CFA® Alternative Investments
Summary, Syllabus, Topics, and Sample Questions (L1, L2, L3)
Alternative investments are supplemental strategies to traditional long-only positions. The terms “traditional” and “alternative” should not imply that alternatives are necessarily uncommon or that they are relatively recent additions to the investment universe. Alternative investments include such assets as real estate and commodities, which are arguably two of the oldest types of investments.
Alternative investments also include non-traditional approaches to investing in asset classes, such as private equity funds and hedge funds. These funds may give the manager flexibility to use derivatives and leverage, make investments in illiquid assets, and take short positions. The assets in which these vehicles invest can include traditional assets (stocks, bonds, and cash) as well as less traditional assets. Management of Alternative Investments is typically active. This topic explores Alternative Investments, including hedge funds, private equity, real estate, commodities, and infrastructure, covering their common characteristics, and their usefulness for creating diversification and/or higher returns.
What is CFA Level 1 Alternative Investments?
This topic explores Alternative Investments, including hedge funds, private equity, real estate, commodities, and infrastructure. In this curriculum, CFAI defines Alternative Investments, the characteristics they have in common, and their usefulness in creating diversification and higher returns.
Exam weighting
The CFA Level I Alternative Investment has a weighting of 5-8% of the total exam content, such that approximately 9-15 questions of the CFA Level I exam questions focus on this topic.
Topic Weight | No. of Readings | No. of Formulas | No. of Questions |
---|---|---|---|
5-8% | 01 | Nearly 15 | 12 |
Syllabus & Readings Overview
The CFA Level 1 exam includes 60 total readings for 2022 out of which only 1 reading (around 2%) focuses on Alternative Investments (i.e. Reading 47).
Study Session | No. of Readings | No. of LOS |
---|---|---|
16 | 01 | 10 |
Summary This reading provides a comprehensive introduction to Alternative Investments. Alternative investments are asset classes or investment vehicles that are supplemental to traditional long-only positions in stocks, bonds, and cash. Alternative investments include investments in five main categories: hedge funds, private capital, natural resources, real estate, and infrastructure. |
For a more comprehensive enumeration of LOS visit the official CFAI Level 1 syllabus page and select the desired session under “2022 Level 1 Study Sessions”.
Introduction to Alternative Investments
This reading compares Alternative Investments with traditional investments. It describes the fundamental characteristics, categories, and general strategies of Alternative Investments along with their distinguishing characteristics, valuation considerations, risks, returns, costs, and benefits.
For 2022’s curriculum, it is covered in Study Session 16, which includes Reading 47.
Exam weight and Topic Changes in Alternative Investments Level 1
The weighting of the Alternative Investment increased from 2018 to 2020. Since 2021, weighting has fluctuated between 5-8%.
2018 | 2019 | 2020 | 2021 | 2022 |
---|---|---|---|---|
4% | 6% | 6% | 5-8% | 5-8% |
Numerous new texts have been added to the curriculum at all three levels, substantially expanding the focus on the topic area of Alternative Investments. This significant change expands the discussion of alternatives and gives more information on how to use them in an investment strategy. In-depth exploration of alternative asset classes, risk management, and alternative investment structures are combined with fundamental knowledge to produce a simplified learning experience.
Alternative Investment Level 1 Changes | |
---|---|
Introduction to Alternative Investments | Major Revision |
CFA Alternative Investments Level 1 Sample Questions and Answers
The sample questions are typical of the probing multiple-choice questions on the L1 exam. During the exam, you have about 90 seconds to read and answer each question, carefully designed to test knowledge from the CFA Curriculum. UWorld’s question bank is built to expose you to exam-like questions and illustrate and explain the concepts tested thoroughly.
At the end of 20X4, a hedge fund had $25 million in assets under management (AUM). The fund has the following fee structure, high-water mark, and 20X5 results:
Selected Data | |
---|---|
Management fee (average assets) | 1% |
Incentive fee (net of management fee) | 10% |
Soft hurdle rate | 6% |
High-water mark (millions) | $27 |
Year-end fund assets 20X5 (millions) | $30 |
Assuming no inflows or outflows, the incentive fee (in $) earned by this hedge fund for 20X5 is closest to:
- 109,000
- 272,500
- 300,000
Hedge funds charge a management fee and an incentive fee. The management fee is calculated as a percentage of the total value of the fund’s assets under management (AUM). It is assessed each year regardless of profitability.
