Question

What is the MOST important item to disclose to a customer who invests in a fund of hedge funds?
A. The illiquidity of the investment
B. The high risk of speculative options strategies used by hedge fund managers
C. The high fees and expenses of the investment
D. The lack of disclosure about the underlying hedge funds

Answer 1

Answer:

A. The illiquidity of the investment

Explanation:

This rightly could be considered as the MOST important item to disclose to a customer who invests in a fund of hedge funds. Let's imagine a customer who invests in a hedge fund and a few days later feels he could take back out from his investment, only to learn about the illiquid nature of hedge fund investment.

For clarity, to say that hedge funds are illiquid means that they require all investors to keep their money in the fund for at least one year, often called the lock-up period. With certain limitations on withdrawals.