Real Estate and Infrastructure — MCQs

Caldera Foundation is conducting due diligence on several alternative strategies. The foundation can accept moderate illiquidity but requires transparent descriptions of leverage, fee mechanics, and major sources of non-market risk. Its consultant emphasizes that hedge fund classifications should be based on economic positions rather than managers' marketing descriptions. Exhibit 1 summarizes three portfolios under review. The consultant also evaluates a hedge fund account subject to both a management fee and an incentive fee. The incentive fee is calculated after the management fee and applies only to account value exceeding the prior high-water mark. There is no hurdle rate, fee waiver, equalization adjustment, subscription, or redemption during the period. Exhibit 2 contains all information required to calculate ending net asset value. For its inflation-sensitive allocation, Caldera is considering a rules-based strategy that maintains continuous long exposure to a commodity by selling each futures contract shortly before expiration and purchasing the next contract. The current commodity spot price is USD 80 per unit, while each newly purchased deferred contract is priced at USD 84. The consultant assumes that spot prices and the shape of the futures curve remain unchanged between rolls and that futures prices converge to spot at expiration. Collateral income and transaction costs are excluded when determining the direction of roll return. Finally, Caldera reviews a digital token designed to maintain a value of USD 1.00. The private issuer states that tokens are backed by short-term reserve assets held with third-party custodians and may be redeemed through approved intermediaries. The token is transferred on a permissionless blockchain, but issuance, reserve management, and redemption remain centralized. Caldera's operational-risk specialist notes that the token's market price may depart from its target if reserve quality is questioned, custodians fail, or redemptions are delayed. Smart-contract execution and blockchain settlement do not by themselves guarantee the value or availability of off-chain reserves. The investment committee asks the consultant to identify the structure-specific risk that remains even if the blockchain continues processing transactions normally.

Armitage Alternatives is reviewing several non-traditional strategies for a diversified institutional portfolio. The investment committee is concerned that strategy labels can conceal materially different market exposures, fee outcomes, and operational risks. Fund Alpha buys equities that its manager considers undervalued and sells short equities considered overvalued. The manager does not seek to eliminate all market exposure and may vary the portfolio's net long position as market opportunities change. Exhibit 1 reports long exposure as a percentage of NAV and short exposure as the absolute magnitude of short positions. Gross exposure is therefore the sum of long and short exposure, while net exposure is long exposure minus short exposure. Fund Beta, by contrast, purchases shares of announced acquisition targets and may short the acquirer's shares when consideration includes stock. Its primary risks include deal failure, delays, financing problems, and changes in the anticipated consideration. Armitage also reviews Fund Alpha's annual fee calculation. The management fee is charged at year-end using beginning NAV. The incentive fee is then applied only to value remaining above the high-water mark after deducting the management fee. There is no hurdle rate, fee crystallisation occurs on the stated year-end date, and no subscriptions, redemptions, taxes, or other expenses occur during the year. The high-water mark is not adjusted for inflation. For its commodity allocation, the institution maintains long exposure by holding crude oil futures and replacing each contract shortly before expiration. At the current date, futures prices increase with contract maturity. Assume the shape of the curve and the spot price remain unchanged during the roll and ignore collateral income and transaction costs. The committee wants to identify the roll component of return separately from changes in the commodity's spot price. The institution is also considering a digital payment token designed to maintain a value of USD 1. The token is a liability of a private issuer that reports holding short-term securities and bank deposits as reserves. Redemption is subject to the issuer's procedures and available liquidity; no government deposit insurance applies to token holders. The institution would not hold its private keys directly but would use an external custodian. The custodian states that it uses offline storage and approval controls but does not guarantee against all cyber, fraud, legal, or operational losses. Armitage's analyst must evaluate each exposure using its actual economic structure rather than treating hedge funds, commodity futures, and digital tokens as conventional long-only securities.

An institution seeks infrastructure exposure with daily liquidity and no asset-level control requirement. The most appropriate investment is:

A portfolio manager seeking a natural-resource investment that generates periodic income from leasing land to farmers along with potential land-value appreciation should most likely select:

A fully collateralized three-month commodity future is purchased at 105 and expires at 100. Spot is unchanged, and collateral earns 2% annually on a simple basis. The calculated total return is closest to: