The environment of Alternative investments Flashcards
List several advantages of SMAs (Separately Managed Accounts)
- Investor owns the actual assets
- Objectives more tailored to the investor
- More transparency
- Protection from liquidity issues - the subscriptions and withdrawels of other investors that take place in a fund
List 4 major legal documents for establishing and managing a hedge fund
- Subscription agreement
- Management company agreement
- PPM Private Placement Memorandum
- Partnership agreement
What is a qualiffied majority
More than 75% of LPs voting to make a decision
What are the 3 constraints against achieving alternative investment benefits through liquid products?
- Leverage - 300% asset coverage rule
- Regulatory constraints on concentration
- Illiquidity constraints
What is systemic risk
The potential for economy-wide losses due to failures or concerns over potential failures in financial markets, financial institutions or major participants.
2 major kinds of sell-side institutions
- Large Dealer Banks
- Retail Brokers
List 8 outside service providers
- Prime brokers
- Accountants / Auditors
- Attorneys
- Fund administrators
- Hedge Fund infastructure
- Consultants
- Depositories - hold client assets and provide information services, trade clearance and trade settlement
- Commercial banks
List the 3 parts of hedge fund infastructure
- Platform
- Software
- Data providers
List the 5 financial markets
Primary - sale of first time issues
Secondary - securities traded after their initial issuance
Third - subset of OTC market where listed securities can be traded without going through the exchange
Fourth - Direct exchange of securities between investors without going through a broker - facilitated by ECN (electronic communication network).
Private - flexible, non regulated, lack transparency, low costs
Pertinent U.S. financial regulations
Securities Act of 1933 - governs new securities issues. Hedge funds exempt if A) securites only sold to U.S accredited investors and B) securities are not marketed to the public.
Investment Company Act of 1940 - instituted to regulate investment pools. Hedge funds excluded under section 3c (1) if fewer than 100 investors or 3c(7) fewer than 500 investors and all are qualified purchasers.
The investment advisors Act of 1940 - requies that investment advisors register with the SEC.
European financial regulation
UCITS - The Undertakings for the Collective Investment of Transferable Securites - allow hedge funds to be more easily marketed to retail investors
MiFID - The Markets in Financial Instruments Directive
AIFM - Alternative Investment Fund Managers Directive - requires fund managers to meet min capital requirements and obtain local regulatory approval. Funds covered under UCITS are exempt.
Main types of taxartion
Income Tax Wealth tax Real estate taxes Estate taxes Transaction taxes Foreign investment income taxes
What are soft dollar practices
Refer to a manager’s use of client brokerage to obtain certain products and services to aid the manager in the investment-decision making process.
