Risk Free Rate of Return | Risk Free Interest Rates

Risk Free Rate of Return

Risk Free Interest Rate Definition

The theoretical return on a risk-free investment, usually a U.S. security.

Definition Source: Hedgeco

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Riskless Arbitrage Investment Strategy | Definition | What is it?

Riskless Arbitrage

Riskless Arbitrage Investment Strategy

Purchasing stocks of companies that are likely takeover targets, while assuming short positions in the would-be acquiring companies. Risk arb players can employ an event-driven investment strategy or merger arbitrage investment strategy, seeking situations such as hostile takeovers, mergers and leveraged buyouts. Such funds typically experience moderate amounts of volatility.

Definition Source: Hedgeco

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Relative Value Arbitrage Investing | Short Definition | What is it?

Relative Value Arbitrage

Relative Value Arbitrage Investing

A market-neutral investment strategy that seeks to identify investments whose values are attractive, compared to similar securities, when risk, liquidity and return are taken into account.

Definition Source: Hedgeco

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SEC Regulation D | SEC Regulation D Definition

SEC Regulation D

SEC Regulation D Explanation

A provision in the Securities Act of 1933 that allows privately placed transactions to take place without SEC registration and prohibits hedge funds from advertising themselves to the general public. It also outlines which parties qualify as company insiders.

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Regulation D Securities | What are Regulation D Securities?

Regulation D investment strategy

Regulation D investment Strategy

An approach in which the fund manager provides financing to publicly traded companies, usually in exchange for a privately placed convertible note issued at a discount. Also known as PIPES (private investments in public entities).

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Redemption Fee | What is a redemption fee?

Redemption Fee

Redemption Fee | Definition

A charge, intended to discourage withdrawals that a hedge-fund manager levies against investors when they cash in their shares in the fund before a specified date

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Annual Rate of Return | Rate of Investment Return Definition

Annual Rate of Return

Annual Rate of Investment Returns

The annual appreciation in the value of a fund or any other type of investment, stated as a percentage of the total amount invested. Sometimes referred to a simply the "return."Definition Source: Hedgeco

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R Squared Value | Calculation & Definition | What is it?

R Squared Value

R Squared Value Calculation

A measure of the degree to which a hedge fund's returns are correlated to the broader financial market. A figure of 1 would be a perfect correlation, while 0 would be no correlation and minus-1 would be a perfect inverse correlation. Any figure below 0.3 is considered non-correlated. The result is used to determine whether a hedge fund follows a market-neutral investment strategy. Sometimes referred to as "R." Definition Source: Hedgeco

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Qualified Purchaser Act Definition | What is a Qualified Purchaser?

Qualified Purchaser

What is a Qualified Purchaser?

To be a qualified purchaser you must meet either of the following criteria:

a) Individuals who own $5 million in investments, which include securities, financial contracts entered into for investment purposes, cash, cash equivalents held for investment purposes, real estate held for investment purposes, CDs, bankers acceptances and other similar bank instruments held for investment purposes. Investments do not include real estate held for personal purposes, jewelry, art, antiques, and other collectibles. Debt used to acquire the investments is excluded from the value of the investments;

b) Institutional investors who own $25 million in investments;

c) A family owned company that owns $5 million in investments;

d) For trusts with less than $25 million, a trust where the trustee and each person who contributes assets to the trust is a Qualified Purchaser; e) A "Qualified Institutional Buyer" under Rule 144A of the 33 Act, except that "dealers" under Rule 144 must meet the $25 million standard of the 1940 Act, rather than the $10 million standard of Rule 144A. Rule 144A generally defines a "Qualified Institutional Buyer" as institutions, including registered Investment Companies, that own and invest on a discretionary basis $100 million of securities that are affiliated with the institution, banks that own and invest on a discretionary basis $100 million in QIB securities and have an audited net worth of $25 million, and certain registered dealers;

f) A company owned beneficially only by Qualified Purchasers; however, a company will not be deemed to be a qualified purchaser if it was formed for the specific purposes of acquiring the securities offered by a 3(c)(7) fund.

For a complete definition of Qualified Purchaser, please see Title 15 U.S.C. Chapter 2D, Sub Chapter I, Section 80a-2(a)(51), which is publicly available at www.gpoaccess.gov/uscode/browse.html Definition Source: Hedgeco

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Private Placement Program | Programs for Private Placement Investments

Private Placement Program

Private Placement Programs | Definition

Issues those are exempt from public-registration provisions in section 4-2 of the Securities Act of 1933. Hedge fund shares are generally offered as private placements, which are typically offered to only a few investors, rather than the general public. They must meet the following criteria:

  • The issuer must believe that the buyer is capable of evaluating the risks of the transaction.
  • Buyers have access to the same information that would appear in the prospectus of a publicly offered issue.
  • The issuer does not sell the securities to more than 35 parties in any 12-month period.
  • The buyer does not intend to sell the securities immediately for a trading profit.
Definition Source: Hedgeco

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Private Equity Investment Fund | What is a Private Equity Fund?

