Alternative Investments Workbook E-Book
38,99 €
Mehr erfahren.
- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: The CFA Institute Series
- Sprache: Englisch
Hands-on practice with alternative investments based on real-world scenarios Alternative Investments Workbook provides the key component of effective learning--practice. Designed for both students and investment professionals, this companion workbook conveniently aligns with the Alternative Investments text chapter-by-chapter, offers brief chapter summaries to refresh your memory on key points before you begin working, and explicitly lays out the learning objectives so you understand the "why" of each problem. This workbook helps you: * Synthesize essential material from the Alternative Investments text using real-world applications * Understand the key characteristics of non-traditional investments * Work toward specific chapter objectives to internalize important information CFA Institute is the world's premier association for investment professionals, and the governing body for the CFA¯® Program, CIPM¯® Program, CFA Institute ESG Investing Certificate, and Investment Foundations¯® Program. Those seeking a deeper understanding of the markets, mechanisms, and use of alternatives will value the level of expertise CFA Institute brings to the discussion as well as the extra practice delivered in Alternative Investments Workbook based on real scenarios investors face every day.
Sie lesen das E-Book in den Legimi-Apps auf:
Seitenzahl: 262
Veröffentlichungsjahr: 2021
Ähnliche
CFA Institute is the premier association for investment professionals around the world, with over 170,000 members in more than 160 countries. Since 1963 the organization has developed and administered the renowned Chartered Financial Analyst® Program. With a rich history of leading the investment profession, CFA Institute has set the highest standards in ethics, education, and professional excellence within the global investment community, and is the foremost authority on investment profession conduct and practice. Each book in the CFA Institute Investment Series is geared toward industry practitioners along with graduate-level finance students and covers the most important topics in the industry. The authors of these cutting-edge books are themselves industry professionals and academics and bring their wealth of knowledge and expertise to this series.
ALTERNATIVE INVESTMENTS WORKBOOK
Cover image: © bgblue/Getty Images
Cover design: Wiley
Copyright © 2021 by CFA Institute. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
ISBN 9781119853305 (Paperback)
ISBN 9781119853312 (ePDF)
ISBN 9781119853329 (ePub)
CONTENTS
PART I LEARNING OBJECTIVES, SUMMARY OVERVIEW, AND PROBLEMS
CHAPTER 1 INTRODUCTION TO CORPORATE GOVERNANCE AND OTHER ESG CONSIDERATIONS
LEARNING OUTCOMES
SUMMARY OVERVIEW
PROBLEMS
CHAPTER 2 INTRODUCTION TO ALTERNATIVE INVESTMENTS
LEARNING OUTCOMES
SUMMARY OVERVIEW
PROBLEMS
CHAPTER 3 REAL ESTATE INVESTMENTS
LEARNING OUTCOMES
SUMMARY OVERVIEW
PROBLEMS
CHAPTER 4 PRIVATE EQUITY INVESTMENTS
LEARNING OUTCOMES
SUMMARY OVERVIEW
PROBLEMS
CHAPTER 5 INTRODUCTION TO COMMODITIES AND COMMODITY DERIVATIVES
LEARNING OUTCOMES
SUMMARY OVERVIEW
PROBLEMS
CHAPTER 6 HEDGE FUND STRATEGIES
LEARNING OUTCOMES
SUMMARY OVERVIEW
PROBLEMS
CHAPTER 7 CAPITAL MARKET EXPECTATIONS: FORECASTING ASSET CLASS RETURNS
LEARNING OUTCOMES
SUMMARY OVERVIEW
PROBLEMS
CHAPTER 8 ASSET ALLOCATION TO ALTERNATIVE INVESTMENTS
LEARNING OUTCOMES
SUMMARY OVERVIEW
PROBLEMS
CHAPTER 9 INTEGRATED CASES IN RISK MANAGEMENT: INSTITUTIONAL
LEARNING OUTCOMES
PART II SOLUTIONS
CHAPTER 1 INTRODUCTION TO CORPORATE GOVERNANCE AND OTHER ESG CONSIDERATIONS
SOLUTIONS
CHAPTER 2 INTRODUCTION TO ALTERNATIVE INVESTMENTS
SOLUTIONS
CHAPTER 3 REAL ESTATE INVESTMENTS
SOLUTIONS
CHAPTER 4 PRIVATE EQUITY INVESTMENTS
SOLUTIONS
CHAPTER 5 INTRODUCTION TO COMMODITIES AND COMMODITY DERIVATIVES
SOLUTIONS
CHAPTER 6 HEDGE FUND STRATEGIES
SOLUTIONS
CHAPTER 7 CAPITAL MARKET EXPECTATIONS: FORECASTING ASSET CLASS RETURNS
SOLUTIONS
