CAIA Level 1_Hedge Funds Exam Graded A+
Accredited Investor Standard - ANSWER Net worth over $1mm or $200k income over
for each of the past two years
Qualified Purchaser Standard - ANSWER Net worth greater than $5mm
HF Investment Attributes - ANSWER (i) low correlation with traditional investments, (ii)
long/short positions, and (iii) potential for larger returns
Major classifications of HF (5 types) - ANSWER (i) Future Strategies, (ii) Event-Driven,
(iii) Arbitrage/Relative Value, (iv) Equities, and (v) FOF
Futures Strategies - ANSWER (i) Macro and (ii) Managed Futures
Event Driven Strategies - ANSWER (i) Activist, (ii) Merger Arbitrage, (iii) Distressed, and
(iv) Event-driven multi strategy
Relative Value Strategies - ANSWER (i) Convertible, (ii) Volatility, (iii) Fixed Income,
and (iv) Relative Value multi strategy
Equity Hedge Funds - ANSWER (i) Long/short, (ii) Market neutral, (iii) Short selling, and
(iv) 130/30
Optimal Contracting - ANSWER Refers to properly designing the incentive structure so
that the interests of the managers and investors are aligned. Principal-Agency
Relationship in Agency Theory that produces Agency costs.
Incentive Fee Call Option Value Formula - ANSWER
Lock-in Effect - ANSWER Managers take less risk to preserve their incentive fees when
the incentive option is far in the money
Four main HF strategies - ANSWER (i) Directional (systematic exposure), (ii) Event risk,
(iii) Absolute return, and (iv) Diversified Strategies
Opportunistic Hedge Funds - ANSWER Add value through specialization and filling
gaps in existing portfolios - not constrained by tracking errors. Hybrid Hedge Fund are a
subset of opportunistic and fill in the gap between public equities and PE investments
Survivorship and Selection Bias inflate returns by - ANSWER 70-450bps
Managed Futures Vehicles (3 types) - ANSWER (i) Individual managed future accounts,
(ii) Public Commodity Pools, and (iii) Private Commodity Pools
Accredited Investor Standard - ANSWER Net worth over $1mm or $200k income over
for each of the past two years
Qualified Purchaser Standard - ANSWER Net worth greater than $5mm
HF Investment Attributes - ANSWER (i) low correlation with traditional investments, (ii)
long/short positions, and (iii) potential for larger returns
Major classifications of HF (5 types) - ANSWER (i) Future Strategies, (ii) Event-Driven,
(iii) Arbitrage/Relative Value, (iv) Equities, and (v) FOF
Futures Strategies - ANSWER (i) Macro and (ii) Managed Futures
Event Driven Strategies - ANSWER (i) Activist, (ii) Merger Arbitrage, (iii) Distressed, and
(iv) Event-driven multi strategy
Relative Value Strategies - ANSWER (i) Convertible, (ii) Volatility, (iii) Fixed Income,
and (iv) Relative Value multi strategy
Equity Hedge Funds - ANSWER (i) Long/short, (ii) Market neutral, (iii) Short selling, and
(iv) 130/30
Optimal Contracting - ANSWER Refers to properly designing the incentive structure so
that the interests of the managers and investors are aligned. Principal-Agency
Relationship in Agency Theory that produces Agency costs.
Incentive Fee Call Option Value Formula - ANSWER
Lock-in Effect - ANSWER Managers take less risk to preserve their incentive fees when
the incentive option is far in the money
Four main HF strategies - ANSWER (i) Directional (systematic exposure), (ii) Event risk,
(iii) Absolute return, and (iv) Diversified Strategies
Opportunistic Hedge Funds - ANSWER Add value through specialization and filling
gaps in existing portfolios - not constrained by tracking errors. Hybrid Hedge Fund are a
subset of opportunistic and fill in the gap between public equities and PE investments
Survivorship and Selection Bias inflate returns by - ANSWER 70-450bps
Managed Futures Vehicles (3 types) - ANSWER (i) Individual managed future accounts,
(ii) Public Commodity Pools, and (iii) Private Commodity Pools
