Alternative Investment Performance and Returns

A leveraged alternative investment is most likely to outperform its equivalent cash portfolio when:

IRR is most likely preferred for long-lived private equity and real estate investments because it:

Assertion (A): A fund of hedge funds can produce a lower net return than direct hedge fund investment when underlying returns are the same.
Reason (R): A fund of funds may still be chosen for due diligence, diversification, or access to closed funds.

Consider the following:
I. Staggered capital commitments over time
II. Continuously quoted prices for identical public claims
III. Identical claims to periodic cash flows for all holders
How many of the above complicate performance appraisal for alternative investments?

An investment vehicle heavily involved with Level 3 priced assets most likely deserves increased due diligence because:

Consider the following:
I. Founders shares may provide lower fees to early investors.
II. Either/or fees choose the lower of the management fee and incentive fee.
III. Smaller investors with smaller commitments usually receive the novel either/or terms demanded by major institutions.
How many of the above are consistent with custom alternative investment fees?

Consider the following:
I. A notice period gives the manager advance time to liquidate positions orderly.
II. A lockup period is the minimum holding period before redemption.
III. A gate permanently eliminates investor redemption rights.
How many of the above accurately describe redemption provisions?

Which feature most likely makes public debt and equity performance easier to compare than alternative investment performance?

Assertion (A): Level 3-heavy alternative vehicles may report smoothed returns and understated volatility.
Reason (R): Level 3 values are quoted active-market prices for identical assets.

Assertion (A): A composite benchmark can be misleading for private equity or real estate if the investment is in a different life-cycle phase than peers.
Reason (R): Same-vintage annual or since-inception comparisons generally lead to more accurate results.

Consider the following:
I. IRR considers timing and magnitude of cash flows.
II. MOIC is easier to understand but ignores timing of cash flows.
III. MOIC is the key metric for longer-term private equity and real estate assessment.
How many of the above are accurate?

Two investors in the same alternative fund most likely earn different net returns over the same period because they differ in:

Hedge fund indexes are least likely to reflect actual average hedge fund performance when they:

Under an either/or fee agreement, the manager most likely receives:

The J-curve effect most likely describes which return pattern?

If a leveraged hedge fund cannot meet a margin call, the fund most likely faces what risk?

Assertion (A): MOIC can be easier to calculate and understand than IRR.
Reason (R): MOIC compares realized and unrealized value with invested capital and ignores cash-flow timing.

Assertion (A): Lockups and illiquidity may prevent investors from reacting to underperformance by selling an investment.
Reason (R): A lockup period is an advance notice period, typically 30 to 90 days, before redemption.

Consider the following:
I. Fees and expenses may occur before assets generate income.
II. Cash outflows typically exceed inflows while capital is deployed.
III. Returns often level off as capital is distributed and the fund closes.
How many of the above fit the alternative investment life cycle?

Assertion (A): IRR is a key metric for longer-term private equity and real estate investments.
Reason (R): The timing and magnitude of cash flows into and out of these investments are central to performance assessment.

Despite double fees, an investor might choose a fund of hedge funds most likely for:

Assertion (A): In an either/or fee structure, the manager receives both the management fee and the incentive fee whenever returns are positive.
Reason (R): Either/or structures combine down-year expense coverage with upside incentive compensation above a hurdle.

Founders shares are most likely offered to:

A notice period is most likely designed to:

Consider the following:
I. Excluding failed hedge funds can create survivorship bias.
II. Including all failed funds creates backfill bias.
III. Survivorship and backfill bias usually make hedge fund index returns too pessimistic.
How many of the above are accurate?

MOIC is least likely sufficient for comparing two investments with the same money multiple but different holding periods because MOIC:

Positive excess income and substantial gains from asset sales are most likely associated with which phase?

Consider the following:
I. Level 1 uses quoted active-market prices for identical assets.
II. Level 2 uses observable inputs other than Level 1 prices.
III. Level 3 uses unobservable inputs when market activity may be limited.
How many of the above correctly describe fair value inputs?