CHA Study Guide - Hedge Fund Certification

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CHP STUDY GUIDELevel 1 Study GuideSponsored by the Hedge Fund Group (HFG)

CERTIFIED HEDGE FUND PROFESSIONAL (CHP) STUDY GUIDEThis study guide has been created for those individuals who are studying for the Level 1 CHPDesignation Exam. Registration for the CHP program is open year round with examinationsoffered every quarter. Admittance to exam dates is limited to the first 150 professionals.The CHP program is rigorous and continually improved to ensure that it is practical, curre nt,and valuable to both participants and employers.The content of the CHP Study Guide as follows:I.II.Hedge Fund Group (HFG) OverviewCHP Level 1 & Level 2 DetailsIII.CHP Level 1 TimelineIV.CHP Level 1 Exam PreparationV.VI.VII.VIII.IX.Required ReadingSix Examination Modules and Corresponding KeywordsChapter Tips and FocusesSample Exam QuestionsFrequently Asked Questions (FAQ)1

I. HEDGE FUND GROUP (HFG) OVERVIEWThe Certified Hedge Fund Professional (CHP) exam is sponsoredby the Hedge Fund Group (HFG), the largest international hedgefund association in the world with over 66,000 members.Members include multi-billion dollar hedge funds, hedge fundanalysts, professors, consultants, third party marketers, primebrokerage professionals, and some of the leading hedge fund service providers in theindustry.The HFG has over 50 Hedge Funds and Fund of Hedge Funds professionals on its AdvisoryBoard. The group continues to attract new members, some of whom will join the Board ofAdvisors who oversee the CHP Designation Program.II. CHP LEVEL 1 & LEVEL 2 DETAILSThe CHP Designation Program is a 100% online continuingeducation course. The CHP consists of two levels of testing, Level1 and Level 2. Level 1 certifies that you have a mastered acertain breadth and depth of hedge fund industry knowledge tohelp you excel within your current hedge fund position or enterthe hedge fund industry.Level 2, a more advanced certification, provides coursework and training in a specificarea of the hedge fund industry such as due diligence, marketing/sales, investor relations,or analytics. While completing Levels 1 & 2 is not required to be considered a CHPAlumni, you must complete Level 1 before registering for or taking the exam for any Level2 module.III. CHP LEVEL 1 PROGRAM TIMELINERegistration for the CHP program is open year round with examinations offered everyquarter. Admittance to exam dates is limited to the first 150 professionals. Examinationsare held online every 3 months on: January 10thApril 10thJuly 10thOctober 10thAfter registering for the CHP, you are welcome to schedule your examination date. Pleasenote that the deadline to select your exam date is the 6 th of each examination month. Forexample, to schedule yourself for the January 10 th examination date, an email must bereceived by January 6th with a request to sit for the January 10th exam.2

After the examination is completed, answers are graded and results are sent out withinone month. Results will be sent via email.IV. CHP LEVEL 1 EXAM PREPARATIONCandidates must purchase the required readings laid out here in thestudy guide. The keywords here also provide some additional ideas onwhat to pay attention to within the readings but they don’t covereverything that will be on the exam. The CHP exams are conceptual innature and require more of an understanding than a great ability tomemorize facts.Preparation time for this exam depends greatly on each candidate’scurrent knowledge, experience, reading speed and comprehension. It is impossible tocalculate how much time a specific individual would need to prepare, but we suggest 75100 hours of reading/study time.Examinations are offered four times a year. Each exam (for Level 1 and Level 2) is a 2hour exam administered online. In order to complete the exam in the allotted time,participants are required to gain a mastery of the core concepts covered in the requiredreadings.Those who have not read the material may have difficulty in completing the exam withinthe 2 hour time limit.Additional Resources PolicyYou will not need a calculator, ruler, or any graphing device for the Level 1 CHP exam.The formula-based questions concentrate on identifying formulas and understandingtheir meaning, rather than performing calculations.The Level 2 Exam and Completion of the CertificationAll CHP candidates must hold the CHP Level 1 title before attempting the Level 2 exam.Completion of both Level 1 and Level 2 is not required. The Level 2 exam is administeredon the same dates as the Level 1 exam. Upon successful completion of the Level 2 exam,the CHP Advisory Board confers the full CHP title upon the candidate.3

For more information about the CHP exam and program please visithttp://HedgeFundCertification.comLEVEL 1 EXAM COMPOSITIONTopicNumber of QuestionsIntroduction to Hedge Funds20 Multiple Choice QuestionsFund of Funds15 Multiple Choice QuestionsHedge Fund Strategies25 Multiple Choice QuestionsDue Diligence Tactics5 Multiple Choice QuestionsPortfolio Management Analytics10 Multiple Choice QuestionsHedge Fund Trends5 Multiple Choice QuestionsVariable2 Essay Questions4