The incentive fee is levied against the fund’s annual gains, subject to certain conditions. It is calculated either gross or net of the management fee. The net calculation subtracts the management fee from AUM to arrive at an adjusted AUM that is used to calculate the fund’s profits.
The high-water mark represents the value of AUM, net of fees, at any time during the fund’s existence. To earn an incentive fee, the fund must exceed the high-water mark, the base from which the fee is calculated.
The hurdle rate is the minimum profit that the fund must earn (usually annually) before it receives an incentive fee. The hurdle rate can either be “soft,” meaning that the incentive fee is calculated based on the entire profit, or “hard,” meaning that the incentive fee is based on only the excess profit above the hurdle rate.
In this scenario, the fund generated net returns in 20X5 of 18.9% ( = (29.725 – 25) / 25 ), above the soft hurdle rate of 6%, and eclipsed the high-water mark of $27 million. Therefore, the fund earned an incentive fee of 10% of profits, net of the management fee on average assets of $27,500,000:
0.10 × (29,725,000 − 27,000,000) = $272,500.
(Choice A) $109,000 is the result of incorrectly assuming a hard hurdle rate is in effect.
(Choice C) $300,000 is the incentive fee if management fees are not deducted.
Things to remember:
Hedge funds charge both a fixed management fee and a variable incentive fee. The incentive fee is contingent on whether the fund earns a profit and may be subject to a high-water mark and hurdle rate.
A hedge fund manager wants the power to liquidate positions in a well-organized way whenever necessary and plans to impose restrictions on investors’ ability to redeem capital. Which of the following restrictions would be most appropriate?
- Notice period
- Lockup period
- Redemption fee
Investor redemptions can significantly impact the performance of hedge funds. Unplanned redemption requests may force the fund manager to sell illiquid or volatile assets at unfavorable prices. This may harm fund performance and result in losses for the remaining investors.
Hedge funds often impose restrictions on investors, discouraging or prohibiting redemptions during specific periods:
- A lockup period is the minimum time an investor is committed to a fund after the initial investment. This restriction should give the fund manager a reasonable time frame to select and acquire assets that optimize the fund’s strategy. Withdrawals are not allowed during this period, but nothing restricts redemptions after the lockup period ends (Choice B).
- A notice period is the length of time an investor is required to wait to receive a redemption after requesting it. This restriction gives the fund manager more time to convert assets into cash, which reduces the risk of forced selling and makes the notice period the most appropriate choice for fund managers concerned about liquidity.
- Redemption fees are paid by investors when redeeming their capital and are generally added back to the fund. The fees compensate the remaining investors for losses the fund may eventually suffer when liquidating positions in an accelerated way. Redemption fees discourage but do not prohibit redemptions at any time (Choice C).
Things to remember:
Hedge funds often impose restrictions on redemptions.These restrictions may prohibit investors from redeeming for a period after the initial investment (lockup period) and/or require advance notice for processing redemptions (notice period). Funds may also impose redemption fees, which discourage—but do not prohibit—redemptions and generally compensate the remaining investors for any resulting losses.
For the general partner in a private equity or venture capital fund, which of the following waterfall distribution methods is most advantageous compared to the others?
- Clawback
- Deal-by-deal
- Whole-of-fund
Alternative investments (eg, private equity, venture capital, real estate) often have a waterfall distribution framework for paying out returns/profits. Generally, limited partners (ie, LP investors) receive distributions equal to their initial capital outlay plus profits up to the hurdle rate; the general partner (GP) is then paid a performance fee. At this point, unless the limited partnership agreement contains a catch-up clause, distributions and profits are split proportionately between the GP and LPs.
Waterfall distribution methods are classified as either:
- deal-by-deal (American style) or
- whole-of-fund (European style).
The timing of performance fee payments makes deal-by-deal waterfalls more advantageous to the GP since each deal is evaluated as each investment is exited. This allows the GP an opportunity to receive performance fee cash flows earlier (eg, annually) than under the whole-of-fund method.
(Choice A) In deal-by-deal waterfalls, a clawback provision would likely be included in the partnership agreement to protect the LPs by restoring the profit split if subsequent investments in the portfolio do not earn performance fees. This provision “claws back” the performance fee already paid to the GP and is not to the GP’s advantage.
(Choice C) A whole-of-fund waterfall pays the GP based on the performance of the entire fund. This delays payment of performance fees until the end of the fund’s life (eg, 7–8 years), which is not to the GP’s advantage.
