Hello fellow L3’ers. This may well be the first question on the reading…sorry! Maybe someone else has already covered this material or has good recall from years past? ************************* If a company pension plan hires a PM with long-short investment strategy to manage its U.S. EQUITY PORTFOLIO, wouldn’t it be a problem if a significant amount of the active returns generated by the strategy were from positions in NON-U.S. COMPANIES? Isn’t this diverging from the (U.S. equity) investment mandate? An important caveat to the question is to assume (1) that the long-short strategy is equitized with Russell 1000 futures and (2) Misfit Risk is small. So, is it the case that long-short strategies are not constrained by geographical investment profiles as long as, net-net, they stay market neutral and mirror their appropriate benchmark? The CFAI answer key says it’s not a concern as long as the PM “has skill in managing non-U.S. equities.” Needless to say, I’m not 100% getting this answer. CFAI question #11.E (Rdg 33, Vol 4, pg.257)