39 terms

Hedge funds and private markets

Accredited investor: A regulatory category of investors permitted to buy private offerings, defined by wealth, income, or professional qualification rather than by demonstrated skill.
Capital call: A demand from a private fund for part of an investor's committed capital, issued when the manager has an investment or expense to fund.
Carried interest: The share of a private fund's profits paid to the general partner, commonly 20%, after limited partners have received their capital back and any preferred return.
Commodity pool: A pooled vehicle that trades futures and other commodity interests, run by a registered commodity pool operator who is responsible for disclosure and reporting.
Commodity trading advisor: A regulated adviser that manages client money in futures, options on futures and certain forwards, registered with the CFTC and a member of the NFA in the United States.
Distressed debt: Buying the debt of companies in or near default, at prices reflecting expected recovery rather than face value, often with a view to influencing a restructuring.
Distributions to paid-in: Private market multiples: DPI measures cash actually returned relative to capital drawn, while TVPI adds the appraised value of what is still held.
Dry powder: Committed capital that a private fund has not yet called or invested, available for future deals.
Event-driven investing: Strategies whose payoff depends on a corporate event completing or failing, such as a merger, spin-off, restructuring, index change or capital raise.
Family office: A private organisation managing the wealth and affairs of one family or a small group of families, combining investment management with tax, estate and administrative functions.
Fund of funds: A fund that invests in other funds rather than in securities directly, offering manager selection, diversification and access in exchange for a second layer of fees.
Global macro: A strategy that takes directional positions across currencies, rates, equity indices and commodities based on views about economic policy, growth and capital flows.
Hedge fund: A privately offered pooled vehicle, usually a limited partnership, that faces few portfolio restrictions and charges a management fee plus a share of profits.
High-water mark: The peak value an investor's stake has previously reached, above which the manager must climb again before earning another performance fee.
Hurdle rate: A minimum return that must be achieved before a performance fee is payable, so the manager is paid only for results above a reference rate.
Illiquidity premium: The extra expected return demanded for holding an asset that cannot be sold quickly at a fair price, compensating for the loss of optionality and flexibility.
Internal rate of return: The discount rate that makes the present value of an investment's cash flows equal zero, used as the headline return measure for private funds and any irregular cash-flow stream.
Interval fund: A closed-end structure that offers to repurchase a limited percentage of shares, commonly 5%, at set intervals such as quarterly, rather than daily redemption.
J-curve: The shape of a private fund's reported returns over its life: negative early as fees and costs are drawn before value is created, then rising as investments mature and are realised.
Limited partnership: The standard legal form for private funds: a general partner runs the fund with unlimited liability, while limited partners contribute capital and are liable only for what they commit.
Lock-up period: A contractual period during which an investor cannot redeem, giving the manager stable capital to run less liquid positions.
Long-short equity: A strategy holding long positions in preferred stocks and short positions in others, so part of the return comes from the spread rather than from market direction.
Managed futures: Strategies that trade listed futures and forwards across equities, rates, currencies and commodities, usually systematically and usually able to go long or short.
Market neutral: A portfolio constructed so that net exposure to the overall market is close to zero, leaving return dependent on relative performance within the book.
Master-feeder structure: An arrangement where several feeder funds in different jurisdictions invest into a single master fund that holds the actual portfolio and does all the trading.
Multi-strategy fund: A single fund running several distinct strategies under one roof, with capital reallocated internally between them by a central risk function.
Non-traded REIT: A REIT sold directly to investors rather than listed on an exchange, valued periodically by appraisal and offering only limited, capped redemption.
Performance fee: A share of gains paid to the manager, usually subject to a high-water mark and sometimes a hurdle, charged on top of a base management fee.
Pod shop: A multi-strategy firm organised as many small independent teams, each running its own book under strict risk limits, with the platform providing capital, financing and technology.
Private credit: Lending to companies outside public bond markets and outside banks, usually through funds that originate and hold floating-rate loans to mid-sized borrowers.
Private equity: Investment in companies that are not publicly listed, usually through closed-end partnerships with a ten-year life that buy, hold and eventually sell operating businesses.
Redemption gate: A provision capping total withdrawals in any single period, commonly at 10% to 25% of fund assets, so redemptions are spread over time instead of forcing rapid liquidation.
Schedule K-1: The US tax form a partnership issues to each partner reporting their share of income, deductions and credits, used instead of the simpler forms issued by corporations and funds.
Separately managed account: A portfolio run by a manager in the investor's own name and custody account, rather than pooled with other investors' money in a fund.
Side pocket: A segregated sub-account holding illiquid or hard-to-value positions, which existing investors keep a claim on while the main fund continues to deal normally.
Trend following: A systematic approach that buys markets that have been rising and sells those that have been falling, sizing positions by volatility and cutting losers by rule.
Two and twenty: The traditional hedge fund fee shorthand: a 2% annual management fee on assets plus 20% of profits, though realised averages have drifted well below both figures.
Venture capital: Equity investment in early-stage private companies, where most investments fail and a small number of large successes are expected to carry the whole fund.
Vintage year: The year a private fund makes its first investment or holds its first close, used to group funds that deployed capital into the same market conditions.

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