Mock Assessment – Alternative Investments
Recommended time: 60 minutes
Total marks: 100
Questions: 20
Do not refer to your notes, the knowledge files, or the Answer Key during the assessment. Complete all questions before checking. Mark yourself using the Marking Guide.
This is a self-study tool, not a professional qualification. All content is general public knowledge only.
Instructions
- Write your answers in full sentences where possible; bullet points are acceptable for lists and calculations.
- Show your working for all numerical questions — marks are awarded for method as well as correct answers.
- Where a question asks you to “explain”, a one-line definition alone will not score full marks.
- Each question shows the marks available in brackets.
Section 1 — Core Private Markets Mechanics (13 marks)
Q1. [4 marks] cf. QB Q1 — Short answer
What is the illiquidity premium? State two conditions that must hold for it to be a rational expectation.
Q2. [5 marks] cf. QB Q4, Q5 — Explain
(a) Describe the three phases of the J-curve and what drives each phase. (2 marks)
(b) A GP uses a 6-month subscription line facility. Explain how this changes the reported IRR and the shape of the J-curve from the LP’s perspective, compared to a fund that calls capital immediately. (3 marks)
Q3. [4 marks] cf. QB Q7 — Scenario
An LP has committed to four closed-ended PE funds with total commitments of £40m. Total capital called to date is £22m. In Q3, three GPs simultaneously issue capital calls totalling £8m. The LP has £5m in liquid assets available.
Identify the risk this scenario illustrates and explain the planning error that led to it.
Section 2 — Fund Structures and LP/GP Economics (16 marks)
Q4. [8 marks] cf. QB Q11 — Scenario
A fund has £80m of committed capital. All capital is called and invested. After 6 years, the fund achieves a gross exit value of £180m. The LPA specifies: 8% compound annual preferred return; full GP catch-up; 20% carried interest on all profits.
Calculate and show:
(a) Return of capital to LPs (1 mark)
(b) Preferred return to LPs (show the formula and calculation) (2 marks)
(c) GP catch-up amount (2 marks)
(d) Final split of remaining profits between LPs and GP (2 marks)
(e) Total received by LPs and total received by GP (1 mark)
Q5. [5 marks] cf. QB Q13 — Explain
Explain how recycling provisions affect DPI during a fund’s investment period. Why might a large institutional LP with defined distribution obligations dislike aggressive recycling?
Q6. [3 marks] cf. QB Q17 — Short answer
State the main economic difference between a co-investment and a fund-of-funds commitment for an LP investing in the same underlying deal.
Section 3 — NAV, Valuation, and Reporting (14 marks)
Q7. [4 marks] cf. QB Q19 — Short answer
Classify each of the following as Level 1, 2, or 3 under IFRS 13, and give a one-sentence justification for each:
(a) A fund’s holding in a listed company
(b) A PE fund’s stake in an unquoted portfolio company
(c) A leveraged loan with observable credit spreads
Q8. [4 marks] cf. QB Q22 — Short answer
Who typically calculates NAV for a closed-ended private fund? Describe one independent check that exists and one material limitation of that check.
Q9. [6 marks] cf. QB Q24 — Scenario
A fund is 8 years into a 10-year term. TVPI is 1.4×, DPI is 0.3×, RVPI is 1.1×.
Assess this performance profile. What does RVPI 1.1× indicate in the context of a year-8 fund? What concerns should an LP raise?
Section 4 — Performance Metrics (17 marks)
Q10. [6 marks] cf. QB Q26 — Scenario
A fund invested £2m in Company X at the start of year 1. It exited at the start of year 6 for £5.4m.
(a) Calculate the MOIC. (2 marks)
(b) Calculate the approximate IRR. Show your method. (4 marks)
Q11. [5 marks] cf. QB Q29 — Explain
A fund uses a 9-month subscription line facility. Explain how this affects the reported IRR compared to a fund that calls capital directly from LPs on the investment date. Explain why MOIC is unaffected.
Q12. [6 marks] cf. QB Q30 — Scenario
Fund A reports net IRR of 14% and a PME of 0.88× against a broad public equity index.
Fund B reports net IRR of 11% and a PME of 1.05× against the same index.
(a) What does each fund’s PME tell you that its IRR does not? (3 marks)
(b) From the perspective of an LP benchmarking against public market returns, which fund has performed better? Justify your answer. (3 marks)
Section 5 — Liquidity, Leverage, and Concentration Risk (12 marks)
Q13. [8 marks] cf. QB Q34 — Scenario
A PE buyout acquires a business for £150m enterprise value, financed with £60m equity and £90m debt.
(a) Two years later, enterprise value has fallen 40%. Calculate the current equity value and the percentage equity loss. (4 marks)
(b) If the same business had been acquired with £100m equity and £50m debt, calculate the equity value and percentage equity loss under the same 40% EV decline. (2 marks)
(c) What does the comparison between (a) and (b) demonstrate about leverage? (2 marks)
Q14. [4 marks] cf. QB Q36 — Short answer
Name four distinct dimensions of concentration risk that an LP managing a portfolio of 20 alternative fund commitments should monitor. Give one example of each.
Section 6 — Hedge Funds and Private Credit (10 marks)
Q15. [5 marks] cf. QB Q41 — Explain
What is PIK (Payment in Kind) interest? Explain how it affects a private credit fund’s reported NAV and income, and identify one risk it may mask.
Q16. [5 marks] cf. QB Q45 — Explain
Explain the concept of equalisation in a closed-ended fund. What two costs does a late-close investor typically bear, and why does each exist?
Section 7 — Operations, Onboarding, and Subscriptions (9 marks)
Q17. [4 marks] cf. QB Q51 — Short answer
List the four main stages of a closed-ended fund subscription in the correct order. State what must be confirmed before any capital is transferred.
Q18. [5 marks] cf. QB Q52 — Explain and scenario
(a) What is the difference between a recallable and a non-recallable distribution? (2 marks)
(b) A fund distributes £10m to LPs in Q2 under a recallable distribution provision. In Q4, the GP issues a recall notice for £6m to fund a follow-on investment. What must the LP do, and what does this imply for how it should have treated the original distribution? (3 marks)
Section 8 — Source-Backed Review (9 marks)
Q19. [5 marks] cf. QB Q58 — Explain the difference
What is the difference between ILPA Templates and ILPA Principles? Give one example of what each covers that the other does not.
Q20. [4 marks] cf. QB Q57 — Short answer
(a) Which accounting standard defines the Level 1/2/3 fair value hierarchy for IFRS reporters? (1 mark)
(b) Why are almost all PE fund holdings classified as Level 3? (3 marks)
After Completing the Assessment
- Mark yourself using the Marking Guide before checking the full Answer Key.
- For any question where you scored fewer than half the available marks, update your Weak Spots Tracker.
- Suggested grade boundaries (self-study only — not a formal standard):
- 80–100: Strong command; proceed to source-backed review in Stage 7 of the Learning Path
- 60–79: Good foundation; revisit weaker sections before Stage 7
- Below 60: Re-read the Weekly Study Plan and complete Week 4 before re-testing