Glossary
Cross-references are in small caps.
Active management
An investment style that attempts to beat the average by choosing between different assets.
Activist fund
A fund that buys a stake in a company and tries to get it to change policy and/or management.
AIMA (Alternative Investment Management Association)
British club for the industry that conducts lobbying and suggests voluntary codes.
Alpha
The investment return attributable to a manager’s skill, as opposed to the general movement of the market. Any measurement of alpha should also allow for the risks being taken.
Alternative assets
General term for financial products that are not straight bonds, shares or currencies. Used to describe property, commodities, private equity and, of course, hedge funds.
Alternative beta
Return from position-taking in unconventional markets such as VOLATILITY, commodities or even weather. See also BETA.
Annual fee
The proportion of the fund taken each year by the manager, regardless of performance. This usually ranges between 1.5% and 2% but can go higher.
Arbitrage
A strategy that attempts to exploit areas of the market where assets are wrongly priced relative to each other. Investors will buy the undervalued asset and go short the overvalued one (see SHORT-SELLING).
Autocorrelation
The tendency for one month’s hedge fund returns to look remarkably like the next.
Backwardation
A property of the commodities markets, where futures prices are below spot, or current, prices.
Bear market