Things to remember:
In alternative investments, deal-by-deal waterfall distributions are more advantageous to the general partner (GP) due to the timing of performance fee cash flows. The performance of each deal is evaluated as each investment is exited, potentially earning the GP a performance fee. Under the whole-of-fund method, the GP is paid performance fees only at the end of the fund’s life.
FAQs
Is the CFA Level 1 Alternative Investment topic hard?
It is more qualitative at Level 1 and its difficulty level is about average.
How do I study for Level 1 Alternative Investments for the CFA exam?
Both the reading and practice questions are mostly conceptual, with a focus on definitions. These are easy points to score. There are a few calculations, mostly addressing costs and fee structures and their effects on returns. CFA Institute provides official material as well as online resources for registered candidates on their website.
The best way to study for the exam is to practice with a QBank across all chapters and readings. The UWorld CFA QBank offers over 100 questions and detailed explanations covering AI.
How do I practice CFA Level 1 Alternative Investments questions?
After moving through a QBank the next step, to see how you are doing with the content, is taking Mock Exams. UWorld’s mock exams closely replicate the actual CFA L1 exam experience to help you prepare and boost your confidence on test day. Like the actual CFA exam, our mock exams consist of two 2-hour 15-minute sessions, each with 90 multiple-choice questions spanning multiple subjects and not included in the standard QBank.
What are Alternative Investments in the CFA Institute curriculum?
The CFA curriculum tends to categorize all assets other than equity and fixed-income as Alternative Investments, so this Study Session covers a broad range of topics from tangible assets such as gold to hedge fund strategies. Specifically, the most common categories of Alternative Investments are:
- Hedge funds are pooled investments for which the managers use a wide range of strategies with the aim of generating positive returns
- Private capital includes private equity (leverage buyout, venture capital funds) and private debt (direct lending, mezzanine loans, venture debt, distressed debt).
- Real estate includes two major sectors: residential real estate and commercial real estate
- Natural resources typically include commodities, timberland, and farmland
- Infrastructure such as buildings, bridges, roads etc.
The CFAI Alternative Investments curriculum is an important topic if you work in asset management as it is expected to capture 49% of global asset management revenue by 2024.
How do I practice CFA L1 Alternative Investments formulas?
Understanding the underlying concept of each formula will help you memorize related concepts and formulas. Think of it as a mathematical depiction of the concept rather than memorizing phrases one by one. As you build this foundation of understanding, reinforce it through repetition and application. Take a look at our CFA L1 Formula Sheet page for further resources and tips.
What is the CFA Level 2 Alternative Investments Topics?
These readings focus on real estate, private equity, and commodities. The readings describe real estate investments, both private and public, and methods for analysis and evaluation. Private equity, including venture capital and leveraged buyouts, is examined from the perspectives of both a private equity firm evaluating equity portfolio investments and an investor considering participation in a private equity fund. Strategies involving commodity hedging are also discussed.
The CFA Level 2 Alternative Investment (AI) is not only fundamental to passing CFA Level 2 but to succeeding in the CFA overall. At Level 2, 3 of the 47 (6.4%) readings are dedicated to AI. Candidates will dive deeper into the details of the concepts and principles presented in the CFA Level 1 AI curriculum.
Exam weighting
CFA Alternative Investment has a weighting of 5%-10% of the total exam content, such that approximately 6 of the 88 CFA Level 2 exam questions focus on this topic.
Topic Weight | No. of Readings | No. of Formulas | No. of Questions |
---|---|---|---|
5-10% | 03 | Around 20 | 6 |
Syllabus & Readings Overview
The CFA Level 2 exam includes 47 total readings for 2022 out of which only 3 readings (around 6.4%) focus on Alternative Investments (i.e. Reading 35, 36, and 37).
Study Session | No. of Readings | No. of LOS |
---|---|---|
14 | 03 | 34 |
Summary It focuses on the following categories of Alternative Investments: real estate, private equity, and commodities. Real estate investments, both private and public, are described, and methods for analysis and evaluation are presented. Private equity, including venture capital and leveraged buyouts, is examined from both the perspectives of a private equity firm evaluating equity portfolio investments and of an investor considering participation in a private equity fund. |
For a more comprehensive enumeration of LOS visit the official CFAI Level 2 syllabus page and select the desired session under “2022 Level 1 Study Sessions”.
Real Estate Investments
This reading compares various characteristics, classifications, and risks for public and private real estate investments. It further describes the valuation principles and approaches for pricing alternative assets along with discussion on the advantages and disadvantages of investing in real estate through publicly traded securities compared to private vehicles.
