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Select the first letter of the word from the list below to jump to the appropriate section of the glossary. If the item you are looking for starts with a digit or symbol, choose the '#' link.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #


A
Alpha
A numerical value indicating a manager's risk-adjusted excess rate of return relative to a benchmark. Measures a manager's "value-added" in selecting individual securities, independent of the effect of overall market movements.

Auditor
A certified public accountant who examines a company's books according to a set of procedures and issues a report.

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B
Beta
A coefficient measuring a stock's relative volatility to a market index, such as the S&P 500 Index. A manager with a Beta greater than 1.0 is more volatile than the market, while a manager with a Beta less than 1.0 is less volatile than the market.

Bottom-up investing
An approach to investing which seeks to identify well-performing individual securities before considering the impact of economic trends.

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C
Capital structure arbitrage
Investment strategy that seeks to exploit pricing inefficiencies in a firm's capital structure. Strategy will entail purchasing the undervalued security, and selling the overvalued, expecting the pricing disparity between the two to close out.

Convertible arbitrage
Investment strategy that seeks to exploit pricing inefficiencies between a convertible bond and the underlying stock. Manager will typically long the convertible bond and short the underlying stock.

Corporate debt
Non-government-issued interest-bearing or discounted debt instrument that obligates the issuing corporation to pay the bondholder a specified sum of money, at specific intervals, and to repay the principal amount of the loan at maturity.

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D
Debt
General name for bonds, notes, mortgages, and any other forms of paper evidencing amounts owed and payable on specified dates or on demand.

Distressed securities investing
Investment strategy focusing on troubled or restructuring companies at deep discounts through stocks, fixed income, bank debt or trade claims. Seeks to exploit possible pricing inefficiencies caused by the lack of large institutional investor participation.

Diversification
Minimizing of non-systematic portfolio risk by investing assets in several securities and investment categories with low correlation between each other.

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E
Emerging markets investing
A generally long-only investment strategy which entails investing in geographic regions that have undeveloped capital markets and exhibit high grow rates and high rates of inflation. Investing in emerging markets can be very volatile, and may also involve currency risk, political risk, and liquidity risk.

Entrance frequency
Frequency of limited partnership's shares offerings.

Equalization amounts
Distribution to limited partnership interests according to highwater provisions, to properly account for performance-based fees, which may differ among investors, depending on the investor's entry points into a fund.

Equity market neutral investing
Equity investing on both the long and short side, with equal dollar amounts. Will attempt to neutralize market risk, and isolate a manager's alpha, to achieve absolute returns.

European equity hedge
Hedged European equity investing on both the long and short side. Although generally directional in nature, will attempt to hedge out some market risk, and achieve some level of absolute return objectives.

Event driven investing
Investment strategy seeking to identify and exploit pricing inefficiencies that have been caused by some sort of corporate event, such as a merger, spinoff, distressed situation, or recapitalization.

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F
Fixed income arbitrage
Investment strategy that seeks to exploit pricing inefficiencies in fixed income securities and their derivative instruments. Typical investment will involve long a fixed income security or related instrument that is perceived to be undervalued, and short a similar, related fixed income security or related instrument.

Fixed income directional
Fixed income investing on the long or short side, based on a manager's view of current market pricing of fixed income securities.

Fund of funds
Investment partnership that invests in a series of other funds. Portfolio will typically diversify across a variety of investment managers, investment strategies, and subcategories.

Fundamental investment analysis
Analysis of the balance sheet and income statements of companies in order to forecast their future stock price movements.

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G
General partner
Managing partner of a limited partnership, who is responsible for the operation of the limited partnership. The general partner's liability is unlimited.

Global macro investing
Investment strategy that seeks to profit by making leveraged bets on anticipated price movements of global stock markets, interest rates, foreign exchange rates, and physical commodities.

Government debt
Government or agency-issued interest bearing/discounted debt instrument that obligates the issuing corporation to pay the bondholder a specified sum of money, at specific intervals, and to repay the principal amount of the loan at maturity. U.S. government issues are backed by the full faith and credit of the U.S. government, which, if necessary, can print money to make payments.

Growth stocks
Equity of a corporation that has displayed faster-than-average earnings gains over the past few years, and is expected to continue to show high rates of earnings growth. Growth stocks will typically have a higher price/earnings ratio because of their higher expected earnings growth.

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H
Hurdle rate
The minimum investment return a fund must exceed before a performance allocation/incentive fee can be taken.

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I
Investment adviser
Individual or entity who provides investment advice for a fee. Registered Investment Advisers must register with the SEC and abide by the rules of the Investment Advisers Act.

Investment manager
Individual who is responsible for the selection and allocation of investment securities.

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J
Junk bonds
Corporate bonds with a credit rating of BB or lower. Also known as high yield bonds. Usually issued by companies without long track records of sales or earnings, or by those with questionable credit standing.

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K
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L
Large cap securities
Equity securities with relatively large market capitalization, usually over $5 billion (shares outstanding times price per share).

LDC debt
Debt securities issued by lesser-developed countries.

Long biased managers
Investment managers with a long-directional market philosophy. Short selling and hedging are not the main components of their investment portfolio.

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M
Management company
A firm that, for a management fee, invests pools of capital, for the purpose of fulfilling a sought-after investment objective.

Market neutral investing
Investing in financial markets through a strategy that will result in an investment portfolio not correlated to overall market movements and insulated from systematic market risk.

