CFA Level I · CFA Level I Exam · Hedge Funds
A manager runs a portfolio with long positions of $60 million and short positions of $40 million against $50 million of investor capital. The fund's gross exposure and net exposure as a percentage of capital are closest to:
Gross exposure is 200% of capital because longs plus shorts total $100 million against $50 million of capital. Net exposure is 40% because longs minus shorts equal $20 million. Gross measures total positions, while net measures the directional market bet.
- AGross 40%, net 120%
- BGross 120%, net 40%
- CGross 200%, net 40%Correct
Explanation
Gross exposure = (60 + 40)/50 = 200%. Net exposure = (60 - 40)/50 = 40%. The first option reverses the two measures, and the second mistakenly uses long exposure alone as gross.
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