AIMA

The Alternative Investment Management Association

Alternative Investment Management Association

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Glossary

AIMA's Glossary has been developed for all those with an interest in the alternative investment industry - from the beginner to the advanced practitioner.

You will find a considerable overlap of content with the traditional fund management industry - the instruments used, the service providers employed, etc.  However, the hedge fund industry is individual in the way in which it uses these resources.

For reasons of law and accuracy, this is not a wiki.  It is a work-in-progress, however, and we invite you to submit new items for inclusion below (including the proposed definition).

  • We express our sincere thanks to Stanley Marchon, Vincent Kuhn, Nicolas Watin-Augouard, Stephen Foster and Sunil Gopalan for the creation of this resource. 
  • Special thanks are also extended to Anne Taulbut and Jennifer Nye of Katten Muchin Rosenman Cornish for the extensive legal review.
   
pair trading

A relative value approach that seeks to identify similar companies in a given sector, whose securities are trading or are anticipated to trade at a wide differential. The manager of such a fund would assume a short position in the overvalued security, while taking a long position in the undervalued one.

performance fee

A fee paid to a fund manager for providing returns on an investment, often by reference to a benchmark or Hurdle rate. This fee is based on net new profits and is earned by the hedge fund manager for the period concerned. It may be paid annually or quarterly but accrues monthly in the fund valuation. Also known as Incentive fee.

performance trigger

Also known as Stop Loss, it is the point at which a hedge fund's losses cause specific contractual provisions designed to insulate investors from further losses.

PIP
The smallest price unit of a commodity or currency.
PIPEs
See Private Investments in Public Entities.
pit

A specially constructed area on the trading floor of some exchanges where trading in a futures contract is conducted. On other exchanges, the term ring designates the trading area for a commodity.

placement

The expansion of a company's capital base by selling a parcel of new securities to a single substantial investor or institution on a private placement basis and generally without the issue of a prospectus. A placement could also involve selling existing shares in a company.

portfolio efficient frontier

See Efficient frontier.

portfolio insurance

A trading strategy that uses stock index futures and/or stock index options to protect stock portfolios against market declines.

portfolio manager

A company or individual that runs capital on behalf of an investment fund, such as a hedge fund. The portfolio manager is often the general partner of the fund's limited partnership. It may be an employee of the fund management firm, or an external entity with which the hedge fund makes a passive investment.

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