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.
 
regulator

Independent organisation, usually governmental, that oversees financial markets, transactions and participants. Often seen as the protector of individual investors. Most, but not all, hedge fund Investment Managers are registered with their national Regulator.

relative value

This strategy seeks to construct a portfolio which takes advantage of the pricing anomalies detected while maintaining a diversified risk profile. Neutrality with regard to the duration is not systematically targeted. The main objective is to maximize the portfolio's return while controlling the risk.

replicating portfolio

A portfolio of assets for which changes in value match those of a target asset. For example, a portfolio replicating a standard option can be constructed with certain amounts of the asset underlying the option and bonds. Sometimes referred to as a Synthetic Asset.

reporting agent

A third-party individual or company that verifies a fund's performance figure.

return

See Total return.

risk

See Downside risk. See Event risk. See Liquidity risk. See Market risk. See Systemic risk. See Systematic risk. See Operational risk. See Unsystematic risk/unique risk. See Value-at-Risk (VaR).

risk arbitrage

Purchasing stocks of companies that are likely takeover targets, while assuming short positions in the would-be acquiring companies. Risk arbitrage players can employ an event-driven investment strategy or merger arbitrage investment strategy, seeking situations such as hostile takeovers, mergers and leveraged buyouts.

risk-adjusted performance

Risk relative to return: the return achieved per unit of risk or the risk associated with a particular level of reward, typically represented by the Sharpe ratio (see 'Sharpe ratio'. Also see 'Sortino Ratio'). Improving the risk-adjusted return depends either on increasing returns without a commensurate increase in the level of risk, or maintaining the level of returns whilst lowering the associated risk.

risk-free rate

The theoretical return on a risk-free investment.

roll-over

A trading procedure involving the shift of one month of a straddle into another future month while holding the other contract month. The shift can take place in either the long or short straddle month. The term also applies to lifting a near futures position and re-establishing it in a more deferred delivery month.

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