CHAPTER 8 ASSET ALLOCATION TO ALTERNATIVE INVESTMENTS
SOLUTIONS
END USER LICENSE AGREEMENT
Guide
Cover
Table of Contents
Begin Reading
Pages
ii
iii
iv
v
vi
vii
viii
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
PART I LEARNING OBJECTIVES, SUMMARY OVERVIEW, AND PROBLEMS
CHAPTER 1INTRODUCTION TO CORPORATE GOVERNANCE AND OTHER ESG CONSIDERATIONS
LEARNING OUTCOMES
The candidate should be able to:
describe corporate governance;
describe a company’s stakeholder groups, and compare interests of stakeholder groups;
describe principal–agent and other relationships in corporate governance and the conflicts that may arise in these relationships;
describe stakeholder management;
describe mechanisms to manage stakeholder relationships and mitigate associated risks;
describe functions and responsibilities of a company’s board of directors and its committees;
describe market and non-market factors that can affect stakeholder relationships and corporate governance;
identify potential risks of poor corporate governance and stakeholder management, and identify benefits from effective corporate governance and stakeholder management;
describe factors relevant to the analysis of corporate governance and stakeholder management;
describe environmental and social considerations in investment analysis;
describe how environmental, social, and governance factors may be used in investment analysis.
SUMMARY OVERVIEW
The investment community has increasingly recognized the importance of corporate governance as well as environmental and social considerations. Although practices concerning corporate governance (and ESG overall) will undoubtedly continue to evolve, investment analysts who have a good understanding of these concepts can better appreciate the implications of ESG considerations in investment decision making. The core concepts covered in this chapter are as follows:
Corporate governance can be defined as a system of controls and procedures by which individual companies are managed.
There are many systems of corporate governance, most reflecting the influences of either shareholder theory or stakeholder theory, or both. Current trends, however, point to increasing convergence.
A corporation’s governance system is influenced by several stakeholder groups, and the interests of the groups often diverge or conflict.
The primary stakeholder groups of a corporation consist of shareholders, creditors, managers and employees, the board of directors, customers, suppliers, and government/regulators.
A principal–agent relationship (or agency relationship) entails a principal hiring an agent to perform a particular task or service. In a corporate structure, such relationships often lead to conflicts among various stakeholders.
Stakeholder management involves identifying, prioritizing, and understanding the interests of stakeholder groups and on that basis managing the company’s relationships with stakeholders. The framework of corporate governance and stakeholder management reflects a legal, contractual, organizational, and governmental infrastructure.
Mechanisms of stakeholder management may include general meetings, a board of directors, the audit function, company reporting and transparency, related-party transactions, remuneration policies (including say on pay), and other mechanisms to manage the company’s relationship with its creditors, employees, customers, suppliers, and regulators.
A board of directors is the central pillar of the governance structure, serves as the link between shareholders and managers, and acts as the shareholders’ internal monitoring tool within the company.
The structure and composition of a board of directors vary across countries and companies. The number of directors may vary, and the board typically includes a mix of expertise levels, backgrounds, and competencies.
Executive (internal) directors are employed by the company and are typically members of senior management. Non-executive (external) directors have limited involvement in daily operations but serve an important oversight role.