Private Equity Investments
Private equity, including venture capital and leveraged buyouts, is examined from the perspectives of both a private equity firm evaluating equity portfolio investments and an investor considering participation in a private equity fund.
Introduction to Commodities and Commodity Derivatives
This reading provides a discussion of commodities and commodity futures, including scenarios of contango and backwardation for futures prices.
Exam weight and Topic Changes in Alternative Investments Level 2
The weighting of the Alternative Investment has remained constant from 2018 to 2022.
2018 | 2019 | 2020 | 2021 | 2022 |
---|---|---|---|---|
5-10% | 5-10% | 5-10% | 5-10% | 5-10% |
Alternative Investments | #Readings |
---|---|
# of unchanged Readings | 0 |
# of Updated Readings | 0 |
# of Revised Readings | 2 |
# of New Extensively Revised or Added Readings | 1 |
The Level II curriculum has been updated with new material examining alternative investments. Private Real Estate Investments and Publicly Traded Real Estate Securities are combined and revised in the “Real Estate Investments” reading. A general overview of real estate investments is given, and the relative advantages of investing in real estate through private entities vs publicly listed securities are then discussed. The reading comprises two actual appraisals and 33 examples. Although it is commonly known that real estate contributes significantly to a balanced portfolio’s diversification, applicants should be aware of how significantly the risk profile of real estate investments varies depending on the type of asset. The “Real Estate Investments” reading describes the risk profile of real estate debt vs equity (as a lender or owner of mortgage-backed securities), with a primary focus on commercial real estate.
Alternative Investment Level 2 Changes | |
---|---|
Real Estate Investments | Major Revision |
Publicly Traded Real Estate Securities | Dropped |
Private Equity Investments | Revised |
Introduction to Commodities and Commodity Derivatives | Revised |
CFA Alternative Investments Level 2 Sample Questions and Answers
The sample questions here are typical of the L2 exam’s complexity and depth: formatted as item sets, with a vignette to deliver a scenario that tests the CFA L2 Curriculum. (On the actual exam, each vignette applies to four questions; we’ve thrown in a couple extra to get a bit more learning in). And be sure to review the illustrated explanations we’ve provided for each question: UWorld’s question bank is designed to expose you to exam-like questions and explain the concepts tested thoroughly.
Passage
Chao Li is a vice president at Tailwind Capital, a private equity (PE) firm. He is currently raising £100 million for Tailwind Fund A. Li meets with An Heng, an associate at Insular Insurance Co., a potential institutional investor. In their meeting, Li explains the general structure of PE funds to Heng:
- Statement 1: The limited partners (LPs) and the general partner (GP) in a private equity fund participate in managing the fund.
- Statement 2: The GP is entitled to carried interest, which is typically a percentage of the fund’s profits after management fees.
- Statement 3: PE funds are closed-end funds, so LPs can redeem their investments only at specified times.
Heng says, “I understand there are costs associated with investing in PE, such as significant performance fees, dilution costs whenever the PE firm starts new funds, and annual audit costs. And I know that there are some agency risks involved with investing in a PE fund. Is there a governance provision that would address GP gross negligence?”
Subsequently, Li raises the full £100 million for Fund A. One of the fund’s investments is ModernWare, an online services company. The initial investment is £20 million: £13 million in debt, £2 million in preferred equity, and £5 million in the PE fund’s equity. Tailwind plans to sell ModernWare 5 years from now and plans to reduce the debt balance by £10 million by the time of exit. The promised return for the preferred equity holders is 15%.
Several years after the fund’s inception, Tailwind exits two investments: StoneWare and BronzeWare (Exhibit 1). Carried interest to the GP is accrued on a deal-by-deal basis and equals 20% of the profits from each exit. The hurdle rate is 10%. When a deal’s IRR is above the hurdle rate, carried interest is accrued; when a deal’s IRR is below the hurdle rate, a clawback penalty amount is accrued if there is a loss.
Exhibit 1 Investment Exits | |||
---|---|---|---|
Company | Initialinvestment (at T = 0) | Profit from exit (£ millions) | Exit year |
StoneWare | 8 | 3 | T = 3 |
BronzeWare | 5 | -1 | T = 4 |
Twelve years after the fund’s inception, Li meets with Heng again to review Fund A’s performance, shown in Exhibit 2.
