Test your knowledge

1. Which of the following is NOT a reason to invest in private equity (PE)?

	A. portfolio diversification
	B. high risk-adjusted returns
	C. low correlation to other asset classes
	D. low management and performance fees

2. Which of the following is a common characteristic of the underlying portfolio companies in venture capital investment?

	A. highly levered
	B. usually listed
	C. usually unlisted
	D. potential target companies in a leveraged buyout

3. Which of these is a common difference between private equity firms and venture capital (VC) firms?

	A. PE firms acquire controlling stakes in companies but VC firms typically acquire minority stakes
	B. PE firms acquire minority stakes in companies but VC firms typically acquire majority stakes
	C. PE firms are onshore companies while VC firms are offshore entities
	D. PE firms do not use leverage while VC firms typically take on large amount of leverage

4. Which of the following best describes funds of funds?

	A. double layer of fees
	B. can provide the necessary resources and address the information gap of inexperienced PE investors
	C. can cause an investor to lose access to information and control as opposed to making an investment directly in a private equity fund
	D. all of the above

5. Which of the following describes a typical fee structure for private equity asset manager?

	A. base management fee only
	B. base management fee and a performance fee typically payable after achieving a predeterined hurdle rate for investors
	C. performance fee only
	D. base management fee paid on invested capital only

6. Which of the following statements is a characteristic in venture capital investing?

	A. investment in young and early-stage companies
	B. investment in highly leveraged companies
	C. investment in listed companies
	D. investment in companies that have filed for Chapter 7 bankruptcy

7. Which of the following is a private equity strategy?

8. What does ‘hurdle rate’ refer to in a private equity limited partnership fund?

	A. a rate that allows investors to receive back previously paid incentive fees
	B. a minimum rate of return a GP must meet before receiving their performance fee
	C. a maximum rate of return a GP must meet before receiving their performance fee
	D. a standard rate to cover administrative, operational, and management items

9. Which of the following is NOT a measure of performance in private equity funds?

	A. internal rate of return (IRR)
	B. distribution to paid-in (DPI)
	C. total value to paid-in (TVPI)
	D. risk to reward measurement (RRM)

10. Which of the following describes the ‘J-curve’ effect in private equity funds?

	A. net cash flows are often positive in the early years, before increasing in later years
	B. net cash flows are often positive in the early years, before decreasing and turning negative in later years
	C. net cash flows are often negative in the early years, before increasing and turning positive in later years
	D. net cash flows are often negative in the later years, after increasing and turning positive in early years

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Asset class 101: Infrastructure