Alternative Investments【Reading 47】Sample 2012, mutual

burning0spear

Compared to a mutual fund, a hedge fund is most likely to have lower levels of:

A) disclosure.

B) usage of derivatives.

C) leverage.

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Hedge funds are relatively unregulated, and have minimal disclosure requirements. Unlike mutual funds, hedge funds are not subject to limits on the use of leverage and derivatives.

burning0spear

Compared to a mutual fund, a hedge fund is most likely to have lower:

A) disclosure requirements.

B) lockup periods.

C) fees.

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Due to the unregulated nature of hedge funds, hedge funds are required to provide only minimal disclosure to investors (and even less disclosure to non-investors). Hedge funds often have a one, two, or three year lockup periods, while mutual funds generally have daily liquidity. Hedge fund fees are generally higher than mutual fund fees, because on top of a management fee (typically 2%), hedge funds also charge a performance fee (typically 20% of profits.)

burning0spear

Alpha hedge fund limits withdrawals by investors during the first three years by imposing a redemption fee of 3%. Such provisions by hedge funds are called:

A) hard lockup.

B) regulatory disclosure.

C) soft lockup.

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Lockups which allow for redemption on payment of penalty are called as soft lockup. Under hard lockup, withdrawals are not permitted.