1. Which of the following dominates the global value of private equity investments?

a. Investments in buyout deals

b. Investments in venture capital deals

c. Investments in Asia/Pacific deals

d. Investments in distressed companies?

2. Which of the following does not describe the investment focus of venture capitalists?

a. New applications of existing technology?

b. Solutions to commercial needs or problems

c. New technological ideas

d. Businesses that can grow rapidly

3. Which of the following statements concerning sourcing and evaluating private equity investments are true statements?

a. Due diligence of buyouts is more complex and expensive than venture capital due diligence

b. Management is a key focus of venture capital due diligence

c. More  effort  is  required  to  identify  and  screen  potential  venture  capital investments than with buyouts

d. All of the above

e. None of the above

4. Which of the following locations does Richard Anton believe has the greatest venture capital investment per capita?

a. California

b. London

c. Tel Aviv

d. Europe

5. Which of the following is not a strategy that Yale follows in making private equity investments?

a. Invest in a limited set of “best-of-breed” funds

b. Concentrate on funds that employ a value-added approach

c. Select funds where interests of investors and managers are aligned

d. Exploit strong internal capability to make direct private equity investments

e. All of the above

6. Which of the following does not describe the economic role of buyouts?

a. Support development of  innovative growth  businesses  that  cannot  access traditional forms of capital

b. Driving  fundamental  changes  in  strategy,  management,  company  culture, operations, and utilisation of assets

c. Unlock value in companies that are not fulfilling their potential

7. When are valuations of private equity investments known most accurately?

a. When investments are marked-to-market

b. At the time of exit

c. When third-party investments are made and valued

d. When investment bankers value the company for an IPO

8. If every investment made by a PE fund doubled in value, what would be the value of the fund at the end of its life?

a. Twice the value of the fund’s initial investment

b. Greater than twice the value of the fund’s initial investment

c. Less than twice the value of the fund’s initial investment

9. What type of exit is the most common in private equity deals?

a. Write off

b. Sale of company to a third-party

c. IPO

d. None of the above

10.What is the typical length of the Buyout investment life cycle?

a. 5 – 10+ years

b. 3 –7 years

c. 2 –5 years

d. 1 –3 years

11.Which of the following is the most appropriate description of “carried interest”?

a. An agreed percentage of the gross proceeds realised by a fund

b. An agreed percentage of the investments made by a fund

c. An agreed percentage of the distributions realised by a fund

d. None of the above

12.What Limited Partnership entity decides in which companies to invest?

a. General Partner

b. Institutional Investor

c. Fund-of-Fund Manager

d. Limited Partner

e. None of the above

13.What is the purpose of the “annual management fee”?

a. Reimbursement  for  the  annual  expenses  incurred  by  portfolio  company management

b. Reimbursement for the annual expenses incurred by the fund in lieu of receiving any carried interest

c. Reimbursement for the annual expenses incurred by limited partners

d. Reimbursement for the annual expenses incurred by general partners

e. None of the above

14.What is the primary factor that historically has explained the superior investment returns of top-quartile venture capital funds, compared to funds with only average performance?

a. Outstanding due diligence

b. Avoidance of dilution

c. Fewer deals that lose money

d. High proportion of seed investments

e. More very high return deals

15.Which of the following historically has been a unique characteristic of the private equity asset class?

a. Mean returns and standard deviations that are both higher than those of quoted equities

b. High Sharpe Ratio

c. Low capital and return risk

d. None of the above

16.What key skill will buyout funds increasingly require in order to achieve superior investment returns?

a. Superior financial engineering

b. Raising Large funds

c. Close relationships with investment banks

d. Less use of debt

e. Adding value to portfolio companies

17.What historically has been a reliable criterion to use in identifying private equity funds that are likely to be top performers?

a. Selecting funds with a top quartile management team

b. Selecting funds with low fees

c. Selecting funds with high risk adjusted returns

d. Selecting funds with top-quartile historical investment returns

e. None of the above

18.How does the median and standard deviation of private equity fund returns compare relative to those of quoted equities?

a. Private equity median return is greater and standard deviation greater

b. Private equity median return is greater and standard deviation about the same

c. Private equity median return is about the same and standard deviation about the same

d. Private  equity  median  return  is about the same and standard deviation  is greater

19.What is the “J-Curve”?

a. A period of negative returns in the early stages of a private equity fund’s life

b. A period of losses in the early period of a private equity company deal

c. The characteristic shape of the graph of 1st through 4th quartile fund returns

d. The typical shape of private equity fund returns over time in emerging markets

e. None of the above

20.Which of the following techniques is most often used to make consistent comparisons amongst the returns of private equity funds?

a. Comparing returns over a given time-horizon – eg, five years

b. Comparing annual returns in a given year

c. Comparing returns once the investment period has passed

d. None of the above

21.Which of the following is a cause of misleading comparisons between buyout fund returns and stock market returns?

