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Unit 2 > Alternative Pooled Investments > Flashcards

Alternative Pooled Investments Flashcards

1
Q

What does “pooled investment” mean?

A

Investors combining their money together towards a common goal

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2
Q

What are REITs similar to?

A

They are like mutual funds that only invest in real estate

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3
Q

What are REITs legally structured as?

A

Trusts

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4
Q

What two things are typical REIT portfolios comprised of?

A
  1. Commercial properties
  2. Commercial mortgages
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5
Q

What are residential REITs?

A

Investments in single-family home and associated mortgages

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6
Q

What do Equity REITs invest in?

A

Directly into real estate properties

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7
Q

What are the two ways Equity REITs make money?

A
  1. leases
  2. selling property
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8
Q

What type of real estate do Equity REITs focus on?

A

Commerical

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9
Q

What do Mortgage REITs buy and offer?

A

They buy and offer mortgages on commercial properties

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10
Q

How do Mortgage REITs make money differ from Equity?

A

Instead of investing directly in real estate, they make income from the mortgages they own or offer.

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11
Q

What do hybrid REITs invest in?

A

A combination of real estate properties and mortgages

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12
Q

In what markets can REITs be bought and sold?

A

Primary and secondary

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13
Q

Why can you use REITs as a hedge?

A

Because when stock market values fall, real estate usually maintains its value

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14
Q

Why are investors in private REITS typically wealthy?

A

Because its a challenge to liquidate and is risky

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15
Q

What do Mortgage REITs primarily seek as apposed to Equity REITs?

A

Mortgage: Seek Income
Equity: Seek capital appreciation

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16
Q

Where do non listed REITS trade?

A

only in OTC market

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17
Q

3 ways REIT qualify for Subchapter M rule

A
  1. 75% invested in real estate
  2. 75% income from real estate
  3. 90 net investment income distributed
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18
Q

What is the minimum investment for hedge funds?

A

1 million

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19
Q

What does limiting investment to wealthier investors due for hedge funds?

A

Less supervision regulations from SEC

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20
Q

Which two risk do hedge funds have a large amount of?

A
  1. liquidity risk
  2. legislative
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21
Q

What is a hedge fund lock up period?

A

Investors not allowed to request withdrawals for a lengthy period of time

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22
Q

What is the purpose of lock up periods?

A

Allows fund managers to invest their customers’ money without worrying about keeping cash available for redemptions

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23
Q

How often can customers withdrawal from hedge funds?

A

Few times a year

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24
Q

What two things are hedge fund managers paid based upon?

A
  1. assets under management
  2. capital gains
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25
Q

What do Direct Participation Programs allow?

A

The investor to directly participate in the profits and losses of the business

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26
Q

What is the defining feature of a Direct Participation Program?

A

Its ability to pass through losses to its owners

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27
Q

What benefit does passing through losses to DPPs investors have?

A

It provides tax deduction

28
Q

How does passthrough in DPP differ from normal ivnestments?

A

Normal investments can only pass through income and gains to their investors but DPP pass income gains and losses

29
Q

Who is required for a limited partnership

A

One or more general partners plus one or more limited partners

30
Q

What are the general partners in a limited partnership responsible for?

A

Actually running and managing the business

31
Q

WHat are the limited partners of a limited partnership responsible for and what cannot thy do?

A

Just investing, no managing

32
Q

Who takes on the role of the limited partner in a DPP?

A

The investors take on th erole of the limited partner

33
Q

What does the “limited” part mean for the limited partner?

A

The risk is limited to their investment

34
Q

What is the difference in liability between general partners and limited partners?

A

General partners have unlimited liability and limited partners are limited to their investment

35
Q

What type of risk do limited partnerships come with and why?

A

liquidity risk because there is no secondary market that trades limited partnership units

36
Q

What are two important limited partnership programs?

A
  1. Real estate partnerships RELPs
  2. Oil and gas programs
37
Q

what RELP limited partnership investments aim to do?

A

make market returns based on real estate holdings

38
Q

What are three investment goals of RELPs?

A
  1. capital appreciation
  2. income
  3. tax benefits
39
Q

What are two kinds of tax benefits RELPs can achieve?

A
  1. tax credits
  2. tax deductions
40
Q

What two ways can tax credits be achieved by RELPs?

A
  1. low income housing
  2. rehabilitation of historic properties
41
Q

How are RELPs tax deductions achieved? (2 ways)

A
  1. Mortgage interest payments
  2. depreciation of properties
42
Q

How do RELPs and REITs differ in liquidity risk and passing through losses to investors?

A

RELPs: liquidity risk and CAN pass through losses

REITs: Avoid liquidity risk but DO not allow losses to pass through

43
Q

Match REITs and RELPs and Limited Partnerships and Trust Units

A

REITS and Limited Partnership

REITs Trust Units

44
Q

What are the three general types of oil and gas limited partnerships?

A
  1. income wells
  2. developmental wells
  3. exploratory wells
45
Q

What are intangible drilling costs IDC?

A

Tax-deductibl expenses that are not associated with actual drilling

46
Q

What tax benefits can limited partners have in their first year of operation ?

A

They can fully write off intangible drilling costs and pass them through to the limited partners (passing losses)

47
Q

What are depletion allowances?

A

Tax deductions for every barrel of oil pulled from the ground

48
Q

What costs do depletion allowances cover?

A

Losses of income when an oil well begins to run dry

49
Q

What are income wells also known as?

A

stripper wells

50
Q

What do income wells invest in?

A

proven oil wells

51
Q

What are mineral rights?

A

Fees charged by the owner of the land

52
Q

Why are mineral rights high for income wells?

A

Because the land owner knows there is oil in the ground

53
Q

Why do income wells not have to spend money on IDCs?

A

Because the will already exists and doesn’t need to be searched for

54
Q

What do developmental wells invest in?

A

Drilling projects that are near proven oil wells

55
Q

What are developmental wells also known as?

A

step-out wells

56
Q

What level risk are developmental wells?

A

mid-level risk

57
Q

What do exploratory wells invest in?

A

Unproven areas

58
Q

What is the hierarchy of wells in terms or risk?

A
  1. Income Wells
  2. Developmental wells
  3. Exploratory wells
59
Q

What is the hierarchy of rewards for wells?

A
  1. wildcat
  2. step-out
  3. income wells
60
Q

What two things make an investor suitable for DPP?

A
  1. comfortable with liquidity risk
  2. seeking tax benefits
61
Q

What are three investment goals of RELPs?

A
  1. capital appreciation
  2. income
  3. tax benefits
62
Q

What two things are tax credits available for in RELPs?

A
  1. low-income housing
  2. historic rehabilitation
63
Q

What two things do oil and gas programs gain tax reductions through?

A
  1. intangible drilling costs IDC
  2. Depletion allowances
64
Q

REITS pass through _____ while RELPS pass through _____

A

gains; losses and gains

65
Q

Which oil and as program is ineligible for deductible IDCs and why?

A

Income wells because drilling is already complete

66
Q

What are three intangible drilling costs?

A
  1. labor
  2. fuel
  3. insurance
67
Q
A

Unit 2 (18 decks)

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