knowledge topics
Hedge Funds
KNOWLEDGE EXPECTED OF: Both CFP® Professionals and QAFPTM Professionals
- Define a hedge fund.
- Identify that hedge funds must be approved by the securities administrator of the province/territory in which they are traded, however they are lightly regulated compared to other investments.
- Explain how each of the factors may impact the suitability of a hedge fund, such as:
- Time horizon
- Volatility
- Risk tolerance
- Investment objective
- Financial situation
- Personal situation
- Income
- Liquidity
- Control
- Tax impact
- Investment management process
- Economic cycle
- Cost
- Historical performance
- Performance expectations
- Evaluate how each of the factors may impact the suitability of a hedge fund.
- Explain for whom a hedge fund may be suitable.
- Identify structures of hedge funds, such as:
- Trust
- Limited partnership
- Corporation
- Identify the primary investment objectives typically associated with a hedge fund.
- Growth of capital
- Explain characteristics of a hedge fund, such as:
- Relative potential for loss of capital
- Level of liquidity
- Relative level of volatility
- Explain risks that may affect a hedge fund.
- Explain types of income that may be generated by a hedge fund, such as:
- Interest income
- Dividends
- Capital gains
- Explain fee structures for hedge funds, such as:
- Management fee
- Performance charge
- Hurdle rate
- High water mark
- Estimate the return that a hedge fund needs to make before it earns positive return.
- Interpret the return for a hedge fund.
- Explain that hedge funds are generally offered via offering memorandum as private offerings to sophisticated/accredited investors.
- Identify that funds of hedge funds are available for public purchase on an exchange.
Glossary of Verbs (mouse over to see definition)
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Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
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Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
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Compare
To note the similarities and differences between two or more things
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Estimate
To determine an approximate value for
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Calculate
To find the value using mathematics
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Convert
To change from one form or purpose to another
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Evaluate
To reach a conclusion or make a judgement through careful study
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Interpret
To give the meaning of / to construe or understand / to translate orally
Read more about the Taxonomy used in the FP-BoK
