6.1 Alternative Investments
Alternative asset classes offer low correlation to traditional equity and bond benchmarks, appealing to accredited and qualified institutional investors seeking non-beta alpha.
Key NASAA Exam Takeaways
- Alternative investments include hedge funds, private equity, venture capital, commodities, and real estate.
- Hedge funds are organized as private partnerships exempt from Investment Company Act of 1940 registration under Section 3(c)(1) or 3(c)(7).
- Hedge funds charge '2 and 20' fees (2% management fee, 20% performance fee above a hurdle rate).
- Key risks include extreme illiquidity, lock-up periods, high leverage, and lack of transparency.
Knowledge Checkpoint • Section 6.1
Which of the following investors is eligible to invest in a private hedge fund relying on the Section 3(c)(7) exemption under the Investment Company Act of 1940?