Exhibit 2 Tailwind Fund A Performance | ||||||
---|---|---|---|---|---|---|
Committed capital (£ millions) | Paid-in capital | Net IRR(%) | Distributions to paid-in capital | Residual value to paid-in capital | Total value to paid-in capital | Maturity |
200 | 190 | 25.0% | 1.40 | 1.45 | 2.85 | 12 years |
Which of Heng’s statements on Tailwind’s fund structure is incorrect ?
- Statement 1
- Statement 2
- Statement 3
Statement 1: The limited partners (LPs) and the general partner (GP) in a private equity fund participate in managing the fund.
Statement 2: The GP is entitled to carried interest, which is typically a percentage of the fund’s profits after management fees.
Statement 3: PE funds are closed-end funds, so LPs can redeem their investments only at specified times.
PE funds are typically structured as limited partnerships in which the GP (ie, fund manager) acts as an agent on behalf of the LPs (ie, investors). The GP actively manages the fund and is responsible for all debts (ie, unlimited liability). The LPs commit capital to the GP, and their liabilities are limited to their invested amounts. Statement 1 is incorrect since LPs are not actively involved in managing the fund.
(Choice B) In exchange for managing funds, GPs charge management fees, some transaction fees, and carried interest.
(Choice C) PE funds are closed-end funds since existing investors are restricted from redeeming their shares for long periods of time. In addition, new investors can be restricted from entering the fund during certain windows.
Things to remember:
A private equity fund consists of a general partner (GP) (ie, fund manager) and limited partners (ie, investors). The GP is entitled to management fees and carried interest in exchange for managing the fund. However, the GP is responsible for all the fund’s debt (ie, unlimited liability), whereas the limited partners’ liabilities are limited to their invested amounts.
Which governance provision most likely addresses GP gross negligence?
- No-fault divorce
- Key man clause
- Removal for cause
Corporate governance terms |
---|
|
PE funds follow strict corporate governance terms to minimize agency risk. This is done by aligning the interests of the fund manager (ie, general partner or agent) with those of the investors (ie, LPs or principals). A fund’s prospectus usually includes a removal for cause provision that allows for the early termination of a GP based on grounds of gross negligence, felony conviction, bankruptcy, or breach of contract.
(Choice A) No-fault divorce enables the LPs to remove the GP without cause provided that a supermajority of LPs approves.
(Choice B) A key man clause addresses how GPs may replace executives (eg, CEO, CFO) in portfolio companies before making new investments. If a key executive leaves a portfolio company, the GP must replace that executive before investing in new portfolio companies.
Things to remember:
Corporate governance terms help align the interests of a PE fund’s manager with those of the investors. A fund’s prospectus usually includes a removal for cause provision that allows for the early termination of a GP based on grounds of gross negligence, felony conviction, bankruptcy, or breach of contract.
When speaking about costs associated with investing in private equity, Heng is incorrect with regard to:
- annual audit costs
- significant performance fees
- dilution costs when the firm starts new funds
Costs associated with investing in private equity | |
---|---|
Transaction costs | Due diligence, bank financing, legal fees, sales transactions |
Fund setup costs | Legal costs for setting up a fund |
Administrative costs | Based on NAV, includes custodian, transfer agent, and accounting fees |
Audit costs | Annual audit fee |
Management and performance fees | Assets under management (AUM) fee (eg, 1% of AUM) plus performance fee (eg, 20% of profits) |
Dilution costs | Dilution from subsequent fundraising or from stock options exercise |
Placement fees | Upfront fee based on amount raised or trailer fee based on amounts invested |
Certain costs are associated with PE investing, as shown above. Although most costs directly reduce investor profits, dilution costs are more indirect. Dilution occurs when a PE firm raises additional capital for an existing fund or when a portfolio company’s management exercises stock options. Both events create additional shares, which dilutes the ownership percentages for existing shareholders. Heng’s comment regarding dilution is incorrect; new funds start with no dilution since there are no existing shareholders.
(Choices A and B) Audit costs and performance fees are costs associated with investing in PE.
Things to remember:
Dilution occurs when a PE firm raises additional capital for an existing fund or when a portfolio company’s management exercises stock options. Both events create additional shares, which dilutes the ownership percentages for existing shareholders.
FAQs
Is CFA level 2 Alternative Investments hard?
As with all of the Level 2 curriculum, compared to Level 1, these readings–and the material they explore–have more depth and detail, and therefore are more difficult.
How can I study L2 Alternative Investments for CFA?
