kim226

With respect to hedge fund indices, back-fill bias refers to:

A) a hedge fund manager filling in historical values of his/her hedge fund’s performance when the fund has been selected to be included in an index.

B) the increased inflow of investments to a given fund in an index right after the style of the index has performed well.

C) modifying the historical series of the index by replacing the historical returns of recently dropped funds with the historical returns of new funds added to the index.

---

Biases often exist in hedge fund indices because of the self-reporting of fund returns. This can apply to returns as they are earned or when filling in gaps in the historical data. The inclination is to over report. Backfill or inclusion bias is the name of the potential bias when a hedge fund joins an index and the manager adds historical data to complete the series.

kim226

Real estate has the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index as its principal benchmark. Which of the following is most accurate?

A) The volatility of the index has a downward bias.

B) The volatility of the index has an upward bias.

C) The average return of the index has an upward bias.

---

Since the prices are obtained periodically, the volatility of the index has a downward bias.

kim226

With respect to commodities and managed futures, which have investable indices?

A) Both commodities and managed futures.

B) Neither commodities nor managed futures.

C) Commodities but not managed futures.

---

Indices for both asset classes use trading rules and assets to which investors have access.

kim226

With respect to weighting schemes for hedge fund indices, the weighting schemes:

A) are always based upon assets under management.

B) can be either equally weighted or based upon assets under management.

C) are always equally weighted.

---

Weighting schemes are usually either equally weighted or based upon assets under management.

kim226

With respect to managed futures and real estate, legal issues and valuation methods are special due diligence issues associated with:

A) real estate and managed futures.

B) real estate only.

C) managed futures only.

---

Active, direct investment in real estate requires all the due diligence checkpoints. For the investment process due diligence checkpoint, valuation methods deserve special attention. Under documents, there may be special zoning and legal issues.

kim226

Compared to indirect investments in real estate, direct investments in real estate are least likely to have which of the following properties?

A) Lower mobility.

B) Lower liquidity.

C) Higher transparency.

---

Direct investments in real estate generally have low liquidity, large lot sizes, high transactions costs, low mobility, and asymmetric information in transactions (low transparency).

kim226

Lee Benson, CFA, is considering purchasing stock in a company that produces oil. With respect to asset class and subgroup, as an alternative investment, this choice would be most accurately categorized as:

A) a direct investment in commodities.

B) an indirect investment in commodities.

C) an indirect investment in real estate.

---

Indirect invetment is one method used to gain exposure to commodities. Direct investment is the actual purchase of the commodities or the purchase of derivatives on commodities.

kim226

Within the alternative asset class of real estate, analysts can classify investments as:

A) either start-up or middle market but not as direct or indirect.

B) either direct or indirect and as either start-up or middle market.

C) either direct or indirect but not as either start-up or middle market.

---

Real estate investments are generally categorized as direct (i.e., the purchase of land and buildings) or indirect that includes REITs and CREFs. The sub-categories of start-up and middle market apply to private equity and not real estate.

kim226

Which of the following is least likely to be included in private equity subgroups?

A) Start-up companies.

B) Private investment in public entities.

C) Futures funds.

---

Private equity subgroups are start-up companies, middle-market private companies, and private investment in public entities. The distinguishing feature for the subgroups is the stage of development of the company to which the invested dollars flow.

kim226

With respect to adding managed futures investing to a stock and bond portfolio:

A) a trend-following strategy will offer diversification equal to that of a contrarian strategy.

B) a trend-following strategy will offer lower diversification than a contrarian strategy.

C) a trend-following strategy will offer more diversification than a contrarian strategy.

---

For managed futures funds, a trend-following strategy will offer lower diversification than a contrarian strategy. This should be obvious since the trends would be those of the cash markets for which the investor is trying to obtain diversification. The market for the underlying securities will also play a role.