Private Equity Investment Fund

Private Equity Investment Fund Definition

Entities that buy illiquid stakes in privately held companies, sometimes by participating in leveraged buyouts. Like hedge funds, the vehicles are structured as private investment partnerships in which only qualified investors may participate. Such funds typically charge a management fee of 1.5% to 2.5%, as well as an incentive fee of 25% to 30%. Most private-equity funds employ lock-up periods of five to ten years, longer than those of hedge fundsDefinition Source: Hedgeco

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Fund Prime Broker | Hedge Fund Prime Broker Functions

Fund Prime Broker

Hedge Fund Prime Broker

A large bank or securities firm that provides various administrative, back-office and financing services to hedge funds and other professional investors. Prime brokers can provide a wide variety of services, including trade reconciliation (clearing and settlement), custody services, risk management, margin financing, securities lending for the purpose of carrying out short sales, record keeping, and investor reporting. A prime brokerage relationship doesn't preclude hedge funds from carrying out trades with other brokers, or even employing others as prime brokers. To compete for business, some prime brokers act as incubators for funds, providing office space and services to help new fund managers get off the ground. Definition Source: Hedgeco

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Private Investment in Public Equities | Also Known as PIPEs

Private Investment in Public Equities

Private Investment in Public Equities

Acronym for private investments in public entities. Investments typically made by funds following Regulation D investment strategy.

Definition Source: Hedgeco

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Offshore Fund | Offshore Hedge Funds Definition | What are they?

Offshore Fund

Offshore Hedge Funds Definition

An investment vehicle that is domiciled outside the U.S. and has no limit on the number of non-U.S. investors it can take on. Although the fund's securities transactions occur on U.S. exchanges and are executed by a U.S. manager, or general partner, its administration and audits are conducted offshore -- usually in a tax haven like the Cayman Islands. Because it is administered outside the U.S., non-U.S. investors and such U.S. investors as pension funds and other tax-exempt entities aren't subject to U.S. taxes. Definition Source: Hedgeco

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Net Asset Value NAV | Calculation Ratio Definition | What is it?

Net Asset Value (NAV)

Net Asset Value (NAV) Calculation

A mutual fund's price per share or exchange-traded fund's per-share value. In both cases, the per-share dollar amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. In terms of corporate valuations, the value of assets less liabilities equals net asset value, or "book value".Definition Source: Hedgeco

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Commercial Mortgage Backed Securities | What is this Strategy?

Commercial Mortgage Backed Securities

Commercial Mortgage-Backed Securities

An approach that seeks to exploit pricing differentials between various issues of mortgage-related bonds.

Full guide coming soon.

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Merger Arbitrage Fund | Merger Arbitrage Investment Strategy Definition

Merger Arbitrage Fund

Merger Arbitrage Hedge Fund

Trading the stocks of companies that have announced acquisitions or are the targets of acquisitions. Seeks to exploit deviations of market prices from proposed exchange formulas.Definition Source: Hedgeco

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Master Feeder Fund | What is a Master Feeder Hedge Fund Setup?

Master Feeder Fund

Master Feeder Hedge Fund Definition

A common hedge-fund structure through which a manager sets up two separate vehicles -- one based in the U.S. and an offshore fund that is domiciled outside the U.S. -- which serve as the only investors for a third non-U.S. fund. The two smaller entities are known as feeder funds, while the large offshore vehicle acts as the master fund. The purpose of such an arrangement is to create a single investment vehicle for both U.S. and non-U.S. investors.

Definition Source: Hedgeco

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Equity Market Neutral Fund | Market Neutral Hede Fund Strategy Definition

Market Neutral Fund

Equity Market Neutral Hedge Funds

An approach that aims to preserve capital through any of several methods and under any market conditions. The most common followers of the market-neutral strategy are funds pursuing a long/short investment strategy. These seek to exploit market discrepancies by purchasing undervalued securities and taking an equal, short position in a different and overvalued security. Market-neutral funds typically employ long-term holding periods and experience moderate volatility.

Definition Source: Hedgeco

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Stock Market Timer | Definition | What are stock market timers?

Stock Market Timer

Stock Market Timer Definition

A hedge-fund manager that selects asset allocations in anticipation of movements in the broad market. Definition Source: Hedgeco

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Asset Management Fee | Management Fees Charged by Hedge Funds

Asset Management Fee

Asset Management Fees | Definition

The charge that a fund manager assesses to cover operating expenses. Investors are typically charged separately for costs incurred for outsourced services. The fee generally ranges from an annual 0.5% to 2% of an investor's entire holdings in the fund, and it is usually collected on a quarterly basis.Definition Source: Hedgeco

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Managed Futures Funds | What is a Managed Futures Fund?

Managed Futures Funds

What is a Managed Futures Fund?

A vehicle in which an investor gives a commodity trading advisor -- usually a manager or broker -- discretion or authority to buy and sell futures contracts, either unconditionally or with restrictions. A type of discretionary account

Definition Source: Hedgeco

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Long Short Strategy | Long Short Investment Strategy Used by Hedge Funds

Long Short Strategy

Long Short Investment Strategy

An approach in which fund managers buy stocks whose prices they expect will increase and takes short positions in securities (usually in the same sector) whose prices they believes will decline. The strategy, also known as the Jones Model, is designed to generate profits during bullish periods in the overall stock market, while serving as a source of capital protection in a falling stock market.

Definition Source: Hedgeco

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Lock Up Period | What is a hedge fund lock up peiod?

Lock Up Period

Hedge Fund Lock Up Period

The period of time -- often one year -- during which hedge-fund investors are initially prohibited from redeeming their shares

Definition Source: Hedgeco

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Limited Investment Partnership | What are Limited Investment Partnerships?

Limited Partnership

Limited Investment Partnerships

Many hedge funds are structured as limited partnerships, which are business organizations managed by one or more general partners who are liable for the fund's debts and obligations. The investors in such a structure are limited partners who do not participate in day-to-day operations and are liable only to the extent of their investments.

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Leverage | Leverage Ratio | Fund Leverage Calculations

Leverage

Fund Leverage Ratio Definition

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 hopes 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). Ratios of between two and five to one are common. Leverage can also come in the form of short sales, which involve borrowed securities. Definition Source: Hedgeco

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