Accredited Wealth Management Advisor Practice Exam

Which strategy is one of the four main categories of hedge funds according to the CAIA?

1. Business development companies.

2. Opportunistic.

3. Mezzanine financing.

4. Stable value.

The correct answer is: Opportunistic.

Opportunistic strategies are recognized as one of the four main categories of hedge funds according to the Chartered Alternative Investment Analyst (CAIA) designation. This approach involves taking advantage of market inefficiencies or pricing discrepancies across various asset classes, including equities, fixed income, and derivatives. Hedge funds employing opportunistic strategies typically have flexible investment mandates, allowing them to adjust their portfolios based on prevailing market conditions and to pursue high-return opportunities that may arise during different market cycles. This flexibility often includes utilizing leverage and short selling, which can enhance potential returns but also increases risks. The other options do not fall under the main categories of hedge funds as defined by the CAIA. Business development companies, for instance, are investment vehicles that focus on helping small and mid-sized businesses by providing capital. Mezzanine financing pertains to a form of debt that is typically used in corporate financing and is not itself a hedge fund strategy. Stable value usually refers to investment products linked to fixed-income securities that aim to provide capital preservation and steady returns, rather than strategies focused on active management and market inefficiencies. Understanding these distinctions allows for a clearer categorization and comprehension of hedge fund strategies.