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.
 
capacity

The amount of investment capital that can be comfortably absorbed by a manager or strategy without a diminishing of returns. A widely used indication of whether or not a manager or strategy faces capacity constraints is to analyse the degree to which they experience slippage (see Slippage] in the execution of their strategy or trades. There are a number of factors that may limit investment, such as the size of the underlying market and its liquidity. The investor should establish limitations to specific fund strategies.

capital guarantee

See principal protection.

capital-structure arbitrage

An approach that seeks to exploit discrepancies in the valuations of various securities that a particular company offers, based on their seniority. For example, such funds might take a long position in a company's senior bank debt, while shorting its stock.

cash commodity

The physical or actual commodity that is or may be owned as the result of a completed contract and which must be accepted upon delivery. As distinguished from a futures contract, sometimes called Spot Commodity or Actuals which is not completed until a specified future date. The cash commodity contract specification is set by the relevant commodity exchanges.

cash management

Cash management is an investment discipline used by entities of all kinds to ensure liquidity and to maximize returns on cash balances. The five key components of effective cash management are: collection, disbursement, concentration, investment and information control. For hedge funds, cash management, if effectively employed, can play an integral part in the overall profitability of the fund.

cash market

Transactions completed in the cash or spot markets, where ownership of the commodity is transferred from seller to buyer and payment is made on the delivery of the commodity. The cash market contrasts with the futures market, in which contracts are completed at a specified time in the future. The market for the cash commodity (as contrasted to a futures contract) which takes the form of: (1) an organised, self-regulated central market (e.g., a commodity exchange); (2) a decentralised over-the-counter market; or (3) a local organisation, such as a grain elevator or meat processor, which provides a market for a small region.

CD

See Certificate of Deposit.

CDO

See collateralised debt obligation.

CDS

See credit default swap.

Certificate of Deposit

Short- or medium-term, interest-bearing, US Federal Deposit Insurance Corporation (FDIC)-insured debt instrument offered by banks and savings and loans institution in the US. CDs offer higher rates of return than most comparable investments, in exchange for tying up invested money for the duration of the certificate's maturity. Money removed before maturity is subject to a penalty. CDs are low risk, low return investments, and are also known as "time deposits", because the account holder has agreed to keep the money in the account for a specified amount of time, anywhere from three months to six years.

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