CAIA Level 1 questions and 100% correct answers

liquid alternatives - correct answer Liquid alternatives typically have (1) constraints on permissible investments strategies (for example, liquidity and leverage limits), (2) no incentive fees, (3) less skilled managers as a result of less attractive compensation and limited strategies, and (4) an inability to earn substantial illiquidity premiums. constrained clone - A liquid investment fund that seeks to replicate the strategy of an existing alternative investment but imposes some constraint (e.g., liquidity, leverage, diversification) is categorized as a constrained clone. unconstrained clone - a near-identical strategy that mimics an existing alternative investment strategy that is itself relatively liquid (and therefore doesn't need much modification) liquidity-based replication products - ensures liquidity is present by selecting liquid investments that have similar characteristics to illiquid securities used in alternative funds diversified/absolute return products - focuses on creating returns that have low correlation with traditional assets; does not attempt to mimic an alternative investment strategy fund legal documents - correct answer The subscription agreement determines if a potential investor meets the legal requirements to invest in a fund by asking the investor a set of questions. The offering documents explain the potential trading strategies and associated risks of a fund. The partnership agreement describes the legal framework of the partnership and the terms and conditions for all parties in a fund. The management company operating agreement defines the responsibilities of the limited partnership members and of the fund. market types - correct answer primary - relate to the sale of newly issued securities (including secondary issues and securitizations) secondary - where securities trade after their initial issuance; consist of both physical exchanges and OTC markets