Hedge Funds

A manager is long $50 million of stocks with a beta of 1.3 and wants the portfolio to be beta-neutral by shorting a basket of stocks with a beta of 0.8. The size of the short position needed is closest to:

A fund buys the debt of a company that has just filed for bankruptcy protection. Which risk is MOST characteristic of this position?

A fund is long $60 million of stocks with an average beta of 1.4 and short $60 million of stocks with an average beta of 0.7. Which statement about its market exposure is MOST accurate?

During a sharp fall in equity markets, event-driven funds often lose money along with the market. Which explanation is MOST likely?

A fund of hedge funds holds funds that together earn 15% gross. The underlying funds charge 2% of start-of-year assets plus 20% of the return after that fee. The fund of funds then charges 1% of its start-of-year assets plus 10% of its return after that fee. With no hurdles and all funds above their high-water marks, the investor's net return is closest to:

The manager of a fund receives 20% of any gain in net asset value above the high-water mark and bears none of the losses. From the manager's side, this incentive fee is BEST described as:

A $200 million fund earns 12% for the year after its management fee. It is above its high-water mark and charges a 20% incentive fee with a hard hurdle rate of 5%. Assuming no flows, the incentive fee is closest to:

Kestrel Partners began the year with net assets of $100 million after a loss the year before; its high-water mark is $108 million. At year end, after the management fee and before any incentive fee, net assets are $120 million. There were no flows and there is no hurdle. With a 20% incentive fee, the fee for the year is closest to:

An equity long/short fund has $100 million of capital, $130 million of long positions and $70 million of short positions. Its net exposure as a percentage of capital is:

A manager runs one investment portfolio but sets up two feeder funds, one for taxable domestic investors and one for foreign and tax-exempt investors, both investing in a single master fund. What is the MAIN reason for this structure?

A target traded at $30 before a $45 cash offer and now trades at $42. Assume its price returns to $30 if the deal fails, and ignore time value and risk premiums. The market-implied probability that the deal completes is closest to:

A manager shorts 200,000 shares at $50 and buys them back one year later at $46. During the year the stock pays a $1 dividend per share, which the short seller must pay to the lender, and the manager earns a 3% short rebate on the $10 million sale proceeds. The profit on the short is closest to:

In a hedge fund database, 80% of the funds alive at the start of a year survived it and earned an average of 9%; the other 20% closed during the year after averaging −3%. The closed funds are then removed. Taking equal fund weights, the survivorship bias in the year's average return is closest to:

A macro fund borrows a low-yielding currency at 1% for one year, converts the money into a high-yielding currency and invests it at 5%. Over the year the high-yielding currency falls 3% against the funding currency. Ignoring costs, the profit per unit of funding currency borrowed is closest to:

Which description BEST fits a discretionary global macro fund?

A macro fund with $100 million of capital is long bond futures with a notional value of $200 million and a duration of 8. If yields fall by 25 basis points, the approximate return on the fund's capital from this position is closest to:

A $100 million managed futures fund holds all its capital in Treasury bills, which also serve as margin and earn 4% for the year. Its futures positions make a trading gain of $6 million. Ignoring fees, the fund's return is closest to:

A relative value fund holds $400 million of positions financed with $40 million of equity and $360 million of borrowing. If the positions lose 1.5% of their value, the loss as a percentage of equity is closest to:

Four futures markets all had positive returns over the past 12 months, at 3%, 6%, 11% and 18%. Using the sign of each market's own past return for time-series momentum, and ranking against each other for cross-sectional momentum, which positions result?

In which market environment is a trend-following fund MOST likely to lose money?