Volume 4

Question 1

What are the 7 common characteristics of hedge funds?

Answer 1

Question 2

Describe the common different hedge fund classifications?

Answer 2

Question 3

Describe the risk and liquidity characteristics of the long/short equity approach?
What type of research is most common?
What is the approach to leverage?
What is the strategy to achieve return?

Answer 3

Question 4

Describe the risk, liquidity and leverage for the dedicated short bias approach?
What is usual type of research, what type of stocks do they usually look for?

Answer 4

Question 5

Describe the risk, liquidity and leverage for the equity market neutral approach?
What is the expected beta?
what type of trades might be used?
When is the strategy most effective?

Answer 5

Question 6

Compare the leverage, voltility, beta, return correlation, orientation, value approach and position sizing across dedicated short, short bias, market neutral, L/S and long only?
What is the alpha, return and risk for L/S?

Answer 6

Question 7

What is the alpha, return and risk for DS/SB and Market neutral?

Answer 7

Question 8

Describe the risk, liquidity and leverage for merger arb?
What are soft and hard catalyst approaches?
Alpha is usually what?
Trades are typically done using?

Answer 8

Question 9

Describe the risk, liquidity and leverage for distressed securities?
What are the lock up periods usually?
How does liquidation occur?

Answer 9

Question 10

Describe the alpha, return, risk for merger arb and distressed securities?

Answer 10

Question 11

Describe the risk, liquidity and leverage for FI arb? How do valuation differences occur?
How big are the pricing inefficiencies and the correlation between stocks are….., meaning that leverage is …….?

Answer 11

Question 12

What is the risk, liquidity and leverage for convertible bond arbitrage? What must you do with interest rate, credit and market risk?
Overall gain is achieved if realised equity volatility is….?

Answer 12

Question 13

Opportunistic strategies can be what?
They are usually divided by technical, fundamental, discretionary and systematic, describe each of these portfolio construction styles?

Answer 13

Question 14

Global macro, can use a wide variety of assets and is usually ….. and typically ?
They tend to be what?
What is the common theme for leverage?
Mean reverting , low volatility markets offer ….. opportunities? Alpha, return and risk for global macro come from what?

Answer 14

Question 15

Managed futures: returns are … with bonds and tend to be …… skewed?
What is the majority of capital exposure invested into?
What two trend identification strategies are usually used?

Answer 15

Question 16

What is the risk, liquidity and leverage profile for Global macro and managed futures?

Answer 16

Question 17

Risk profile, liquidity and leverage for volatility trading? What is relative value vol arb and Long/Short vol?

Answer 17

Question 18

What is the reinsurance, life settlement strategy, compare the two?

Answer 18

Question 19

Describe the risk profile, liquidity and leverage for Fund of funds and multi-strategy HF’s

Answer 19

Question 20

What is the one factor conditional factor risk model?
What is the multi factor model?
What are the SNP500, USD, VIX and Credit factors?

Answer 20

Question 21

What are the 4 common functional roles for AI in asset allocation?
What is the role of private equity?

Answer 21

Question 22

What is the role of hedge funds and Real assets (timber, commodities, farmland?

Answer 22

Question 23

What is the role of real assets (Infra and energy investments), and role of commercial real estate and private credit?

Answer 23

Question 24

How does AI diversify equity risk?
How does AI reduce volatility in ST?

Answer 24

Question 25

How does AI reduce the risk of not achieving long term investor goals? What is the opportunity investor set using the traditional approach?

Answer 25

Question 26

What is the investment opp set under risk-based approaches? What are the strength and weaknesses of the traditional approach?

Answer 26

Question 27

What are the strengths and limitations of the risk based approach?

Answer 27

Question 28

What are the risk considerations and return expectations for AI?

Answer 28

Question 29

What are the investment vehicles of direct investment in LP, FOF, SMA/ fund of one

Answer 29

Question 30

What is the investment vehicle of mutual fund/VCITS? What are the liquidity risks from the common investment vehicles - hedge funds?

Answer 30

Question 31

Liquidity risks for private equity?

Answer 31

Question 32

What is the liquidity risk for the underlying investment? What are the usual fees?

Answer 32

Question 33

What are the tax considerations and how does the investment horizon impact decision making ?

Answer 33

Question 34

How is expertise, transparency and governance considered ?

Answer 34

Question 35

Asset allocation processes: explain how monte carlo might be used and how optimisation techniques might be used?

Answer 35

Question 36

Describe risk based approaches? Describe the issue of stale pricing unsmoothing for AI returns?

Answer 36

Question 37

Describe the issue of Fat tails and skewness with AI returns?

Answer 37

Question 38

Describe the two applications of monte carlo?