Two primary duties of a board of directors are duty of care and duty of loyalty.
A company’s board of directors typically has several committees that are responsible for specific functions and report to the board. Although the types of committees may vary across organization, the most common are the audit committee, governance committee, remuneration (compensation) committee, nomination committee, risk committee, and investment committee.
Stakeholder relationships and corporate governance are continually shaped and influenced by a variety of market and non-market factors.
Shareholder engagement by a company can provide benefits that include building support against short-term activist investors, countering negative recommendations from proxy advisory firms, and receiving greater support for management’s position.
Shareholder activism encompasses a range of strategies that may be used by shareholders when seeking to compel a company to act in a desired manner.
From a corporation’s perspective, risks of poor governance include weak control systems; ineffective decision making; and legal, regulatory, reputational, and default risk. Benefits include better operational efficiency, control, and operating and financial performance, as well as lower default risk (or cost of debt).
Key analyst considerations in corporate governance and stakeholder management include economic ownership and voting control, board of directors representation, remuneration and company performance, investor composition, strength of shareholders’ rights, and the management of long-term risks.
ESG investment approaches range from
value
-based to
values
-based. There are six broad ESG investment approaches: Negative screening, Positive screening, ESG integration, Thematic investing, Engagement/active ownership, and Impact investing.
Historically, environmental and social issues, such as climate change, air pollution, and societal impacts of a company’s products and services, have been treated as negative externalities. However, increased stakeholder awareness and strengthening regulations are internalizing environmental and societal costs onto the company’s income statement by responsible investors.
PROBLEMS
Corporate governance:
complies with a set of global standards.
is independent of both shareholder theory and stakeholder theory.
seeks to minimize and manage conflicting interests between insiders and external shareholders.
Which group of company stakeholders would be
least
affected if the firm’s financial position weakens?
Suppliers
Customers
Managers and employees
Which of the following represents a principal–agent conflict between shareholders and management?
Risk tolerance
Multiple share classes
Accounting and reporting practices
Which of the following issues discussed at a shareholders’ general meeting would
most likely
require only a simple majority vote for approval?
Voting on a merger
Election of directors
Amendments to bylaws
Which of the following statements regarding stakeholder management is
most
accurate?
Company management ensures compliance with all applicable laws and regulations.
Directors are excluded from voting on transactions in which they hold material interest.
The use of variable incentive plans in executive remuneration is decreasing.
Which of the following represents a responsibility of a company’s board of directors?
Implementation of strategy
Enterprise risk management
Considering the interests of shareholders only
Which of the following statements about non-market factors in corporate governance is
most
accurate?
Stakeholders can spread information quickly and shape public opinion.
A civil law system offers better protection of shareholder interests than does a common law system.
Vendors providing corporate governance services have limited influence on corporate governance practices.
Which of the following statements regarding corporate shareholders is
most
accurate?
Cross-shareholdings help promote corporate mergers.
Dual-class structures are used to align economic ownership with control.
Affiliated shareholders can protect a company against hostile takeover bids.
Which of the following statements about environmental, social, and governance (ESG) in investment analysis is correct?
ESG factors are strictly intangible in nature.
ESG terminology is easily distinguishable among investors.
Environmental and social factors have been adopted in investment analysis more slowly than governance factors.
Which of the following statements regarding ESG investment approaches is
most accurate
?
Negative screening is the most commonly applied method.
Thematic investing considers multiple factors.
Positive screening excludes industries with unfavorable ESG aspects.
CHAPTER 2INTRODUCTION TO ALTERNATIVE INVESTMENTS
LEARNING OUTCOMES
The candidate should be able to:
describe types and categories of alternative investments;
describe characteristics of direct investment, co-investment, and fund investment methods for alternative investments;
describe investment and compensation structures commonly used in alternative investments;
explain investment characteristics of hedge funds;
explain investment characteristics of private capital;
explain investment characteristics of natural resources;
explain investment characteristics of real estate;
explain investment characteristics of infrastructure;
describe issues in performance appraisal of alternative investments;
calculate and interpret returns of alternative investments on both before-fee and after-fee bases.
