9.
06 Hedge Funds
Question 1
A hedge fund has investors from several different countries. The hedge fund's obligations with
respect to providing country-specific tax reporting information to investors will most likely be
addressed by the:
A. side letter agreement.
B. private placement memorandum.
C. partnership operating agreement.
Question 2
A hedge fund has consistently outperformed traditional index-based mutual funds and ETFs due
to the fund manager's ability to identify undervalued stocks. This type of superior performance is
most appropriately attributed to:
A. market beta.
B. strategy beta.
C. idiosyncratic risk.
Question 3
Theoretically, which of the following is the primary driver of hedge fund alpha?
A. Moderation of market risks
B. Diversifying style/sector risks
C. Exposure to idiosyncratic risks
Question 4
A large accredited investor wishing to invest in a hedge fund that holds the underlying assets in
the investor's name would most appropriately choose a(n):
A. fund of one.
B. master-feeder structure.
C. separately managed account.
Question 5
A hedge fund is subject to a margin call and is unable to post additional collateral. The most
likely outcome is that the:
A. lockup period allows for an orderly liquidation.
B. prime broker realizes a loss on the margin loan.
C. margin call magnifies the losses for the hedge fund.
Question 6
A hedge fund that is most likely to use a top-down approach to identify investments is a:
A. macro fund.
B. distressed investing fund.
C. convertible arbitrage fund.
Question 7
Which of the following best describes an advantage of investing in a fund of hedge funds over
an individual hedge fund? A fund of hedge funds:
A. can have less restrictive redemption terms.
B. typically has a more simplified fee structure.
C. provides higher returns by shorting underperforming hedge funds.
Question 8
A retail investor who wishes to obtain hedge fund exposure by diversifying across strategies and
managers would most appropriately choose to invest in a(n):
A. fund of funds (FoF).
B. multi-strategy hedge fund.
C. managed futures account (MFA).
Question 9
Which of the following hedge fund strategies is least likely to use short selling?
A. Activist
B. Market-neutral
C. Merger arbitrage
Question 10
At the time of a merger announcement, a hedge fund manager purchases stock of the target
company and shorts the stock of the acquirer. Which type of hedge fund strategy best
characterizes this approach?
A. Macro
B. Event-driven
C. Relative-value
Question 11
Which of the following is most likely a direct form of hedge fund investment?
A. Fund of hedge funds
B. Master feeder structure
C. Hedge fund replication ETFs
Question 12
Compared with an individual hedge fund, a fund of funds will more likely:
A. have a simpler fee structure.
B. offer less restrictive redemption terms.
C. be used by large investors to attain hedge fund exposure.
Question 13
Compared to investing in a single hedge fund, which of the following is most likely an advantage
of investing in a fund-of-funds?
A. Greater tax efficiency
B. Avoiding the double fee structure
C. Resources to better perform due diligence
Question 14
A wealthy investor is considering a sizable investment in either a hedge fund or a fund-of-funds.
From the investor's perspective, the fund-of-funds is least likely to offer the benefit of:
A. less risk.
B. a lower fee structure.
C. enhanced due diligence.
Question 15
A recently launched hedge fund that is subject to a prime broker's margin call will most likely
benefit from a:
A. drawdown.
B. lockup period.
C. committed capital drawdown.
