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.
 
portfolio turnover rate

The rate of trading activity in a hedge fund or mutual fund, expressed as a percentage of the portfolio's size that is bought or sold each year. Calculated by dividing the lesser of purchases or sales by average assets during that year.

position

An interest in the market, either long or short, in the form of one or more open contracts.

position accountability

A rule adopted by an exchange requiring persons holding a certain number of outstanding contracts to report the nature of the position, trading strategy, and hedging information of the position to the exchange, upon request of the exchange.

positive carry

The cost of financing a financial instrument (the short-term rate of interest), where the cost is less than the current return of the financial instrument.

premium

(1) The payment an option buyer makes to the option writer for granting an option contract; (2) the amount a price would be increased to purchase a better quality commodity; (3) refers to a futures delivery month selling at a higher price than another, as "July is at a premium over May".

price trend

See Momentum.

primary market

(1) For producers, their major purchaser of commodities; (2) to processors, the market that is the major supplier of their commodity needs; and (3) in commercial marketing channels, an important centre at which spot commodities are concentrated for shipment to terminal markets.

prime broker

A large bank or securities firm that provides various back-office and financing services to hedge funds and other professional investors. Prime Brokers can provide a wide variety of services, including trade reconciliation (clearing and settlement), custody services, risk management, margin financing, securities lending for the purpose of carrying out short sales, recordkeeping and investor reporting. A prime brokerage relationship does not preclude hedge funds from carrying out trades with other brokers, or employing others as Prime Brokers.

principal protection

Also known as a Capital Guarantee, it is an arrangement or mechanism built into an investment product whereby investors are assured that the capital value of their initial investment is secure and that at least this amount will be returned to them when such a product reaches its maturity date. Principal protection features can take a variety of forms, including capital guarantees provided by banks.

principal-protected note

A fixed income security that guarantees the investor a minimum portion (usually 100%) of his initial investment (the principal amount). Also known as Principal protected products and Principal protected securities.

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