Medium cap securities
Equity securities with a middle-level stock market capitalization. Mid-cap stocks will typically have between $1 billion and $5 billion in total market capitalization (shares outstanding times price per share).

Minimum account size
The minimum initial investment amount an investor must allocate in order to enlist the services of an investment manager, via a separate account, or a limited partnership interest.

Minimum additional investment
Minimum incremental capital allocation allowed to an existing investor.

Money manager
A portfolio/investment manager, the person ultimately responsible for a securities portfolio.

Mortgage-backed security
A pass-through security that aggregates a pool of mortgage-backed debt obligations. Mortgage-backed securities' principal amounts are usually government guaranteed; homeowners' principal and interest payments pass from the originating bank or savings and loan through a government agency or investment bank, to investors, net of a loan servicing fee payable to the originator.

Multi strategy
Investment philosophy allocating investment capital to a variety of investment strategies, although the fund is run by one management company.

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N
NAV
Net asset value per share--the market value of a fund share. Equals the closing market value of all securities within a portfolio plus all other assets such as cash, subtracting all liabilities (including fees and expenses), then dividing the result by the total number of shares outstanding.

Net rate of return
Percentage appreciation from the prior period, after accounting for all fees and expenses.

New issues
Stock or bond offering being issued to the public for the first time. Also known as "hot issue"

Non-directional
Investment strategy with absolute return objectives, irrespective of market movements.

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O
Opportunistic
Investment strategy that seeks to profit from pricing discrepancies resulting from corporate "event" transactions, such as mergers & acquisitions, spinoffs, bankruptcies, or recapitalizations. Also known as "event driven."

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P
Pairs trading
Non-directional relative value investment strategy that seeks to identify two companies with similar characteristics whose equity securities are currently trading at a price relationship that is out of their historical trading range. Investment strategy will entail buying the undervalued security, while short-selling the overvalued security.

Portfolio turnover
The number of times an average portfolio security is replaced during an accounting period, usually a year.

Prime broker
The principal brokerage firm an investment fund does business with.

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Q

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R
R squared
Numerical value indicating correlation to a benchmark index. Statistically defined as deviations from the mean of a dependent variable that can be explained by deviation from the mean in an independent variable. Computed via ordinary least squared regression analysis.

Rate of return
Percentage appreciation in market value for an investment security or security portfolio.

Redemption
Liquidation of interests in an investment fund.

Redemption fee
Fee charged upon a voluntary redemption from an investment vehicle.

Redemption notice period
Required notification period of an intended redemption request. Notification is usually required in writing.

Relative value
Non-directional market neutral investment strategy that seeks to exploit pricing discrepancies between a pair of related securities. Strategy will entail buying the undervalued security and short selling the overvalued security.

Risk arbitrage
Relative value investment strategy that seeks to exploit pricing discrepancies in the equity securities of two companies involved in a merger-related transaction. Strategy will entail the purchase of a security of the company being acquired, along with a simultaneous sale in the acquiring company.

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S
Sharpe ratio
Numerical value indicating risk-adjusted performance. Calculated by subtracting the risk-free rate of return from average return, divided by standard deviation of returns.

Short seller
One who sells a security without owning it, with an obligation to buy the security at a later time, and repay the security creditor who had lent it for sale. Profits will result if the investor is able to buy it back later at a lower price.

Slots available
Refers to the number of partnership interests that are still available within an investment vehicle, as limited by the 1940 Investment Advisers Act.

Small cap
Securities in which the parent company's total stock market capitalization is less than $1 billion.

Soft commodities
Tropical commodities such as coffee, sugar and cocoa. In a broader sense may also include grains, oilseeds, cotton and orange juice. This category usually excludes metals, financial futures and livestock.

Sovereign debt
Fixed income security guaranteed by a foreign government.

Special situations investing
Investment strategy that seeks to profit from pricing discrepancies resulting from corporate "event" transactions, such as mergers & acquisitions, spinoffs, bankruptcies, or recapitalizations. Also known as "event driven."

Spin-off
A form of a corporate divestiture that results in a subsidiary or division becoming an independent company

Standard deviation
Statistical measure of the degree to which an individual value in the probability distribution tends to vary from the mean of the distribution.

Statistical arbitrage
Market neutral relative value investment strategy that involves the utilization of a quantitatively based investment methodology that identifies securities or groups of securities that are currently trading at prices out of their historical range. Will involve longing an undervalued security and short selling an overvalued security.

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T
Top down investing
An approach to investing in which an investor first looks at trends in the general economy, and next selects industries and then companies that should benefit from those trends.

Turnarounds
Favorable reversal in the fortunes of a company, a market, or the economy at large. Turnaround specialists seek to exploit market pricing inefficiencies in securities of companies that might be on the verge of a turnaround situation.

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U
Unlisted security
A security that is not listed on an organized exchange. Unlisted securities are instead traded in the Over The Counter (OTC) Market.

U.S. equity hedged
Directional, U.S.-oriented investment philosophy that invests in U.S.-exchange-traded securities, on the long and short side. Short exposure is utilized to manage portfolio market risk.

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V
Valuation
Placing a value or worth on an asset. For alternative investment portfolios, valuation can be determined by the last market-traded price, or by general partner discretion in the case of illiquid securities, where there is no readily available market-pricing mechanism.

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W

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X

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