V. CHP REQUIRED READING:A. REQUIRED READINGS. These texts can be found and purchased at http://HedgeFundBookstore.com,though participants are welcome to purchase the texts anywhere.1. Hedge Fund of Funds Investing: An Investor’s Guide by Joseph G. Nicholas. ISBN: 97815766012422. All About Hedge Funds by Robert Jaeger. ISBN: 978-00713939353. The Hedge Fund Book: A Training Manual For Professionals & Capital Raising Executives byRichard Wilson. ISBN: 04705206394. Investment Strategies of Hedge Funds by Filippo Stefanini. ISBN: 978-0470026274B. SUPPLEMENTAL TEXT & VIDEO RESOURCES:1. Handbook of Alternative Assets by Mark Anson ISBN: 978-04719802092. Hedge Fund Blog Book by Richard Wilson – http://HedgeFundsBook.com (Free PDF EBook)3. Hedge Fund Premium Membership (12 Months Free for CHP Members). This is our videotraining platform which provides you with access to over 50 video training modules.Within this video training platform please make sure and focus on the following videoswhich cover critical concepts for the CHP Level 1 examination:a. Hedge Fund Career Catalyst (100 Minute Webinar)b. CHP Level 1 Study Guide Reviewc. Unique Selling Proposition (Determine what yours is to current or future hedgefund employers)d. Hedge Fund Startupse. Top 4 Hedge Fund Industry Trendsf. Family Office Servicesg. Top 7 Hedge Fund Career Tipsh. Liquidity & Lock-Up Periodsi. Hurdle Ratej. Hedge Fund Cow Pathsk. What is Holding Your Hedge Fund Backl. Public Relations for Hedge Fund Managersm. The Free Hedge Fund E-Book Overviewn. Institutional Quality Improvement Opportunitieso. Media Portrayal of Hedge Fundsp. Hedge Fund Ecosystemq. Hedge Fund Careersr. High Water Mark Definitions. Institutionalization and the Importance of Transparencyt. Importance of Service Providers5

u. SKAR Development Formulav. Importance of Copywritingw. Fund Marketing Careersx. What is a Family Office?y. Future of the Hedge Fund Industryz. Top 5 Hedge Fund Career Mistakesaa. How Successful Hedge Funds Raise More Capitalbb. Hedge Fund Governance Best Practicescc. Hedge Fund Gating Clause Definition & Discussiondd. Importance of Hedge Fund Trainingee. Authority Constructionff. Similar Others & Capital Raising Best PracticesVI. KEYWORDS & SUBJECTS TO KNOWA. Introduction to Hedge FundsAbsolute ReturnAccredited InvestorAlternative Investment(s)/AssetsBetaBlack BoxCorrelationEndowmentFree-Ride SyndromeHedge Fund AdministratorHigh WatermarkInflationInitial Public OfferingInstitutional InvestorJones Hedge FundsLimited Liability CompaniesLiquidationLong-Term Capital ManagementManager RiskModern Portfolio TheoryNon-Systematic RiskOver-the-Counter (OTC)Pension FundsPrime BrokerPrivate EquitySECSystematic RiskB. Hedge Fund Strategies130/30 FundsConvertible Bond ArbitrageCredit Default SwapsDerivativesDistressed DebtDistressed SecuritiesEquity Long/ShortEvent DrivenFund of Hedge FundsFuturesGlobal MacroLeveraged Buyouts (LBOs)Long/ShortMarket NeutralMarket TimersMerger StrategyShort SellingStatistical ArbitrageTop-Down ManagersVolatility Arbitrag6

C. Hedge Fund Due DiligenceAuditing FirmBankruptcyCounterparty Credit RiskCustodianDisclosureEarly Redemption FeeExposure LimitsFraudGeneral PartnerLock-UpProspectusPublic RecordsRegistrarSanctionsSelf-Selection BiasStock Market ManipulationTarget ReturnTax LiensTurnoverD. Fund of Hedge FundsConvergent StrategyConvertible Bond ArbitrageDistressed SecuritiesDivergent StrategyDouble Layer of FeesEquity Long/ShortFund of Hedge Fund Industry, GrowthFund of Hedge Fund Industry, SizeFund of Hedge FundsGlobal MacroIndividual InvestorsInstitutional InvestorsLong/ShortMarket NeutralMarket TimersMinimum InvestmentMulti-Strategy Fund of Hedge FundsOpportunistic InvestingPolicy EffectShort SellingSingle Strategy Fund of Hedge FundsTransparencyE. Hedge Fund Portfolio AnalyticsAlphaAppraisal RatioBasis RiskBeta DriversCapital Asset Pricing ModelCovarianceDownside RiskDrawdownHedge Fund AdministratorHurdle rateInformation ratioKurtosisLeptokurtosisLeverageLiquidityOmega RatioPlatykurtosisPortable AlphaR-SquaredSharpe RatioSortino RatioTreynor Ratio7

