CFA Advanced Private Equity Sample Questions & Practice Test

CFA Institute Advanced Private Equity Certificate is a deeper route for candidates who need to reason through deal structure, portfolio-company value creation, fund terms, secondaries, continuation vehicles, valuation, and exits.

These original sample questions preview the decision style a Finance Prep route should use. They are not official CFA Institute exam questions.

What this route should test

• deal-structure tradeoffs and downside protection
• advanced fund economics, continuation vehicles, and secondary transactions
• value-creation plans, exit timing, and portfolio monitoring
• valuation and risk judgment under imperfect information

Sample Exam Questions

Question 1

Topic: deal structure

A sponsor uses preferred equity with downside protections and participation rights. What should investors evaluate?

• A. Only the company logo
• B. How the structure changes downside protection, upside sharing, control, and incentives
• C. Whether the instrument name is short
• D. Whether all risk disappears

Best answer: B

Explanation: Deal structure affects risk, control, return distribution, and alignment. Preferred terms can materially change economics.

Question 2

Topic: value creation plan

A portfolio company underperforms because pricing, working capital, and sales productivity lag the investment plan. What should the sponsor review?

• A. Only the exit date
• B. Whether the fund has a longer name
• C. A public market index unrelated to the company
• D. The operating value-creation plan, accountability, metrics, and management execution

Best answer: D

Explanation: Value creation depends on execution. Sponsors monitor operating levers, management accountability, and corrective actions.

Question 3

Topic: continuation vehicles

Why might a sponsor use a continuation vehicle?

• A. To hold assets longer while offering liquidity or rollover options to existing investors
• B. To guarantee a higher valuation
• C. To avoid all conflicts
• D. To create daily redemption rights

Best answer: A

Explanation: Continuation vehicles can extend ownership of selected assets, but they require careful valuation, conflict management, and investor choice.

Question 4

Topic: conflicts

A sponsor sets the price for transferring an asset into a continuation vehicle it will also manage. What is the main governance concern?

• A. Too much public liquidity
• B. No need for disclosure
• C. Conflict of interest around valuation and economics
• D. Guaranteed independent pricing

Best answer: C

Explanation: Sponsor-managed transfer transactions can create conflicts. Independent valuation, disclosures, advisory committee review, and investor options may be relevant.

Question 5

Topic: secondaries pricing

Why might a secondary buyer demand a discount to reported net asset value?

• A. Because reported NAV is always fake
• B. Uncertainty about valuation, liquidity, remaining commitments, and portfolio quality
• C. Because all secondary transactions are illegal
• D. Because discounts are guaranteed profit

Best answer: B

Explanation: Secondary pricing reflects information quality, market liquidity, unfunded commitments, portfolio maturity, and perceived risk.

Question 6

Topic: leverage

An acquisition model assumes rapid EBITDA growth and high leverage. What sensitivity is most important?

• A. Font choice in the model
• B. Office lease color scheme
• C. Whether the company has a short ticker
• D. Downside cash-flow scenarios and debt-service capacity

Best answer: D

Explanation: High leverage makes the investment sensitive to cash-flow shortfalls, covenant pressure, refinancing risk, and exit multiples.

Question 7

Topic: exit timing

A sponsor considers delaying exit because public valuation multiples have contracted. What should be weighed?

• A. Expected value creation, liquidity needs, market conditions, fund life, and risk of waiting
• B. Only the original acquisition date
• C. Whether all exits must be immediate
• D. Whether valuation can be ignored

Best answer: A

Explanation: Exit timing balances market conditions, remaining upside, fund constraints, investor liquidity, and risk.

Question 8

Topic: management incentives

Why are management equity plans used in private equity deals?

• A. To eliminate operating risk
• B. To avoid governance
• C. To align management with value creation and exit outcomes
• D. To guarantee no turnover

Best answer: C

Explanation: Incentive plans can align management with investor objectives, though design terms affect behavior and fairness.

Question 9

Topic: covenant risk

A portfolio company is close to breaching a leverage covenant. What should be reviewed?

• A. The company’s website colors
• B. Forecast reliability, lender options, liquidity, waiver risk, and operational remediation
• C. Whether all debt can be ignored
• D. Only last year’s revenue

Best answer: B

Explanation: Covenant pressure can trigger negotiations, fees, restrictions, or default consequences. It requires financial and operational response.

Question 10

Topic: fund terms

What does a key-person provision address?

• A. The number of employees in accounting
• B. Daily share trading volume
• C. Guaranteed performance
• D. Risk that named investment professionals are no longer active in the fund

Best answer: D

Explanation: Key-person provisions protect investors if specified individuals are not sufficiently involved, often pausing investment activity until resolved.

Question 11

Topic: portfolio monitoring

Which metric set is most useful for monitoring a buyout investment?

• A. Revenue, margins, cash conversion, leverage, covenant headroom, and value-creation milestones
• B. Company logo size only
• C. Social media likes only
• D. Office snack budget only

Best answer: A

Explanation: Monitoring should connect operating performance, financial risk, liquidity, and plan execution.

Question 12

Topic: LP reporting

What should limited partners expect in strong private equity reporting?

• A. No disclosure of fees
• B. Only marketing slogans
• C. Transparent valuation, performance drivers, fees, portfolio changes, risks, and commitments
• D. No discussion of risk

Best answer: C

Explanation: LP reporting should help investors understand performance quality, risk, expenses, commitments, and portfolio progress.