Free CAIA Level II Institutional Asset Owners Practice Questions

C is correct. Free ports (such as those in Geneva, Luxembourg, and Singapore) are secure, climate-controlled warehouses situated outside a country's customs territory. Goods stored there are not subject to import duties or VAT until they leave the facility, making free ports attractive for storing high-value art, wine, and precious metals.
Choice A is incorrect because free ports defer duties while assets remain stored but do not eliminate capital gains taxes, which are governed by national tax law and the owner's domicile.
Choice B is incorrect because insurance is a separate product purchased to protect asset value; it is not the defining characteristic of a free port.
Choice D is incorrect because free ports are physical storage facilities, not brokerage or transaction platforms.

B is correct. An overlay program uses derivatives — most commonly interest rate swaps or Treasury futures — layered on top of the existing physical portfolio to adjust total portfolio duration toward the liability duration target, without requiring a wholesale restructuring of the underlying asset mix.
Choice A is incorrect because replacing all physical bonds with futures is a full transition, not an overlay that supplements an existing allocation.
Choice C is incorrect because segregating a liability-matching sleeve describes a segmented or 'barbell' approach within the physical portfolio, not an overlay using derivatives.
Choice D is incorrect because a buy-in or buy-out transfers liability to an insurer and de-risks the balance sheet directly — this is a pension risk transfer strategy, not an overlay.

B is correct. GPFG is characterized by broad, passive diversification across global markets with strict exclusion of domestic Norwegian assets, operating largely as an index-oriented fund with ethical exclusions. Temasek, by contrast, maintains concentrated, long-term equity stakes in flagship Singaporean companies (e.g., Singapore Airlines, DBS, Singtel) and Asian corporations, actively engaging as a strategic shareholder rather than a passive investor.
Choice A is incorrect because GPFG is legally required to invest outside Norway, not in domestic industries, and Temasek's portfolio spans equities across Asia and globally — not exclusively OECD sovereign bonds.
Choice C is incorrect because GPFG has an allocation to unlisted real estate, and Temasek holds real asset exposures through portfolio companies; neither fund prohibits real estate categorically.
Choice D is incorrect because the funding sources are reversed: GPFG is capitalized from Norway's petroleum revenues (oil fund), while Temasek was seeded with equity stakes in Singaporean government-linked companies, not from oil proceeds or export surpluses.