In the post 2000 period, persistence among poorly performing funds was strong.
Classifying managers can be based on quality of ___ ___and duration of ___ ___.
Classifying managers can be based on quality of track record and duration of joint experience.
A ___ ___team is one that generated top-quartile performance for all of its funds for at least 2 business cycles.
A blue chip team is one that generated top-quartile performance for all of its funds for at least 2 business cycles.
An ___ team is one that generated top-quartile performance for most of its funds for at least 2 business cycles.
An established team is one that generated top-quartile performance for most of its funds for at least 2 business cycles.
An ___ team is one with limited joint history, but with all the characteristics to become at least an established team.
An emerging team is one with limited joint history, but with all the characteristics to become at least an established team.
A ___-___team is one where previous blue chip or established team that is no longer a top performer, having been through a restructuring after poor performance or operational issues; has regained the potential to re-emerge as established or blue chip.
A re-emerging team is one where previous blue chip or established team that is no longer a top performer, having been through a restructuring after poor performance or operational issues; has regained the potential to re-emerge as established or blue chip.
Top management teams often (do/ do not) participate in fundraising
Top management teams often do not participate in fundraising
A ___ investor is one that has a history of reneging on capital commitments
A defaulting investor is one that has a history of reneging on capital commitments
Some fund managers prefer not to have investors who are required to disclose their investment data under the ___ of ___ ___.
Some fund managers prefer not to have investors who are required to disclose their investment data under the Freedom of Information Act.
Empirically, private equity LPs (are/are not) found to engage in significant monitoring.
Empirically, private equity LPs are not found to engage in significant monitoring.
Intensive monitoring with numerous interventions by LPs can ___ the fund manager’s responsibility. In extreme cases, LPs may be reclassified as ___and lose their ___ ___. PE investors should adopt a long-term view and limit intervention during the ___years of a fund.
Intensive monitoring with numerous interventions by LPs can dilute the fund manager’s responsibility. In extreme cases, LPs may be reclassified as GPs and lose their limited liability. PE investors should adopt a long-term view and limit intervention during the early years of a fund.
Monitoring PE investments has two key objectives for LPs: to ___ ___and ensure ___ ___.
Monitoring PE investments has two key objectives for LPs: to control risk and ensure style discipline.
Risks associated with ___ ___can be alleviated by incorporating investors’ risk profiles into LPAs at the outset and engaging in continuous monitoring and portfolio adjustment.
Risks associated with style drift can be alleviated by incorporating investors’ risk profiles into LPAs at the outset and engaging in continuous monitoring and portfolio adjustment.
When endowment funds invest in a follow-on fund, the performance is ___ ___than those in which they do not invest.
When endowment funds invest in a follow-on fund, the performance is significantly better than those in which they do not invest.
A strong relationship with fund managers helps LPs in their decisions to ___-___, improves the ___ ___process, can accelerate ___of ___, and can extend to ___ ___who establish their own funds.
A strong relationship with fund managers helps LPs in their decisions to re-up, improves the due diligence process, can accelerate finalization of contracts, and can extend to junior managers who establish their own funds.
___ refers to the degree in which investment details are disclosed to investors.
Transparency refers to the degree in which investment details are disclosed to investors.
PE fund monitoring process typically involves a dual approach that uses both ___ reports and ___reports.
PE fund monitoring process typically involves a dual approach that uses both formal reports and informal reports.
The standardized information that is part of ___ reporting enables regular monitoring for downside protection.
The standardized information that is part of formal reporting enables regular monitoring for downside protection.
The specific information that is part of ___ reporting enables LPs to maximize returns.
The specific information that is part of informal reporting enables LPs to maximize returns.
Much of the level of information provided in fund management reports is standardized by reporting and valuation guidelines issued by the ___ ___ ___ ___.
Much of the level of information provided in fund management reports is standardized by reporting and valuation guidelines issued by the Institutional Limited Partners Association.
Collection and analysis of PE information can be extremely ___ and ___ ___.
Collection and analysis of PE information can be extremely expensive and time consuming.
Due to ___ of ___in Private Equity, intermediaries are needed to verify information.
Due to asymmetry of information in Private Equity, intermediaries are needed to verify information.
Due to the ___ nature of PE funds, investors cannot react quickly to new information.
Due to the illiquid nature of PE funds, investors cannot react quickly to new information.
GPs sometimes prefer less transparency because it could enable competitors to ___ ___, access ___ ___, or jeopardize ___ ___. It may also increase the likelihood that LPs make a ___ ___. Finally, information can be damaging and affect a portfolio company’s ___ ___.
GPs sometimes prefer less transparency because it could enable competitors to copy strategies, access deal flow, or jeopardize negotiating positions. It may also increase the likelihood that LPs make a direct investment. Finally, information can be damaging and affect a portfolio company’s trading ability.
Secondary transactions have increase because:
- ___ ___and reallocation
- ___ ___to PE assets
- ___ ___for vintage years
- High ___
- Countering ___ ___
- More ___experience
- Many LPs use secondary ___-of-___
Secondary transactions have increase because:
- Portfolio management and reallocation
- Instant exposure to PE assets
- Risk reduction for vintage years
- High IRRs
- Countering J-curve effect
- More transaction experience
- Many LPs use secondary fund-of-funds
A market for ___ ___has also recently developed, in which GPs sell portfolios of directly held portfolio companies to other managers.
A market for synthetic secondaries has also recently developed, in which GPs sell portfolios of directly held portfolio companies to other managers.
The 2 primary reasons for secondary purchases:
- Buying ___ assets
- Less ___
The 2 primary reasons for secondary purchases:
- Buying distressed assets
- Less uncertainty
The primary reasons for selling secondary assets are:
- ___ ___decisions
- Poor ___
- ___in returns
- ___effect
The primary reasons for selling secondary assets are:
- Portfolio management decisions
- Poor performance
- Lock in returns
- Denominator effect
The ___ ___refers to illiquid asset proportions in a portfolio increasing as the overall portfolio decreases, resulting in an unintentional over-allocation to illiquid investments.
The denominator effect refers to illiquid asset proportions in a portfolio increasing as the overall portfolio decreases, resulting in an unintentional over-allocation to illiquid investments.
Secondary transactions for relatively small funds are typically ___. Large and complex funds tend to use an ___process.
Secondary transactions for relatively small funds are typically negotiated. Large and complex funds tend to use an auction process.
The discount rate applied for secondary sales from lowest to highest type:
- ___ funds
- ___funds
- ___funds
The discount rate applied for secondary sales from lowest to highest type:
- Mezzanine funds
- Buyout funds
- VC funds
There are a number of challenges associated with investing in the secondary PE market:
- ___ ___
- ___ ___
- ___
There are a number of challenges associated with investing in the secondary PE market:
- Risk management
- Small size
- Liquidity
