Canadian Securities Course (CSC) Level 2 Practice Exam

What is the primary advantage of Listed Private Equity compared to public market investments?

1. Guaranteed interest rate regardless of the underlying index performance.

2. Increased returns and risks while investing in a variety of private companies.

3. Availability of inside information and influence over management decisions.

4. Securities that divide attributes of shares with specific risk and return profiles.

The correct answer is: Availability of inside information and influence over management decisions.

The primary advantage of Listed Private Equity compared to public market investments lies in the ability to achieve increased returns and risks while investing in a variety of private companies. Listed Private Equity allows investors to gain exposure to the potential high growth and significant returns that can come from investments in private companies, which are generally not accessible in the public markets. This investment class provides the opportunity to invest in firms that may be in earlier growth stages, which often carry higher risk but also the potential for higher reward. The option regarding the availability of inside information and influence over management decisions does not accurately reflect the primary benefits of Listed Private Equity. Generally, investors in publicly listed companies do not have access to inside information or a higher degree of influence over management compared to private equity investors, as public companies are subject to regulatory scrutiny. The assurance of a guaranteed interest rate is more characteristic of fixed-income investments rather than equity investments, particularly within the context of private equity. The element of securities that divide attributes of shares is related to structured products or derivatives and does not highlight the distinctive advantage of Listed Private Equity in investing in private companies, where return profiles can be varied and depend on performance rather than fixed structures.