Answer 38

Question 39

Describe the portfolio optimisation approach: MVO with/without constraints and Mean-CVAR optimisation

Answer 39

Question 40

Describe the risk based factor approach? Describe the issue of maintaining the desired allocation for liquidity planing? What are the uses of a liquidity forecasting model and what do you need assumptions for?

Answer 40

Question 41

What is the simple liquidity model?

Answer 41

Question 42

Liquidity example: Calculating target commitment

Answer 42

Question 43

Liquidity example: Calculating target commitment (continued)

Answer 43

Question 44

Describe the liquidity issues of managing the capital calls and preparing for the unexpected

Answer 44

Question 45

Monitoring: What is the investor programme

Answer 45

Question 46

Monitoring: How to evaluate performance

Answer 46

Question 47

Monitoring: What things about to be considered regarding the firm and investment process?

Answer 47

a) key person risk - departure may negatively affect the investment process b) alignment of interests - money manager's interests should remain aligned with investors

Question 48

Describe the main investment objectives for institutional and non? Describe the constraint of time horizon?

Answer 48

Question 49

Describe the constraint of scale and taxes for insto and individual? Describe the other distinctions of governance, sophistication, regulation and complexity?

Answer 49

Question 50

Understanding private clients: Describe the personal, financial and other info that is needed to know?

Answer 50

Question 51

What are the information needed to do with tax considerations? What are the basic and common strategies?

Answer 51

Question 52

Client goals: Any planned goals or unplanned goals? What is the wealth managers role in managing client goals?

Answer 52

Question 53

Describe risk tolerance, capacity and perception?

Answer 53

Question 54

What are the technical skills required to provide investment advice?

Answer 54

Question 55

What are the soft skills required?

Answer 55

Question 56

What is capital sufficiency analysis? What is deterministic forecasting and what does it require?

Answer 56

Question 57

How is the monte carlo simulation used for capital sufficiency analysis and what inputs are required? When capital is not sufficient to meet goals what must happen?

Answer 57

Question 58

Describe the process of converting human capital to financial and thus retirement planning?

Answer 58

Question 59

Describe the common methods of analyzing retirement goals - Mortality rates, Annuities and MC sim?

Answer 59

Question 60

Behavioural considerations for retirement planning?

Answer 60

Question 61

What is the IPS and the benefits of one? Describe background and investment objectives of IPS?

Answer 61

Question 62

Background and objectives continued? What are the investment paramters?

Answer 62

Question 63

Describe the portfolio allocation and portfolio management part of an IPS?

Answer 63

Question 64

Parts of IPS: What are the duties and responsibilities and what is in the IPS appendix?

Answer 64

Question 65

What is the traditional approach for PC, what is the goal based?

Answer 65

Question 66

What is included in portfolio reporting and portfolio review?

Answer 66

Question 67

How is success of a portfolio evaluated ? Goal achievement, process consistency, portfolio performance, definitions of success.

Answer 67

Question 68

What are the four ethical considerations?

Answer 68

Question 69

Describe the private client segments of mass affluent and high net worth?

Answer 69

Question 70

Describe the ultra-high net worth and robo advisors segment?

Answer 70

Question 71

Describe the characteristics of human capital and what is the definition?

Answer 71

Question 72

Financial capital: What are the three types of assets?

Answer 72

Question 73

Compare net worth vs net wealth

Answer 73

Question 74

Compare the economic balance sheet to the traditional balance sheet?

Answer 74

Question 75

Explain how human and financial capital change throughout a persons life?

Answer 75

Question 76

Example continued

Answer 76

Question 77

Explain how two individuals with the same net worth may not have the same net wealth?

Answer 77

Question 78

Explain earnings risks and its forms and pre mature death risk?

Answer 78

Question 79

What are longevity, property, liability and health risks?

Answer 79

Question 80

Explain the uses of life insurance? Compare permanent and temporary life insurance?

Answer 80

Question 81

Permanent: Compare whole life vs universal? What are riders?

Answer 81

Question 82

Describe the types of riders and the basic elements of them?

Answer 82

Question 83

What are the three key pricing considerations ?

Answer 83

Question 84

What are the two types of insurance companies

Answer 84

Question 85

Explain cash and policy reserves

Answer 85

Question 86

What do you need to calculate life insurance? What is disability income insurance?

Answer 86

Question 87

What are the 3 definitions of disability?

Answer 87

Question 88

What are the two types of property insurance?

Answer 88

Question 89

Describe the health/medical insurance elements?

Answer 89

Question 90

Who are the parties involved in annuities? Define immediate and deferred annuities?

Answer 90

Question 91

Describe a deferred variable annuitity? What does the rider =?

Answer 91

Question 92

What are deferred fixed, immediate variable and immediate fixed annuities?

Answer 92

Question 93

How do income yields differ by age for immediate fixed annuity?

Answer 93

Question 94

What are advanced life deferred annuities and explain flexibility and volatility of them?

