Do any of you retakers remember...

that question on the 2007 exam about putting a hedge fund in a conservative investors portfolio? It was tricky because all it stated that you had done research on it. Does the curriculum talk about that this year? If you have done your due dilligence on a hedge fun can you place it in an investor’s portfolio? I don’t think this question stated anything about the risk of the specific hedge fund, just that it was a hedge fund and the investor was conservative and you had done your research on it. This one really messed me up…and I could see it or a similar question popping up on this years test.

According to PIR, if you have done your research and it’s suitable for your conservative client in a portfolio context, diversification, reducing risk, etc. it should be kosher, I think.

that would not make sense because hedge funds are for high risk investors. If your investor is conservative, even if you have done your research on it, it would go against what their IP would say or their investment objectives would be.

But the PIR says that you should look at risk from a portfolio level. Not on an individual basis. Remeber, derivatives are also a risky (leveraged) product but they can actually be used to reduce the overall risk exposure.

PIR states you consider the Risk/Return profile of portfolio as a whole- not any individual holding- so it should be ok. No-go under PMR

Yes I recall that one, and I say look at the whole portfolio. Under new man rule or whatever it is called…no security is off limit so long as it is in line with risk/return of the portfolio as a whole not individual security. Hope that helps… Cheers

Got that wrong last year; It’s ok if it makes sense in the context of the client portfolio…to say that you could never recommend a hedge funds is absurd - think about it

Deep: Who says that a hedge fund has to be high-risk if they don’t define it in the problem? Hedge Fund’s as a higher risk investment is too much of a generalization. There are high risk hedge funds as well as low risk hedge funds. Depends upon the a.) Strategy of the Fund; b.) Leverage; c.) Evaluation of the managers Track Record; etc. Basically whatever the DD process uncovers. I agree with everyone else - its OK.

just look at it this way a risky hedge fund can actually lower the risk of your portfolio And I think that says it all

I was just thinking about this the other day. If you want to know the real answer, search CFAI’s website. I remember that they had a publication that specifically addressed this problem. And no, it’s not in the Standard; it was a release.

^^I think it may have been in here: http://www.cfainstitute.org/centre/topics/hedge/ Possibly the Asset Manager Code

yup, I guess im wrong on this one. If he researched it, then its ok by me too!

Is someone going to research this. I’m more curious then anything. I think one of you lurkers should pull some weight and get on this.