SIE practice questionhardHedge Funds — Risks
Which of the following is NOT a typical risk associated with hedge fund investing?
- ALeverage amplifying both gains and losses
- BManager risk — heavy dependence on the fund manager's skill and strategy
- CFull transparency and daily pricing of all positions✓ Correct answer
- DIlliquidity due to lock-up periods and restricted redemptions
Explanation
Why C — Full transparency and daily pricing of all positions
Full transparency is NOT a feature of hedge funds — in fact, LACK of transparency is a key risk. Hedge funds are not required to disclose positions, strategies, or provide daily pricing. All other options are genuine risks: illiquidity from lock-up periods (A), leverage risk (B), and heavy dependence on manager skill (D). The opacity of hedge fund operations is a significant concern for investors.
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