Answer 94

Question 95

Immediate fixed annuity: explain future market expectations and fees?

Answer 95

Question 96

Immediate fixed annuity: explain inflation concerns and payment methods

Answer 96

Question 97

Immediate fixed annuity: explain benefit taxation and Mortality credits

Answer 97

Question 98

Summarises the pros/con of annuity? Higher annuity allocation if?

Answer 98

Question 99

What are the factors that contribute to the riskiness of human capital?

Answer 99

Answer 100

Question 101

What are the five components of the taxation of the components of return?

Answer 101

Question 102

How is interest taxed and when may be exempt? How is dividends taxed? How are cross-border income taxed? How is capital gains taxed, what is the cost basis?

Answer 102

interest - taxed as ordinary income - some forms may be exempt (i.e. Municipal Bonds)

Question 103

Capital gains: formula for taxable gain/loss? How are short term and long term capital gains taxed? How are real estate investments taxed?

Answer 103

Question 104

Describe the different tax statuses of taxable, tax-exempt and tax-deferred. What are tax havens, territorial tax systems and worldwide tax systems?

Answer 104

Question 105

What is a tax efficient strategy? Generally, why are equities more tax efficient? Why are momentum funds more efficient and style funds less efficient usually?

Answer 105

Question 106

What is the formula for pre-tax and after tax HPR?

Answer 106

Question 107

Formula for after tax post liquidation return? Liquidation tax equals? What does the return formula assume? What is AT excess return and AT alpha?

Answer 107

Question 108

What is the tax efficiency ratio? Capital accumulation formula for taxable, tax exempt and tax deferred?

Answer 108

Question 109

For decumulation which accounts are drawn from first, and which if a tax-deferred system? How is charitable giving treated? What is tax avoidance and tax evasion?

Answer 109

Question 110

What are the two main aspects of basic tax management strategies? How is tax treated in a partnership style investment vehicle?

Answer 110

Question 111

How is tax managed in a mutual fund? What is the potential capital gains exposure? How are taxes managed in ETFS?

Answer 111

Question 112

What is tax loss harvesting? What is tax lot accounting and the methods of it? A quantitative tax management (optimisation method) will do what?

Answer 112

Question 113

What are the three types of concentrated positions? What are the risks and tax considerations? Other factors to consider: degree of concentration and volatility?

Answer 113

Question 114

Other tax considerations, and the effect on tax liability: tax basis, tax rate of investor, time horizon of investor, restrictions on investor and emotional attachment to contain voting control? What are the first four approaches to manage tax considerations?

Answer 114

Question 115

Explain approach of charitable giving and tax avoidance/deferral? Strategies for managing concentrated positions sin public equities: What is staged diversification and completion portfolio?

Answer 115

Question 116

Strategies for managing concentrated positions sin public equities: When would equity monetization be used and what does it achieve? Explain the two step process of hedging position risk then borrowing against the position to achieve EM?

Answer 116

Question 117

Equity monetisation: how to avoid a constructive sale? Tax free exchanges: how does this work?

Answer 117

CP = concentrated position

Question 118

How does charitable remainder trust hedge a CP? Strategies for concentrated position in private ?

Answer 118

Question 119

What is a leveraged recapitalisation? What is an ESOP and how can it be used to diversify concentarted position?

Answer 119

Question 120

Strategies for RE : How does mortgage financing help diversify a concentrated position?

Answer 120

Question 121

How can charitable donations be used for RE? DAF is donor advised fund

Answer 121

DAF is donor advised fund

Question 122

What are the 7 objectives of gift and estate planning/transferring of wealth?

Answer 122

Question 123

What is a will (testament)? What is a testator, probate, intestate ?

Answer 123

Question 124

What are the properties of gifts and bequests and thus the differences? What is the formula for relative value between gifts and bequests for taxable and tax free?

Answer 124

Question 125

How does a trust work?

Answer 125

Question 126

What do irrevocable, revocable, fixed and discretionary trusts? Explain the reason of control for using a trust?

Answer 126

Question 127

Describe asset control and tax reasons for using a trust? What are the characteristics of a foundation (legal entity) for transferring assets?

Answer 127

Question 128

What are the characteristics of life insurance and companies for transferring assets? What is a family governance and what can it consist of?

Answer 128

Question 129

What are the essential factors of family governance? What is the board of directors, family council and family assembly?

Answer 129

Question 130

What is the family office and foundation? What is the family conflict resolution? Explain the family dynamic in the context of business exit for transition to new generation and for sale of business?

Answer 130

Question 131

What happens in regards to the timing of the sale? How is the individual and corporate trustee selected?

Answer 131

Question 132

What are anti-avoidance rules? How is divorce and incapacity dealt with/the impact of them occurring mitigated?

Answer 132