What is a leveraged co-invest Fund?

CFA Level III
#1

Doing the schweser exam 1 PM…Ethics question 12… the question threw me off, when it said AS a replacement for the fund, he selected in a new hedge fund which invested in companies that fund managers believed were likely takeover candidates.

For my answer, i chose viloated the suitability standard.

Is leveraged co-invest not a strategy, but instead a vehicle for how the fund is put togehter?

Thanks!

P.S. - why havent they added spell check on here?

#2

The last segment of the “Garrett Keenan” vignette says that:

  1. GSB has a procedure requiring a quarterly review of all FoF managers’ performance;

  2. having carried out this review and having ranked the Funds in the FoF by performance, Keenan removed the " second worst performing FoF…"

Keenan’s behavior is clearly violating a few standards as pointed out in question no. 11.

The point is that Keenan should have removed the worst performing fund rather than the second worst performing. He chose not to remove the worst performing fund on account of his personal friendship with Carmichael.

Question no. 12 looks at the other side of the coin: having violated the standards in relation to not removing the worst performer, has Keenan violated the standards in relation to the fund he has selected as a replacement?

There is nothing in the vignette that says that the replacement fund is unsuitable or that there has been mkt manipulation so the answer must be C “did not violate any standard”.

Good luck, Carlo

#3

This is one of those subjective questions in which you assume this and you assume that. In their answer they assume that hedge fund investors are sophisticated investors so the new fund is suitable. Sophisticated my #*$. Based on 2008 crisis, I assume most investors are dumb (behaviorally biased)

#4

i hate this g*****n question. My htinking during this quesiton was…

Ok — only idiots have a rule where they always fire the worst performing manager, because studies show, that they will then start outperforming.

So I was thinking, there may have been ANOTHER reason why he fired to second to worst manager instead of the worst manager (his friends).

#5

I think that it’s a co-invest fund that’s . . . y’know . . . leveraged.

(Sorry: 7 CFA sessions since Friday evening, and another this evening. Punchy.)