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.
 
derivatives clearing organisation

A clearing organization or similar entity that, in respect to a contract (1) enables each party to the contract to substitute, through novation or otherwise, the credit of the derivatives clearing organization for the credit of the parties; (2) arranges or provides, on a multilateral basis, for the settlement or netting of obligations resulting from such contracts; or (3) otherwise provides clearing services or arrangements that mutualise or transfer among participants in the derivatives clearing organization the credit risk arising from such contracts.

directional trading

Trading strategies designed to speculate on the direction of the underlying market, especially in contrast to volatility trading.

disclosure

A document providing access to any information relevant and necessary for an investor to make an informed decision about the viability and suitability of an investment. Disclosure documents are heavily regulated and must include the exact nature and extent of the risks associated with a particular investment. See Prospectus.

discount

(1) The amount a price would be reduced to purchase a commodity of lesser grade; ( 2) sometimes used to refer to the price differences between futures of different delivery months, as in the phrase "July at a discount to May", indicating that the price for the July futures is lower than that of May.

discretionary account

An arrangement by which the holder of an account gives written power of attorney to someone else, often a Commodity Trading Advisor, to buy and sell without prior approval of the holder; often referred to as a "managed account" or controlled account.

distressed securities

Distressed securities funds attempt to benefit from the securities of undervalued companies which are subject to financial distress (i.e. restructuring, liquidation, bankruptcy, etc.). The strategy consists of buying the distressed company’s securities (from the senior secured debt to the ordinary shares) at a discount price, holding them through the whole restructuring process, and selling them after they have appreciated again. Distressed Securities strategies are generally characterized by a relatively high return and a significant correlation with major bond and/or stock indexes.

diversification

Generally refers to the variety of investments in a fund's portfolio. Risk-averse fund managers seek to combine investments that are unlikely to all move in the same direction at the same time.

documents

Varying fund documents required dependent on fund domicile. See Articles of incorporation. See Investment statement. See Memorandum. See Prospectus. See Offer document. See Offering memorandum. See Prospectus. See Service agreements. See Trading advisor report.

downside deviation

Similar to the loss standard deviation except the downside deviation considers only returns that fall below a defined Minimum Acceptable Return (MAR) rather then the arithmetic mean. For example, if the MAR were assumed to be 10%, the downside deviation would measure the variation of each period that falls below 10%. (The loss standard deviation, on the other hand, would take only losing periods, calculate an average return for the losing periods, and then measure the variation between each losing return and the losing return average).

downside risk

Downside risk is a similar measure to Volatility, except that this statistic calculates an average return for only the periods where return was lower than zero (or another benchmark rate) and then measures the variation of only these "losing" periods around the calculated average. In other words, this statistic measures the volatility of the downside performance.

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