Which private debt type typically offers the highest expected return and highest risk among the listed options?
Explanation
Mezzanine debt demands higher returns for higher subordinate credit risk compared to senior and infrastructure debt.
Other questions
Which of the following best describes 'private capital' as used in this chapter?
Which private equity strategy is most associated with buying a public company and converting it into a private company using substantial debt?
An investor compares two measures of a private equity investment: IRR and MOIC. Which statement is accurate?
A private equity fund charges a 2% annual management fee on paid-in capital and 20% carried interest, with a hard hurdle of 6%. If a fund with P0 = 100 generates P1 = 130 and management fee is charged on P1, what is the GP fee (net of hurdle) if performance fee is calculated net of management fee and hurdle?
Which exit route for private equity is most likely to deliver the fastest, confidential transaction with a strategic premium for synergies?
Which of the following best describes mezzanine debt in private capital?
Which valuation hierarchy level applies when market inputs are unobservable and a manager uses cash-flow projection models with significant assumptions?
Why is vintage diversification recommended when investing in private equity funds?
In private debt syndicated real-estate mortgages, why is loan-to-value (LTV) important to both sponsor and lender?
Which private debt category is most likely to be used by a growing, early-stage company that wants additional non-dilutive capital?
A private equity fund charges a 2% management fee on AUM and a 20% incentive fee. If the fund goes from 100 to 130 in year 1 and management fees are calculated on P1, what is the investor's net return if fees are calculated independently? (Assume no hurdle.)
Which of the following best explains why MOIC can mislead investors when comparing private equity outcomes?
Which of the following is a reason Level 3 valuations deserve special scrutiny?
A private equity fund has a soft hurdle of 8% with full catch-up and an 80/20 LP/GP split thereafter. If LPs invest 100 and the fund ends at 160 after two years with no management fee, what are the total payouts to LP and GP? (Assume the soft hurdle is applied annually and catch-up achieves the GP's share as described in the chapter example.)
Which of the following best captures 'clawback' in private fund agreements?
Which statement correctly contrasts private equity and public equity from a control perspective?
Which of the following is the most common way private equity funds report interim valuations for long-lived investments?
Which of these is NOT a typical private debt investor concern when underwriting a loan?
A private equity fund uses an American (deal-by-deal) waterfall with clawback. What implication does the clawback have for GP carry recognition?
Which factor most increases the risk that hedge funds or private funds will smooth returns and understate volatility for investors?
Which is a primary difference between a hard hurdle and a soft hurdle in fee structures?
A private debt investor is evaluating a unitranche loan. Which description most accurately characterizes unitranche debt?
Which of the following statements about PIPE transactions is correct?
Which of the following is the most direct reason private equity funds might prefer a trade sale over an IPO when planning an exit?
Which of the following best explains why private capital returns are often difficult to compare with public market returns?
A private equity investor is assessing a fund-of-funds vs direct allocation to a top-tier PE fund. Which is a primary trade-off the investor will face?
Which statement best describes a 'European waterfall' compared with an 'American (deal-by-deal) waterfall' in private equity carried interest calculations?
Which of the following most accurately explains why leverage increases both upside and downside in private investments?
Which of these is the most important explanation for the J-curve effect in private equity funds?
Which investor action can best mitigate vintage-year risk in a private equity allocation?
Which of the following best describes 'recapitalization' as a partial-exit strategy?
Which of the following is typically true about private equity fund fees and investor timing?
Which of the following best describes the role of a TIMO (timberland investment management organization)?
Which natural resource asset typically allows the owner flexibility to delay harvest and so acts like a 'warehouse' of production?
Which feature most distinguishes farmland returns from commodity futures exposure?
Which of the following is a common structural choice for hedge funds to provide tax and investor access flexibility?
Which hedge fund strategy is most likely to use merger spreads (buy target, short acquirer) to profit from deal completion?
Which of the following is a typical feature of funds-of-hedge-funds compared with direct hedge fund investment?
Which of the following best explains 'DIP financing' in distressed debt investing?
Which measure would best capture the time-sensitive return performance of a private equity fund?
An investor in a private equity fund calculates MOIC using realized value plus unrealized residual divided by total invested capital. Which of these is a deficiency of MOIC noted in the chapter?
Which of the following is a reason private debt may offer higher yields than public bonds?
An LP negotiates 'founders shares' with a private equity fund offering a management fee of 1.5% and a performance fee of 10% for the first 100 million invested. What trade-off does this represent?
Which of the following is a common characteristic of private equity portfolio companies during an LBO holding period?
Why might an investor in an open-end real estate fund care less about interim accounting valuations once the fund has fully drawn capital?
Which of the following best describes a 'soft lockup' provision in a hedge fund or private fund?
When calculating IRR for a private fund, why must assumptions about reinvestment rates and financing matters be considered?
Which of the following best explains why private equity and private debt are often reported with smoother returns than liquid public asset classes?
Which practice should LPs require from private fund managers to mitigate valuation conflicts of interest for Level 3 assets?