The best way to study for the exam is to read the curriculum and practice with a QBank across all chapters and readings. UWorld’s CFA Level 2 test prep helps you review your progress and acts as a catalyst in speeding up your preparation process.
What is CFA Level 3 Alternative Investments?
CFA L3 Alternative Investments present distinctive regulatory and investment characteristics of the major categories of hedge fund strategies. It discusses the role alternative assets play in a multi-asset portfolio and explores how alternatives may serve to mitigate long-only equity risk. Approaches to asset allocation when incorporating alternatives in the opportunity set—whether through the traditional asset allocation approaches or using a risk- or factor-based approach—are examined. There are 2 of the 35 (5.7%) Level 3 readings dedicated to AI.
Candidates will dive deeper into the details of a narrower range of concepts and principles presented in the CFAI Level 2 AI curriculum.
Exam weighting
The CFA Alternative Investment curriculum has a weighting of 5%-10% of the total exam content, so that approximately 6 of the 88 CFA Level 3 exam questions focus on this topic. Each item set on the CFA Level 3 exam 2022 will consist of vignette-supported essay or multiple choice questions.
Topic Weight | No. of Readings | No. of Formulas | No. of Questions |
---|---|---|---|
5-10% | 02 | Around 5 | 6 |
Syllabus & Readings Overview
The CFA Level 3 exam includes 35 total readings for 2022 out of which only 2 readings (around 5.7%) focus on Alternative Investments (i.e. Readings 19 & 20).
Study Session | No. of Readings | No. of LOS |
---|---|---|
9 | 02 | 17 |
Summary Presents distinctive regulatory and investment characteristics of the major categories of hedge fund strategies.Discusses the role alternative assets play in a multi-asset portfolio and explores how alternatives may serve to mitigate long-only equity risk. Discusses approaches to asset allocation when incorporating Alternatives in the opportunity set whether using the traditional asset class approach or risk or factor-based investing. |
Hedge Fund Strategies
This reading discusses important hedge fund categories as well as the investment characteristics of six main hedge fund strategies: equity-related, event-driven, relative value, opportunistic, specialist, and multi-manager strategies.
Asset Allocation to Alternative Investments
This study discusses the potential benefits of adding Alternative Investments to a portfolio of traditional investments that typically includes debt and equity. Characteristics of Alternative Investments that impact asset allocation decisions are discussed. Factor-based optimization versus mean-variance optimization is compared along with discussion of liquidity concerns and time horizon as regarding Alternative Investments’ suitability.
Exam weight and Topic Changes in Alternative Investments Level 3
The weighting of the Alternative Investment has remained constant from 2019 to 2022.
2018 | 2019 | 2020 | 2021 | 2022 |
---|---|---|---|---|
5-15% | 5-10% | 5-10% | 5-10% | 5-10% |
Alternative Investment for Portfolio Management | #Readings |
---|---|
# of unchanged Readings | 2 |
# of Updated Readings | 0 |
# of Revised Readings | 0 |
# of New Extensively Revised or Added Readings | 0 |
The two readings in the Alternative Investments for Portfolio Management topic remain unchanged for 2022.
FAQs
Is the CFA Level 3 Alternative Investments topic hard?
The difficulty level is higher than average.
How do I study Level 3 Alternative Investments for the CFA exam?
The best way to study for the exam is to practice with a QBank across all chapters and readings. The UWorld CFA Level 3 QBank is expected to launch in 2023. The CFA Institute provides official material as well as online resources for registered candidates on its website.
How do I practice CFA Level 3 Alternative Investments questions?
After moving through a QBank, check your progress by taking Mock Exams. UWorld is releasing its CFA Level 3 test prep later this year, which will closely replicate the actual CFA L3 exam experience.
Study Tips for CFA Alternative Investments
In addition to the more conventional long-only positions in stocks, bonds, and cash, other assets can be used. Hedge funds, private equity, real estate, natural resources, and infrastructure are the five primary areas of alternative investments. Candidates are not expected to have an extraordinarily in-depth comprehension of this content, at least not for the Level 1 exam, given that this study session is constrained to a single reading with around half a dozen LOS. The readings at Levels 2 and 3 cover the same subcategories but go into more detail.
- It is critical to be able to discern between the many categories of strategies when dealing with hedge funds.
- Although the CFA Level 1 Alternative Investments are addressed from a highly qualitative standpoint, it is realistic to anticipate that you may be asked to estimate hedge fund fees.
- You won't need your calculator much throughout this largely qualitative study session.