Learning Module 1 Alternative Investment Features, Methods, and Structures

Which of the following is NOT one of the three primary categories of alternative investments described in this chapter?

An investor who wants maximum control over acquisition, financing, and management of an infrastructure asset but has sufficient internal expertise and capital most likely should choose which access method?

Which ownership structure typically limits investor liability to the amount invested and places management responsibility with a general partner who bears theoretically unlimited liability?

A private equity fund charges a 1.5% management fee on committed capital, a 20% performance fee with a hard hurdle of 8% per annum, and uses a whole-of-fund (European) waterfall. Which statement is most accurate?

Which performance metric explicitly accounts for the timing of cash flows and is commonly used for long-lived private equity and real estate investments?

Which fee provision prevents collecting performance fees until the fund's value exceeds its previous peak net of fees?

An investor in a private equity fund is evaluating MOIC (money multiple) and IRR. Which statement correctly compares them?

Which description best characterizes a venture capital (VC) investment relative to later-stage private equity?

Which of the following is a key reason managers offer co-investment opportunities to LPs?

For private equity funds, why are management fees often calculated on committed capital rather than on assets under management (AUM)?

A hedge fund with a 2% management fee and a 20% performance fee charges performance fees only when returns exceed a 5% hard hurdle. If the fund's gross return is 9% for the year and fees are computed on end-of-year value with performance fee net of management fee, approximately what is the investor's net return?

Which of the following best explains the J-curve effect in private equity funds?

Which valuation input level applies when using unobservable inputs and models to value illiquid alternative assets?

Why might a private equity manager prefer a deal-by-deal waterfall over a whole-of-fund waterfall?

Which of the following is an example of a non-cash benefit associated with owning a physical commodity rather than holding a derivative contract on that commodity?

Which infrastructure investment stage typically offers the highest expected return and highest risk?

Which of these best describes a SPAC in the context of private equity exits?

Which statement about REITs is correct?

An investor is concerned about survivorship bias when using published hedge fund indexes. Which practice in index construction contributes most to this bias?

Which of the following best explains why private equity returns reported by self-reported indices can be upwardly biased?

Which private debt category is most likely to include warrants or conversion rights as compensation for higher risk?

An investor buys a commodity futures contract. Which factor would make the forward (future) price higher than the spot price for that commodity?

Which of the following is a typical liquidity provision found in hedge fund or alternative fund agreements to limit sudden redemptions?

Which real estate strategy is most likely to be characterized by construction risk, zoning approvals, and environmental permitting and therefore offer the highest expected returns among real estate strategies?

Which of the following best explains why farmland and timberland can provide diversification benefits to portfolios of stocks and bonds?

An investor considering a private infrastructure greenfield project should expect which cash flow pattern during the build-operate-transfer (BOT) life cycle?

A private equity fund reports a MOIC of 2.0x over 10 years. Which additional information is essential to interpret whether this is an attractive outcome?

Which of the following is true about commodities as an inflation hedge according to the chapter?

Which of the following best describes a master limited partnership (MLP) in the context of alternative investments?

Which of the following statements about commodity forward pricing is accurate?

Which of the following features is most characteristic of private debt relative to public debt?

An investor is evaluating an open-end private real estate fund (infinite life) versus a closed-end opportunistic real estate fund (finite life). Which statement best captures a typical difference?

A fund has a soft hurdle with a full catch-up clause and 20% carry. If after preferred returns a fund exceeds the hurdle, how does the catch-up affect distributions?

Which of the following most directly explains why infrastructure investments may be attractive to pension funds and sovereign wealth funds?

Which of the following best describes a principal risk when hedge funds employ high leverage?

Which investor is most likely to first access alternative investments through fund investing, then progress to co-investing and finally to direct investing over time?

Which of the following is true about private real estate valuation versus publicly traded REIT valuation?

Which of the following best explains the primary source of return for core commercial real estate investors?

Which of the following measures is most useful to assess diversification benefits of adding timberland to a portfolio of equities and bonds?

Which of the following is a key difference between venture debt and mezzanine financing?

Which clause would allow an LP to recover overpaid carried interest if the GP took early payouts and later investments produced losses?

Which of the following best explains why a private equity fund would negotiate a side letter with a large institutional LP?

A private equity GP sells a large holding early and collects carried interest, but later the fund suffers losses leaving the aggregate profit lower than early payouts justified. Which mechanisms can LPs use to recover some of the prior payments?

Which of the following statements is true regarding the relationship between leverage and expected leveraged return rL, given cash portfolio return r and borrowing rate rb?

Which type of infrastructure contract often guarantees a minimum payment to the operator whether or not end-users consume the service?

An investor compares two private equity fund vintages. Why is vintage-year diversification recommended?

Which of the following characteristics makes commodities supply slow to respond to changes in demand?

Which of the following statements about debt financing in infrastructure projects is true?

Which form of alternative investment structure best aligns manager and investor incentives over long horizons by tying manager compensation to exceeding a preferred return?

What is the principal advantage for an LP participating in a co-investment offered by a fund manager relative to investing only in the fund?