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.
 
front office

Term used to identify investment industry personnel who deal directly with the public, usually sales or trading personnel.

front running

With respect to commodity futures and options, taking a futures or option position based upon non-public information regarding an impending transaction by another person in the same or related future or option. Also known as Trading ahead.

fund administrator

See Administrator

fund of funds manager

Manager of a fund that invests in a series of hedge funds. The portfolio will typically diversify across a variety of investment managers, investment strategies and subcategories.

Fund of funds

Funds of funds are portfolios of hedge funds offering investors exposure to a wide range of alternative investment styles and strategies. Funds of funds generally allocate capital to 15-30 hedge funds to achieve efficient risk diversification. Nevertheless a smaller number of funds may be used to concentrate capital on a particular strategy. Such funds of hedge funds aim to post high returns and are more concerned by manager and event risks. Conversely, a larger number of funds may be used to control for extreme risks. Most funds of funds invest in portfolios diversified by manager and strategy which enable them to produce consistent absolute returns with low levels of risk.

fund timing

Fund timers use mutual funds to implement short-term directional trades, primarily in the equity markets, either going long units in the mutual fund or remaining in cash. Fund timing may be practiced in order to exploit purported leader-follower relationships in international markets. Alternatively fund timers may benefit from the arbitrage opportunities presented by funds being priced only once per day. Mutual funds could also be used to express views on sector rotation. So called “late-trading” of mutual funds is not a legitimate activity.

Fund

The Fund is a collective investment scheme, typically established in the following ways: 1. In offshore jurisdictions such as the Cayman Islands, the Fund will usually be established as a Limited Liability Company. 2. Funds established under the laws of a US state such as Delaware usually take the form of a Limited Liability Partnership. 3. Some Funds in offshore jurisdictions are established as Unit Trusts, although this is a comparatively rare structure. The Fund has legal identity but in practice decisions on its behalf will be made by its Governing Body.

fundamental analysis

The underlying proposition of fundamental analysis is that there is a basic intrinsic value for the aggregate stock market, various industries or individual securities and that these depend on underlying economic factors. The identification and analysis of relevant variables combined with the ability to quantify the future value of these variables are key to achieving superior investment results. A wide range of financial information is evaluated in fundamental analysis, including such income statement data as sales, operating costs, pre-tax profit margin, net profit margin, return on equity, cash flow, and earnings per share. Fundamental analysis contrasts with technical analysis which contends that the prices for individual securities and the overall value of the market tend to move in trends that persist.

fundamental approach

See Fundamental analysis.

futures

A future is an exchange-trade derivative instrument that involves a contract to buy or sell an asset (stock index, commodity, currency, fixed income or other security) for delivery at a future date at a specific price. Futures can be traded on an exchange until they expire. (See Derivatives clearing organization.) The exchange acts as the buyers’ or sellers’ counterparty. This implies that there is no counterparty risk and that since the exchange acts as the counterparty, it is possible to buy a contract from one person and sell a contract to another.

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