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.
 
Sharpe ratio
A measure of risk-adjusted performance/how well a fund is rewarded for the risk it incurs. The higher the ratio, the better the return per unit of risk taken. It is calculated by subtracting the risk-free rate from the fund's annualized average return, and dividing the result by the fund's annualized standard deviation. A Sharpe ratio of 1:1 indicates that the rate of return is proportional to the risk assumed in seeking that reward. A measure of more than 1 (by the manager) means he/she is skilled at extracting extra returns without too much more risk. (Developed by Prof. William R. Sharpe of Stanford University.)
short

(1) The selling side of an open futures contract; (2) a trader whose net position in the futures market shows an excess of open sales over open purchases. See Long position.

short selling

Short Selling funds sell securities short in anticipation of being able to buy them back in the future at a lower price. The manager estimates that the securities, or the market, are overvalued or anticipates earnings disappointments, often due to accounting irregularities, new competition, change of management, etc. Short Selling funds are often used as a hedge to offset long-only portfolios and by those who feel that the market is approaching a bearish cycle. Short Selling funds are by nature strongly exposed to extreme risks since their short positions present infinite loss potential. As a result, short selling is strictly regulated and should be regarded with caution. Short Selling is a Directional strategy generally characterized by relatively volatile returns and a significant correlation with major stock indexes.

short squeeze

A market situation in which the lack of supplies tends to force shorts to cover their positions by offset at higher prices.

short-term trading

An approach in which the fund manager focuses on opportunistic trades, holding investments for only brief periods. Such funds often engage in "day trading".

side letters

A letter agreement usually negotiated between a manager and an investor in respect of an investment in a fund, containing terms which may be more preferable to those offered in the funds’ offer document. Such terms may offer the investor reduced fees, special redemption rights, special reporting rights, etc.

slippage
The difference between the sample or target price for buying or selling an asset and the actual price at which the transaction takes place.
small cap/micro cap

Purchasing stocks issued by small companies. Small-cap companies generally have $250 million to $1 billion of market capitalization, while micro-cap companies have less than $250 million of market capitalization.

soft dollars

Credits that can be used to pay for research and other services that brokerage firms provide to hedge funds and other investor clients in return for their business.

sophisticated investor

See Accredited investor.

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