Summary Overview
This chapter provides a comprehensive introduction to alternative investments. Some key points of the chapter are as follows:
Alternative investments are supplemental strategies to traditional long-only positions in stocks, bonds, and cash. Alternative investments include investments in five main categories: hedge funds, private capital, natural resources, real estate, and infrastructure.
Alternative investment strategies are typically active, return-seeking strategies that also often have risk characteristics different from those of traditional long-only investments.
Characteristics common to many alternative investments, when compared with traditional investments, include the following: lower liquidity, less regulation, lower transparency, higher fees, and limited and potentially problematic historical risk and return data.
Alternative investments often have complex legal and tax considerations and may be highly leveraged.
Alternative investments are attractive to investors because of the potential for portfolio diversification resulting in a higher risk-adjusted return for the portfolio.
Investors can access alternative invests in three ways:
Fund investment (such as a in a PE fund)
Direct investment into a company or project (such as infrastructure or real estate)
Co-investment into a portfolio company of a fund
Investors conduct due diligence prior to investing in alternative investments. The due diligence approach depends on the investment method (direct, co-investing, or fund investing).
Operational, financial, counterparty, and liquidity risks may be key considerations for those investing in alternative investments. These risks can be analyzed during the due diligence process. It is critical to perform fund due diligence to assess whether (a) the manager can effectively pursue the proposed investment strategy; (b) the appropriate organizational structure and policies for managing investments, operations, risk, and compliance are in place; and (c) the fund terms appear reasonable.
Many alternative investments, such as hedge and private equity funds, use a partnership structure with a general partner that manages the business and limited partners (investors) who own fractional interests in the partnership.
The general partner typically receives a management fee based on assets under management or committed capital (the former is common to hedge funds, and the latter is common to private equity funds) and an incentive fee based on realized profits.
Hurdle rates, high-water marks, lockup and notice periods, and clawback provisions are often specified in the LPA.
The fee structure affects the returns to investors (limited partners), with a waterfall representing the distribution method under which allocations are made to LPs and GPs. Waterfalls can be on a whole-of-fund basis (European) or deal-by-deal basis (American).
Hedge funds are typically classified by strategy. One such classification includes four broad categories of strategies: equity hedge (e.g., market neutral), event driven (e.g., merger arbitrage), relative value (e.g., convertible bond arbitrage), macro and CTA strategies (e.g., commodity trading advisers).
Funds-of-hedge-funds are funds that create a diversified portfolio of hedge funds. These vehicles are attractive to smaller investors that don’t have the resources to select individual hedge funds and build a portfolio of them.
Private capital is a broad term for funding provided to companies that is sourced from neither the public equity nor debt markets. Capital that is provided in the form of equity investments is called private equity, whereas capital that is provided as a loan or other form of debt is called private debt.
Private equity refers to investment in privately owned companies or in public companies with the intent to take them private. Key private equity investment strategies include leveraged buyouts (e.g., MBOs and MBIs) and venture capital. Primary exit strategies include trade sale, IPO, and recapitalization.
Private debt refers to various forms of debt provided by investors to private entities. Key private debt strategies include direct lending, mezzanine debt, and venture debt. Private debt also includes specialized strategies, such as CLOs, unitranche debt, real estate debt, and infrastructure debt.
Natural resources include commodities (hard and soft), agricultural land (farmland), and timberland.
Commodity investments may involve investing in actual physical commodities or in producers of commodities, but more typically, these investments are made using commodity derivatives (futures or swaps). One can also invest in commodities via a CTA (see hedge funds)
Returns to commodity investing are based on changes in price and do not include an income stream, such as dividends, interest, or rent (apart from income earned on the collateral). However, timberland offers an income stream based on the sale of trees, wood, and other products. Timberland can be thought of as both a factory and a warehouse. Plus, timberland is a sustainable investment that mitigates climate-related risks.
