AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

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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.
 
aggressive growth

An approach that aims to produce the highest-possible returns by investing in relatively risky assets, employing high leverage or making speculative investments that aren't fully hedged.

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.

alternative assets

A category of non-traditional instruments that includes arbitrage vehicles, commodities, distressed securities, oil-and-gas partnerships, private equity, real estate, timber, venture capital or other assets whose returns aren't correlated to the stock and bond markets.

alternative investment

The terms ‘alternative investment’, 'hedge fund’ and ‘absolute return’ often get used interchangeably. In the field of asset management, the essential defining features of alternative investments are: (1) the pursuit of absolute return – that is, the quest to achieve a positive return regardless of whether asset prices are rising or falling; (2) freedom to trade all asset classes and a wide range of financial instruments while employing a variety of investment styles, strategies and techniques in diverse markets, and (3) reliance on the investment manager’s skill and application of a clear investment process to exploit market inefficiencies and opportunities with identifiable and understandable causes and origins.  Alternative investment managers may take advantage of pricing anomalies between related securities, engage in ‘momentum’ investing to capture market trends, or utilise their expert knowledge of markets and industries to capture profit opportunities that arise from special situations. The ability to use derivatives, arbitrage techniques and, more importantly, short selling - selling assets that one does not own with the expectation of buying them back at a lower price – affords alternative investment managers rich possibilities to generate growth in falling, rising and unstable markets.

American option

An option that may be exercised at any time before the expiry date. See European option.

annual rate of return

The percentage change in the fund’s share price over a specified period of time, i.e. monthly, annually. It is calculated as (final share price - initial share price) / initial share price. Sometimes referred to a simply the "return."  See also annualised return/compound rate of return.

annualised return

The percentage change in the fund’s share price over a specified period of time, i.e. monthly, annually. It is calculated as (final share price - initial share price) / initial share price. Sometimes referred to a simply the "return."

annualised return/compound rate of return

The compounded rate of change in the value of an investment that has been achieved each year to enable the initial price to grow or decline to the latest selected price over a particular period.

arbitrage

This strategy exploits the mis-pricing between two related assets by investing long in assets perceived to be undervalued and shorting assets to be overvalued. A profit is achieved when and if the prices of the two assets converge. Earning returns that far exceed the risk incurred.

arbitration

The legal process for settling disputes between parties wherein the parties refer the dispute to a person or panel (the Arbitrator(s)) by whose decision they agree to be bound, that is less structured than court proceedings. In the US the term is sometimes also used to refer to mediation, or non binding arbitration, a process which does not bind the parties.

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