a. Fees charged by buyout funds

b. Estimation of underlying company valuations

c. Greater use of debt by buyout funds

d. All of the above

22.What is the most fundamental difference with the way the Wellcome Trust manages its endowment compared that of Yale?

a. Wellcome has very little invested in private equity

b. Wellcome has no strategic asset allocation targets

c. Wellcome expects a much lower premium for private equity returns relative to the returns of public stock markets

23.Which of the following is not a true statement about the valuation of companies?

a. Multiple valuation approaches should always be used to assess a company’s value

b. Use of comparable company ratios can sometimes yield the most accurate result

c. Discounted cash flow techniques usually yield the most accurate result

d. Target return analysis can be useful in helping structure buyout financings

e. Terminal values calculated using financial multiples can be as accurate as using the perpetual-growth model

24.Which of the following was a “Take-Away” from the Centex Telemanagement case?

a. Emotions are as important as hard issues

b. Company founders should not chase a high valuation

c. There is no such thing as a perfect deal

d. All of the above

e. None of the above

25.Which one of the following insights resulted from the Berkshire

Partners/Carters case?

a. It is important to identify and use the best valuation technique in order to determine the most accurate valuation

b. The optimal bid price can be determined directly by using multiple valuation techniques

c. Discounted  cash  flow  techniques  are  the  most  accurate  way  of  valuing companies

d. None of the above

26.It is estimated that at the end of 2019 there were 9,398 hedge funds in existence, why is this only an estimate?

a. The attrition rate of hedge funds is 8%- 10% per annum.

b. Hedge funds are structured as partnerships.

c. Over 30% of the assets in hedge funds come from funds-of-funds.

d. Hedge Funds are not under any obligation to report performance to a database.

27.An “accredited” investor has which of the following characteristics?

a. The Net-worth or income above a specific threshold

b. Experience in investing in hedge funds

c. SEC registration

d. Professional qualifications

28.What is a side pocket?

a. A restriction placed on a hedge fund investor limiting the amount of withdrawals from the fund during a redemption period

b. A type of account  used to separate  illiquid assets from other  more  liquid investments.

c. A separate account owned, controlled or overseen by the investor

d. An agreement to charge lower fees to institutional investors than to individual investors.

29.Which of the following is NOT a role of the Administrator?

a. Calculation of Net Asset Values & Fees

b. Maintenance of Partnership's books and records

c. Processing subscription applications

d. Clearing Trades

30.Alpha Capital Partners was established in January 2019, it does not charge a management fee but does charge a 35% incentive fee which is collected annually & has a high-water mark provision.

The fund generated (net of fees) returns of -60% in 2019 & -+25% in 2020. Assuming there have been no redemptions or subscriptions, what rate of return does Alpha Capital Partners need to produce in 2021 before it starts charging incentive fees?

a. 0%

b. 25%

c. 50%

d. 100%

31.Suppose a hedge fund has a 2 and 20 fee arrangement and a net asset value (NAV) of $260 million at the beginning of the year. The high -water mark was $285 million at the beginning of the year. The NAV increased to $292 million at the end of the year, before fees. If management fees are distributed annually based on the NAV at the beginning of the year, what are the total annual fees including both management and incentive fees for this year?

a. $5.56 million.

b. $1.54 million.

c. $6.60 million.

d. $7.04 million.

32.A long/short equity fund has a gross exposure of 160% and a net exposure of 80%. The relative long and short positions are:

a. 100% and 60%.

b. 80% and 80%.

c. 160% and 80%.

d. 120% and 40%.

33.A fund with capital of $100m makes a 1.5 times leveraged investment of $150m in a stocks with an average beta of 1.25, it partially hedges this by selling $50m notional value of index futures (which have a beta of 1.0). What is the beta adjusted net exposure of the fund?

a. 1.125

b. 1.250

c. 1.375

d. 1.875

34.Which of the following is the best definition of Global Macro?

a. A bottom-up approach to investing in global currency markets.

b. A top-down approach to investing in global markets using illiquid instruments.

c. A bottom-up approach to investing in global markets using illiquid instruments.

d. A top-down approach to investing in global markets using liquid instruments.

35.Hedge fund performance fees are similar to:

a. A free call option granted to managers on an annual basis.

b. A call option sold to managers on an annual basis, where the option premium is equal to the expected return on the fund.

c. A free put option granted to managers on an annual basis.

d. A put option sold to managers on an annual basis, where the option premium is equal to the expected return on the fund.

36. A CTA uses a moving average trading strategy and the T-Bond futures price crosses below the 200-day moving average.

The hedge fund manager will most likely:

a. Buy T-Bond Futures.

b. Sell T-Bond Futures.

c. Buy T-Bond Call Options

d. Buy a T-Bond Look-back Straddle

37. Which of the following hedge fund strategies is most likely to have net long market exposure?

a. Equity Market Neutral

b. Long/Short Equity

c. Merger Arbitrage

d. Convertible Arbitrage

38.In a recent press release, GrossFlix announced their intention to take over StreamStore in a 1 for 1 stock swap. A merger arbitrage hedge fund manager noticed that prior to the announcement, GrossFlix’s stock was trading at $52 per share, while StreamStore’s stock was trading at $40 per share. After the merger announcement, GrossFlix’s stock dropped to $50 per share, while StreamStore’s stock climbed to $48 per share.