Farmland, like timberland, has an income component related to harvest quantities and agricultural commodity prices. However, farmland doesn’t have the production flexibility of timberland, because farm products must be harvested when ripe.
Real estate includes two major sectors: residential and commercial. Residential real estate is the largest sector, making up some 75% of the market globally. Commercial real estate primarily includes office buildings, shopping centers, and warehouses. Real estate property has some unique features compared with other asset classes, including heterogeneity (no two properties are identical) and fixed location.
Real estate investments can be direct or indirect, in the public market (e.g., REITs) or private transactions, and in equity or debt.
The assets underlying infrastructure investments are real, capital intensive, and long lived. These assets are intended for public use, and they provide essential services. Examples include airports, health care facilities, and power plants. Funding is often done on a public–private partnership basis.
Social infrastructure assets are directed toward human activities and include such assets as educational, health care, social housing, and correctional facilities, with the focus on providing, operating, and maintaining the asset infrastructure.
Infrastructure investments may also be categorized by the underlying asset’s stage of development. Investing in infrastructure assets
that are to be constructed
is generally referred to as greenfield investment. Investing in
existing
infrastructure assets may be referred to as brownfield investment.
Conducting performance appraisal on alternative investments can be challenging because these investments are often characterized by asymmetric risk–return profiles, limited portfolio transparency, illiquidity, product complexity, and complex fee structures.
Traditional risk and return measures (such as mean return, standard deviation of returns, and beta) may provide an inadequate picture of alternative investments’ risk and return characteristics. Moreover, these measures may be unreliable or not representative of specific investments.
A variety of ratios can be calculated in order to review the performance of alternative investments, including the Sharpe ratio, Sortino ratio, Treynor ratio, Calmar ratio, and MAR ratio. In addition, batting average and slugging percentage can also be used. The IRR calculation is often used to evaluate private equity investments, and the cap rate is often used to evaluate real estate investments.
Redemption rules and lockup periods can bring special challenges to performance appraisal of alternative investments.
When comparing the performance of alternative investments versus an index, the analyst must be aware that indexes for alternative investments may be subject to a variety of biases, including survivorship and backfill biases.
Analysts need to be aware of any custom fee arrangements in place that will affect the calculation of fees and performance. These can include such arrangements as fee discounts based on custom liquidity terms or significant asset size; special share classes, such as “founders’ shares”; and a departure from the typical management fee + performance fee structure in favor of “either/or” fees.
PROBLEMS
Which of the following is
least likely
to be considered an alternative investment?
Real estate
Commodities
Long-only equity funds
An investor is seeking an investment that can take long and short positions, may use multi-strategies, and historically exhibits low correlation with a traditional investment portfolio. The investor’s goals will be
best
satisfied with an investment in:
real estate.
a hedge fund.
a private equity fund.
Relative to traditional investments, alternative investments are
least likely
to be characterized by:
high levels of transparency.
limited historical return data.
significant restrictions on redemptions.
Alternative investment funds are typically managed:
actively.
to generate positive beta return.
assuming that markets are efficient.
Compared with traditional investments, alternative investments are
more likely
to have:
greater use of leverage.
long-only positions in liquid assets.
more transparent and reliable risk and return data.
The potential benefits of allocating a portion of a portfolio to alternative investments include:
ease of manager selection.
improvement in the portfolio’s risk–return relationship.
accessible and reliable measures of risk and return.
From the perspective of the investor, the
most
active approach to investing in alternative investments is:
co-investing.
fund investing.
direct investing.
In comparison to other alternative investment approaches, co-investing is
most likely
:
more expensive.
subject to adverse selection bias.
the most flexible approach for the investor.
Relative to co-investing, direct investing due diligence is
most likely
:
harder to control.
more independent.
equally thorough.
The investment method that typically requires the greatest amount of or most thorough due diligence from an investor is:
fund investing.
co-investing.
direct investing.
