In the realm of alternative investments, hedge funds are known for their diverse strategies and approach to asset management. While hedge funds vary widely in their investment tactics, they are often characterized by a few common attributes. Consider the following characteristics of hedge funds: They often use leverage to amplify returns. They have less regulatory oversight compared to mutual funds. They typically charge higher fees, including performance fees based on profits generated. Based on these characteristics, which of the following statements accurately represents a distinguishing feature of hedge funds?

Exam

CFA Level 1

Section

Difficulty

Alternative Investments

Hedge Fund Investment Strategies

Very Hard Types Of Alt Investments Hedge Funds

In the realm of alternative investments, hedge funds are known for their diverse strategies and approach to asset management. While hedge funds vary widely in their investment tactics, they are often characterized by a few common attributes.

Consider the following characteristics of hedge funds:

They often use leverage to amplify returns.
They have less regulatory oversight compared to mutual funds.
They typically charge higher fees, including performance fees based on profits generated.

Based on these characteristics, which of the following statements accurately represents a distinguishing feature of hedge funds?

Hedge funds primarily invest in publicly traded equities.

Hedge funds employ a variety of strategies that may involve short-selling and derivatives.

Hedge funds are restricted to accredited investors only, but their investment strategies are carefully regulated by the SEC.

Hint

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