Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

What is best defined as an investor's application to join a limited partnership?

1. Private-placement memorandum

2. Partnership agreement

3. Subscription agreement

4. Management company operating agreement

The correct answer is: Subscription agreement

The application to join a limited partnership is best defined as a subscription agreement. This document is used by investors to express their intent to invest in the partnership and outlines the terms and conditions under which the investment will be made. By signing a subscription agreement, an investor commits to providing capital to the limited partnership and acknowledges understanding the risks and terms associated with the investment. The subscription agreement also typically contains critical information such as the amount of the investment, representations regarding the investor's qualifications, and acknowledgment of the legal and financial implications of becoming a limited partner. This makes it a pivotal document in the process of entering into a limited partnership. The other options, while related to private placements and partnerships, serve different purposes. A private-placement memorandum provides detailed information about the investment opportunity, including financial projections, risks, and management details, to help potential investors make informed decisions. The partnership agreement outlines the rights, responsibilities, and profit-sharing arrangements among partners in the limited partnership. The management company operating agreement governs the operations of the management firm overseeing the partnership but does not serve as an application to join the partnership.