Which of the following best identifies the appropriate merger arbitrage strategy and potential profit once the deal is complete?

a. Buy StreamStore Industries, short sell GrossFlix Devices; Profit = $8.00.

b. Buy StreamStore Industries, short sell GrossFlix Devices; Profit = $2.00.

c. Buy GrossFlix Devices, short sell StreamStore Industries; Profit = $8.00.

d. Buy GrossFlix Devices, short sell StreamStore Industries; Profit = $2.00.

39.A Hedge Fund following which of the following strategies would theoretically require the shortest lock-up & could offer the most frequent redemption frequency?

a. Distressed

b. Fixed Income Arbitrage

c. Managed Futures

d. Convertible Arbitrage

40.Which of the following strategies has historically performed worst in periods of widening credit spreads?

a. Merger Arbitrage

b. Fixed Income Arbitrage

c. Managed Futures

d. Global Macro

41. Which of the following strategies returns would you expect to show the lowest level of serial correlation?

a. Distressed

b. Convertible Arbitrage

c. Managed Futures

d. Emerging Markets

42.Fung & Hsieh find that Trend Following Funds perform well in extreme up & down markets, they liken this to which of the following option strategies?

a. Short a Strangle.

b. Long a Straddle.

c. Long a Call & Short a Put.

d. Short an Uncovered Index Put.

43. Over the past 25 years the average return for Equity Market Neutral Funds has been lower than for Long/Short Equity Funds, which of the following is the most plausible explanation?

a. Long/Short Equity hedge fund managers are better than Equity Market Neutral managers.

b. Not all Equity Market Neutral are perfectly neutral.

c. Long/Short  Equity  hedge  funds  usually  have  some  positive  net  positive exposure to the market & thus can capture some of the equity risk premium.

d. Small Cap stocks always outperform Large Cap stocks.

44. Which of the following option strategies best fits the returns of merger arbitrage hedge funds?

a. Short an uncovered index call.

b. Long an uncovered index call.

c. Short an uncovered index put.

d. Long an uncovered index put.

45. Investment products that attempt to replicate hedge fund returns are designed to overcome which of the following issues when compared to investing in hedge funds directly?

a. Negative Skewness

b. Liquidity

c. Time Varying Beta

d. Excess Kurtosis

46. The Formika Tactical Allocation hedge fund had poor performance for two straight years and stopped reporting performance data to various hedge fund databases. As a result, the Formika Fund was removed from those databases.

This is an example of what potential type of database bias?

a. Persistency bias.

b. Measurement bias.

c. Selection Bias.

d. Survivorship Bias.

47. Which of the following biases might help to explain why investable hedge fund indices have to date significantly underperformed broader non - investable indices?

a. Instant History Bias

b. Selection Bias

c. Survivorship Bias

d. Look-back Bias

48.What is the major difference between the Credit Suisse & HFR hedge fund indices?

a. Credit Suisse Indices are equal weighted while HFR are value weighted.

b. Credit Suisse Indices are value weighted while HFR are equal weighted.

c. Credit Suisse Indices are adjusted for survivorship bias while HFR are not.

d. Credit Suisse Indices are adjusted for instant history bias while HFR are not.

49.How do Fung & Hsieh propose investors address the shortcomings of hedge fund indices?

a. Use Principal Component Analysis to create “pure style indices” .

b. Look directly at the investment experience of hedge-fund investors using funds of hedge funds instead.

c. Only use investable hedge fund indices rather than broad indices.

d. Replicate hedge fund returns using look-back straddles.

50.Which of the following factors has been shown to have the MOST influence on hedge fund returns?

a. S&P 500 returns

b. Small Cap minus Large Cap returns

c. Value minus Growth returns

d. Changes in yield curve shape

51.FUND ECONOMICS (15 marks total)

£50 million was invested at the beginning of a private equity fund’s 10-year life. The fund’s fees are a 2% annual management fee and 20% carried interest. There is an 8% soft hurdle rate, calculated on a simple annual interest basis (ie, not                   compounded interest).

Proceeds are distributed to LPs and carried interest paid out to the GPs as soon as each deal has been exited.

The first exit from an investment of £10 million occurs at the end of Year 5.  The gross proceeds are 3.2X the initial investment.

The second exit from the fund with gross proceeds of £52 million occurs at the end of Year 6. The initial investment in this deal was £20 million.

a. What net proceeds will be received by LPs from the first exit? (6 marks)

b. What net proceeds will be received by LPs at the time of the second exit? (9 marks)