Fund monitoring, reporting and exit: NISM Series XIX-A notes and practice questions

Q1. Which statement best describes “Capital account statement”?

1. The hurdle rate or preferred return is the minimum return investors must receive before the manager earns carry.
2. A statement showing the investor's contributions, distributions, fees and current value.
3. The PPM is the principal disclosure document describing the fund's strategy, terms, fees, risks and governance.
4. Sourcing is how a manager finds investment opportunities, through networks, bankers and proprietary research.

Q2. Which statement best describes “Buyback by promoter”?

1. In a promoter buyback, the founders repurchase the fund's stake, often at a pre-agreed return.
2. A distributor must give investors the PPM and explain risks, fees, lock-in and illiquidity before they invest.
3. A term sheet sets the key terms of an investment, such as valuation, rights and conditions, before definitive agreements.
4. In-specie distribution gives investors the underlying securities instead of cash when the fund winds up or at exit.

Q3. Which statement best describes “Investor reporting”?

1. Managers provide regular reports such as NAV, portfolio updates, audited accounts and notice of material events.
2. Alternatives aim to deliver higher returns than listed markets as compensation for illiquidity and risk, but outcomes vary widely.
3. A statement showing the investor's contributions, distributions, fees and current value.
4. The documents specify governing law, jurisdiction and dispute resolution, often through arbitration.

Q4. Which statement best describes “In-specie distribution”?

1. Investors must complete KYC and anti-money laundering checks, and the source of funds should be verified.
2. In-specie distribution gives investors the underlying securities instead of cash when the fund winds up or at exit.
3. The PPM is the principal disclosure document describing the fund's strategy, terms, fees, risks and governance.
4. Because fees can depend on NAV or invested capital, inflated valuations can overstate performance and fees, so independent checks matter.

Q5. Which statement best describes “Strategic sale”?

1. A strategic sale transfers the investee to another company, often at a premium.
2. Co-investment lets selected investors invest directly alongside the fund in a deal, often with lower fees, subject to regulatory conditions.
3. A catch-up lets the manager receive a larger share of distributions after the hurdle until it has received its full carry percentage of total profits.
4. A distributor must assess a client's financial position, experience, risk appetite and horizon before recommending an AIF.

Q6. Which term is described here? Managers provide regular reports such as NAV, portfolio updates, audited accounts and notice of material events.

1. LLP and company forms
2. Default provisions
3. Investor reporting
4. Number of investors