Arvid Narajan has just been promoted to portfolio manager for Titanium Securities One of Narajans clients is the Teachers Pension Plan (TPP). Narajan recommends the Newbury Hedge Fund to TPP after reviewing its fee structure, risk profile, management, and performance history.

The Newbury Hedge Funds client investment strategy approach includes taking long and short positions and using extensive leverage. As part of his written recommendation to TPP, Arvid states that any unexpected increase in interest rates would be likely to adversely impact on the value of the Newbury Hedge Fund, however his analysis does not anticipate such an outcome actually arising. Three months after TPP invests in the hedge fund, interest rates rise unexpectedly, and the fund declines in value by over 20%. Required: Comment on the investment recommendation and outcomes for Arvid as a CFA member in accordance with the CFA Code and Standards.