What to know
Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.
Alternative Investments
Alternative Investment Performance and Returns practice questions
Alternative Investment Performance and Returns is part of CFA Level I Alternative Investments. Alternative Investments questions emphasize private capital, real estate, infrastructure, natural resources, hedge funds, digital assets, and performance measurement. Use this page to review the controlling ideas, then work through 6 questions with answer explanations and common traps.
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Alternative Investments
Alternative Investment Performance and Returns
An index provider revises a hedge fund index so that funds that stopped reporting remain in the historical record and newly added funds contribute performance history only from their inclusion date onward. Relative to the unadjusted index, the revised index's historical average return is most likely:
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Alternative Investment Performance and Returns
Kestrel Bay Fund begins the year with net asset value of USD80 million and ends the year at USD89.6 million before fees. The fund charges a 1% management fee on beginning NAV and a 15% incentive fee subject to a 6% soft hurdle. The hurdle is measured on the return net of the management fee, and once the hurdle is exceeded the incentive fee applies to the entire gain net of the management fee. The investor's net return is closest to:
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Alternative Investment Performance and Returns
Two years ago, Tarn River Fund reached its high-water mark of USD120 million. Last year the fund declined to a net asset value of USD105 million and paid no incentive fee. This year the fund ends at USD126 million before fees. The fund charges a 1.5% management fee on beginning NAV, and a 20% incentive fee applies to gains, measured after deducting the management fee, above the greater of the high-water mark and an 8% hard hurdle level computed on beginning NAV. This year's investor net return is closest to:
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Alternative Investment Performance and Returns
Fund Xanthe reports a since-inception IRR of 22% with a multiple of invested capital of 1.4x, while Fund Ypres reports a since-inception IRR of 14% with a multiple of invested capital of 1.9x. The most accurate interpretation of these results is that:
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Alternative Investment Performance and Returns
A general partner finances new acquisitions with a subscription credit line and delays calling limited partner capital for several quarters after each deal closes. Compared with calling capital at the time of each acquisition, this practice most likely:
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Alternative Investment Performance and Returns
Helios Buyout Fund III acquires a company for USD100 million at the start of Year 1, funding the purchase entirely with a subscription credit line. At the end of Year 1, the fund calls USD100 million from its limited partners and repays the line's principal. The company is sold at the end of Year 2 for USD160 million; USD4 million of accrued credit line interest is paid from the sale proceeds, and the remaining USD156 million is distributed to the limited partners. Measured from the limited partners' cash flows, the fund's since-inception IRR is closest to:
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