VII. CHAPTER FOCUS TIPSIn addition to providing the above keywords we would also like to also direct participants to themost vital chapters of the required readings. We would recommend that you cover the requiredreadings by first reading “All About Hedge Funds” followed by "The Hedge Fund Book: A TrainingManual for Professionals and Capital-Raising Executives," followed by “Hedge Fund of FundsInvesting,” and then read the more in-depth “Investment Strategies of Hedge Funds” last.It is important to read each chapter of the four books required for CHP Level 1. However, thisguide below will let you know which chapters you should read several times and take notes onbefore the exam:All About Hedge Funds by Robert Jaeger Chapter 1: The Historical ContextChapter 2: Hedge Fund Managers and ClientsChapter 3: Hedge Funds and the Brokerage CommunityChapter 9: Leverage, Short Selling, and HedgingChapter 10: Futures and OptionsChapter 13: Performance FeesChapter 15: An Overview of the Menu (Hedge Fund Strategies)Chapter 16: Equity Hedge Funds and Global Asset AllocatorsThe Hedge Fund Book: A Training Manual for Professionals and Capital-Raising Executives byRichard Wilson Chapter 1: Hedge Fund FundamentalsChapter 2: Institutionalization & OperationsChapter 4: The Shooting StarChapter 7: Giant Hedge FundsChapter 8: Frequently Asked Hedge Fund QuestionsHedge Fund of Funds Investing: An Investor’s Guide by Joseph G. Nicholas Chapter 1: Fundo Funds in the Hedge Fund IndustryChapter 2: Hedge Fund Investment StrategiesChapter 3: Fund of Funds Mechanics and the Two-Tiered StructureChapter 4: Advantages and Disadvantages of Funds of FundsChapter 9: Issues in Due Diligence: Portfolio ManagementChapter 10: Issues in Due Diligence: Risk ManagementInvestment Strategies of Hedge Funds by Filippo Stefanini Chapter 1: A Few Initial Remarks8

Chapter 2: ArbitrageChapter 3: Short SellingChapter 4: Long/Short EquityChapter 5: Merger ArbitrageChapter 6: Convertible Bond ArbitrageChapter 7: Fixed Income ArbitrageChapter 10: Distressed SecuritiesChapter 11: Event Driven or Special SituationsChapter 12: Multi-StrategyChapter 13: Managed FuturesChapter 14: Global MacroChapter 17: ConclusionVIII. CHP DESIGNATION: SAMPLE QUESTIONSSample Question #1: Which two qualities does an individual accredited investor possess?I) 1,000,000 net worthii) in excess of 150,000 individual income or 175,000 joint income with spouse in the mostrecent two yearsiii) 5,000,000 net worthiv) in excess of 200,000 individual income or 300,000 joint income with spouse in the mostrecent two yearsa)i & iib) iii & iic) i & ivd) iii & ivSample Question #2: What is the commonly used term in the hedge fund industry forsophisticated computer algorithms that lack transparency?a) Insider tradingb) "Black box"c) Quantitative arbitraged) HeteroscedasticitySample Question #3: Convertible bond arbitrage is to event driven as is to corporaterestructuring.a) Market neutralb) Short sellingc) Distressed securitiesd) Market timers9

Sample Question #4: What are the two strategies that have the broadest mandate acrossfinancial, commodity, and futures markets?i) Global macroii) Distressed securitiesiii) Fund of fundsiv) Equity long/shortv) Market timersa)i & vb)ii & ivc)iv & vd)i & iiiSample Question #5: The definition of a drawdown isa) A method to limit taxable gains for investorsb) A decline in the net asset value of the hedge fundc) A year end management feed) A withdrawal made while fully investedPlease Note: Once you have registered for the program you will be emailed a self-grading practiceexam in Excel so you can test your knowledge before the real exam is offered. This is a free studyresource that we offer to all participants.10

IX. CHP PROGRAM FREQUENTLY ASKED QUESTIONS (FAQ)Have more questions about the program? Please see our ever-expanding Frequently AskedQuestions (FAQ) page of our website here: http://hedgefundcertification.com/FAQ.htmlNeed any other information on the CHP Program? Please visit our website any time:http://HedgeFundCertification.comWant to contact our team? You can reach us with our information below:The Hedge Fund Group (HFG)3300 NW 185th Ave, Suite 108Portland, OR 97229Office: 212-729-5067Team@HedgeFundCertification.com11

Members include multi-billion dollar hedge funds, hedge fund analysts, professors, consultants, third party marketers, prime brokerage professionals, and some of the leading hedge fund service providers in the industry. The HFG has over 50 Hedge Funds and Fund of

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