CFA Level I · CFA Level I Exam · Alternative Investment Features, Methods, and Structures
Which of the following is most likely a distinguishing feature of hedge funds relative to private equity funds?
Hedge funds are most distinguished by their use of leverage, short selling and derivatives in generally liquid markets. Private equity funds instead hold illiquid stakes in unlisted companies and call committed capital over several years to fund buyouts.
- AIlliquid holdings of unlisted operating companies
- BUse of leverage, short selling and derivatives across liquid marketsCorrect
- CCapital drawn down over several years to finance buyouts
Explanation
Hedge funds typically trade liquid securities and employ leverage, shorting and derivatives. The other two describe private equity, which holds unlisted companies and draws committed capital over time.
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