An alternative investment fund’s hurdle rate is a:
rate unrelated to a catch-up clause.
tool to protect clients from paying twice for the same performance.
minimum rate of return the GP must exceed in order to earn a performance fee.
An investor in a private equity fund is concerned that the general partner can receive incentive fees in excess of the agreed-on incentive fees by making distributions over time based on profits earned rather than making distributions only at exit from investments of the fund. Which of the following is most likely to protect the investor from the general partner receiving excess fees?
A high hurdle rate
A clawback provision
A lower capital commitment
Until the committed capital is fully drawn down and invested, the management fee for a private equity fund is based on:
invested capital.
committed capital.
assets under management.
The distribution method by which profits generated by a fund are allocated between LPs and the GP is called:
a waterfall.
an 80/20 split.
a fair division.
Fill in the blanks with the correct words: An American waterfall distributes performance fees on a(n) ___________ basis and is more advantageous to the ___________.
deal-by-deal; LPs
aggregate fund; LPs
deal-by-deal; GP
Which approach is
most commonly
used by equity hedge strategies?
Top down
Bottom up
Market timing
An investor may prefer a single hedge fund to a fund of funds if she seeks:
due diligence expertise.
better redemption terms.
a less complex fee structure.
Hedge funds are similar to private equity funds in that both:
are typically structured as partnerships.
assess management fees based on assets under management.
do not earn an incentive fee until the initial investment is repaid.
Both event-driven and macro hedge fund strategies use:
long–short positions.
a top-down approach.
long-term market cycles.
Hedge fund losses are
most likely
to be magnified by a:
margin call.
lockup period.
redemption notice period.
An equity hedge fund following a fundamental growth strategy uses fundamental analysis to identify companies that are
most likely
to:
be undervalued.
be either undervalued or overvalued.
experience high growth and capital appreciation.
A collateralized loan obligation specialist is
most likely
to:
sell its debt at a single interest rate.
cater to niche borrowers in specific situations.
rely on diverse risk profiles to complete deals.
Private capital is:
accurately described by the generic term “private equity.”
a source of diversification benefits from both debt and equity.
predisposed to invest in both the debt and equity of a client’s firm.
The first stage of financing at which a venture capital fund
most likely
invests is the:
seed stage.
mezzanine stage.
angel investing stage.
A private equity fund desiring to realize an immediate and complete cash exit from a portfolio company is
most likely
to pursue:
an IPO.
a trade sale.
a recapitalization.
Angel investing capital is typically provided in which stage of financing?
Later stage
Formative stage
Mezzanine stage
Private equity funds are
most likely
to use:
merger arbitrage strategies.
leveraged buyouts.
market-neutral strategies.
A significant challenge to investing in timber is
most likely
its:
high correlation with other asset classes.
dependence on an international competitive context.
return volatility compounded by financial market exposure.
A characteristic of farmland strongly distinguishing it from timberland is its:
commodity price-driven returns.
inherent rigidity of production for output.
value as an offset to other human activities.
Which of the following statements about commodity investing is invalid?
Few commodity investors trade actual physical commodities.
Commodity producers and consumers both hedge and speculate.
Commodity indexes are based on the price of physical commodities.
An investor seeks a current income stream as a component of total return and desires an investment that historically has low correlation with other asset classes. The investment
most likely
to achieve the investor’s goals is:
timberland.
collectibles.
commodities.
If a commodity’s forward curve is downward sloping and there is little or no convenience yield, the market is said to be in:
backwardation.
contango.
equilibrium.
The majority of real estate property may be classified as either:
debt or equity.
commercial or residential.
direct ownership or indirect ownership.
Which of the following relates to a benefit when owning real estate directly?
Taxes
Capital requirements
Portfolio concentration
Which of the following statements is true regarding mortgage-backed securities?
Insurance companies prefer the first-loss tranche.
When interest rates rise, prepayments will likely accelerate.
When interest rates fall, the low-risk senior tranche will amortize more quickly.
Which of the following statements is true for REITs?
