Reading 34: Alternative Investm....olio Management－LOS s including, involved, special, issues

tycoon

CFA Institute Area 8-11, 13: Asset Valuation
Session 11: Alternative Investments for Portfolio Management
Reading 34: Alternative Investments Portfolio Management
LOS s: Critique the conventions and special issues involved in hedge fund performance evaluation, including the use of hedge fund indices and the Sharpe ratio.

[此贴子已经被作者于2008-9-16 14:36:26编辑过]

tycoon

When evaluating hedge funds, special issues that complicate the process would include the fact(s) that:

A) benchmarks are designed to be both long and short in nature, but most hedge funds are long only.

B) benchmarks are absolute return in nature and do not address other goals such as the elimination of systematic risk.

C) single and multi-factor models as models do not apply.

D) many hedge funds are absolute return vehicles for which no benchmark exists, and they can use long/short strategies while most benchmarks are long only in nature.

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Answer and Explanation

These are two problems in defining and creating benchmarks. One method for addressing problems in defining and creating benchmarks is the use of single and multi-factor models. Thus, factor models do not pose a complication but offer a solution.

tycoon

When evaluating the performance of a hedge fund that uses leverage, the convention is to:

A) treat an asset as if it were fully paid to effectively look through the leverage.

B) not attempt to evaluate the fund because the existence of leverage makes such an assessment impossible.

C) use an optimization model to determine the weights on the book and debt values.

D) use monthly reporting to mitigate the effects of interest rate fluctuations.

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Answer and Explanation

The conventions for dealing with leverage is to treat an asset as if it were fully paid to effectively look through the leverage. When derivatives are included, the same principle of deleveraging is applied.