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.
 
equity hedge

This directional strategy involves both long and short equity-oriented investing. The manager can invest using different approaches including value and/or growth, small, medium and/or large capitalization stocks. The manager may chose to maintain the portfolio from net long to net short or invest with options and futures to mitigate market exposure. The portfolio focus may be regional - such as long/short global, US or Europe - or sector specific - such as long/short technology stocks or healthcare stocks.

equity long short

Long/short strategies represent an evolution of traditional long-only equity investment. As with long-only strategies, managers aim to buy undervalued securities, profiting when their prices rise. However, in long/short strategies, they also aim to sell short overvalued securities. Long/short managers differ further from buy-and-hold investors by having the flexibility to use leverage as well as derivatives, such as futures and options. By combining long and short positions, long/short equity hedge funds can reduce market risk as well as producing returns from falling stock prices.

equity market neutral

Equity Market Neutral funds take long and short positions in such a way that the impact of the overall market is minimized. Market neutral can imply dollar neutral, beta neutral or both. A dollar neutral strategy has zero net investment (i.e. equal dollar amounts in long and short positions). A beta neutral strategy targets a zero total portfolio beta (i.e. the beta of the long side equals the beta of the short side). While dollar neutrality has the virtue of simplicity, beta neutrality better defines a strategy that is uncorrelated with the market return. Many practitioners of market-neutral long/short equity trading balance their longs and shorts in the same sector or industry. By being sector neutral, they avoid the risk of market swings affecting some industries or sectors differently than others. Equity market neutral is a relative value strategy.

ETC
See Exchange-traded commodities.
ETF
See Exchange-traded fund (ETF).
Eurodollars
US dollar deposits placed with banks outside the US usually in a bank in Europe, commonly used for setting international transactions. Holders may include individuals, companies, banks, and central banks.
European option
An option that may be exercised only on the expiration date. See also Call option.
event driven

Event Driven funds tend to take advantage of pricing anomalies resulting from corporate transactions and special situations. Event Driven funds' success depends on their ability to assess the probability of failure / success of such corporate events. This strategy includes Deal arbitrage, Bankruptcy/distressed, Multi-strategy. Event driven strategies are generally characterized by a relatively high return and a significant correlation with major stock and / or bond indexes.

event risk

The likelihood that an investment's value will change as the result of unexpected events, such as corporate restructurings, a takeover, regulatory shifts or disasters.

exchange

A central marketplace which may be electronic and usually subject to established rules and regulations where buyers and sellers meet to trade futures and options contracts, commodities or securities. See Derivatives clearing organization. Exchanges include designated contract markets and derivatives transaction execution facilities. See Electronic trading facility.

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