AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

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.
 
last trading day

Day on which trading ceases for the maturing (current) delivery month.

letters of credit

A letter of credit, also referred to as an LOC or LC, is a document issued by a financial institution which essentially acts as an irrevocable guarantee of payment to a beneficiary. This means that if the applicant obtaining the LC fails to perform its obligations, the bank pays. The LC can also be the source of payment for a transaction, meaning that an exporter will get paid by redeeming the letter of credit.

leverage

The borrowed money that an investor employs to increase buying power and increase its exposure to an investment. Users of leverage seek to increase their overall invested amounts in the hope that the returns on their positions will exceed their borrowing costs. The extent of a fund's leverage is stated either as a debt-to-equity ratio or as a percentage of the fund's total assets that are funded by debt. Example: If a fund has $1 million of equity capital and it borrows another $2 million to bring its total assets to $3 million, its leverage can be stated as "two times equity" or as 67% ($2 million divided by $3 million).

LIBOR
The interest rate that London banks charge when lending to one another, equivalent of the Federal Reserve Funds Rate in the US, and used as a benchmark for other short term interest rates. The LIBOR is the primary fixed income index reference rates used in the Euromarkets. Most international floating rates are quoted as LIBOR plus or minus a spread.
limit

The maximum price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of an exchange. In some futures contracts, the limit may be expanded or removed during a trading session a specified period of time after the contract is locked limit.

limit order

An order in which the customer specifies a minimum sale price or maximum purchase price, as contrasted with a market order, which implies that the order should be filled as soon as possible at the market price.

Limited Partnership
A statutory partnership consisting of one or more general partners and one or more limited partners. General partners are responsible for the day-to-day management of the partnership and have unlimited liability for its debts and other obligations. Limited partners play no part in the day-to-day management of the partnership and are generally passive investors in the partnership and liable to the partnership only to the extent of their investment.
liquid market

A market in which selling and buying can be accomplished with minimal effect on price.

liquidation

The closing out of a long position. The term is sometimes used to denote closing out a short position, but this is more often referred to as covering.

liquidity

The ease with which an investment product/fund can be sold/redeemed from, without impacting its price. Hedge funds typically offer quarterly or annual liquidity, meaning that they allow investors to redeem their shares that often.

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