According to GAAP, equity REITs are exempt from reporting earnings per share.
Though equity REIT correlations with other asset classes are typically moderate, they are highest during steep market downturns.
The REIT corporation pays taxes on income, and the REIT shareholder pays taxes on the REIT’s dividend distribution of after-tax earnings.
What is the most significant drawback of a repeat sales index to measure returns to real estate?
Sample selection bias
Understatement of volatility
Reliance on subjective appraisals
As the loan-to-value ratio increases for a real estate investment, risk
most likely
increases for:
debt investors only.
equity investors only.
both debt and equity investors.
Compared with direct investment in infrastructure, publicly traded infrastructure securities are characterized by:
higher concentration risk.
more transparent governance.
greater control over the infrastructure assets.
Which of the following forms of infrastructure investment is the most liquid?
An unlisted infrastructure mutual fund
A direct investment in a greenfield project
An exchange-traded MLP
An investor chooses to invest in a brownfield, rather than a greenfield, infrastructure project. The investor is
most likely
motivated by:
growth opportunities.
predictable cash flows.
higher expected returns.
The privatization of an existing hospital is best described as:
a greenfield investment.
a brownfield investment.
an economic infrastructure investment.
Risks in infrastructure investing are
most likely
greatest when the project involves:
construction of infrastructure assets.
investment in existing infrastructure assets.
investing in assets that will be leased back to a government.
The Sharpe ratio is a less-than-ideal performance measure for alternative investments because:
it uses a semi-deviation measure of volatility.
returns of alternative assets are not normally distributed.
alternative assets exhibit low correlation with traditional asset classes.
Which of the following is true regarding private equity performance calculations?
The money multiple calculation relies on the amount and timing of cash flows.
The IRR calculation involves the assumption of two rates.
Because private equity funds have low volatility, accounting conventions allow them to use a lagged mark-to-market process.
Which is
not
true of mark-to-model valuations?
Return volatility may be understated.
Returns may be smooth and overstated.
A calibrated model will produce a reliable liquidation value.
An analyst wanting to assess the downside risk of an alternative investment is
least likely
to use the investment’s:
Sortino ratio.
value at risk (VaR).
standard deviation of returns.
United Capital is a hedge fund with $250 million of initial capital. United charges a 2% management fee based on assets under management at year end and a 20% incentive fee based on returns in excess of an 8% hurdle rate. In its first year, United appreciates 16%. Assume management fees are calculated using end-of-period valuation. The investor’s net return assuming the performance fee is calculated net of the management fee is
closest
to:
11.58%.
12.54%.
12.80%.
Capricorn Fund of Funds invests GBP100 million in each of Alpha Hedge Fund and ABC Hedge Fund. Capricorn Fund of Funds has a “1 and 10” fee structure. Management fees and incentive fees are calculated independently at the end of each year. After one year, net of their respective management and incentive fees, Capricorn’s investment in Alpha is valued at GBP80 million and Capricorn’s investment in ABC is valued at GBP140 million. The annual return to an investor in Capricorn Fund of Funds, net of fees assessed at the fund-of-funds level, is
closest
to:
7.9%.
8.0%.
8.1%.
The following information applies to Rotunda Advisers, a hedge fund:
$288 million in AUM as of prior year end
2% management fee (based on year-end AUM)
20% incentive fee calculated:
net of management fee
using a 5% soft hurdle rate
using a high-water mark (high-water mark is $357 million)
Current-year fund gross return is 25%.
The total fee earned by Rotunda in the current year is closest to:
$7.20 million.
$20.16 million.
$21.60 million.
A hedge fund has the following fee structure:
Annual management fee based on year-end AUM
2%
Incentive fee
20%
Hurdle rate before incentive fee collection starts
4%
Current high-water mark
$610 million
The fund has a value of $583.1 million at the beginning of the year. After one year, it has a value of $642 million before fees. The net percentage return to an investor for this year is closest to:
6.72%.
6.80%.
7.64%.
