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G

Gearing

See Leverage

H

High watermark

See Net new highs

Hurdle rate

The level of return (often the risk-free interest rate) which investment managers sometimes stipulate net new highs must exceed in order for performance fees to be charged. 

I

Incentive fee

See Performance fee

Income

Hedge fund products which pay an income stream are a type of structured product which continues to grow in popularity. The benefit of this type of structure is that it provides a transparent payoff profile through regular (for example semi-annual) defined income payments for a fixed term.

Industry loss warranties

An option contract on industry-wide insurance claims that exceeds a predefined amount (e.g. hurricane Katrina, $ 40 billion).

Investment Regions

An investment region is the primary geographic region a fund is focused on. For example, an emerging markets fund will invest exclusively in emerging economies, such as Brazil, India, Mexico and Russia.

Typical investment regions include
  • Asia 
  • Emerging Markets 
  • Europe 
  • Global 
  • Japan 
  • United Kingdom
  • United States

Investment strategy

See Strategy

Investment style

See Style

IPOs

One refers to an `initial public offering (IPO)` when a private company sells shares of its stock to the general public for the first time via a securities exchange. Through this process, a private company transforms into a public company.

L

Leverage

Leverage and gearing effectively mean the same thing: the process or effect of ‘gearing up’ or magnifying exposure to an investment strategy, manager or asset. Leverage can be achieved by borrowing capital or using derivatives. A leveraged investment is subject to a multiplied effect regarding the profit or loss that results from a comparatively small change in price. Thus leverage offers the opportunity to achieve enhanced returns, but at the same time typically involves greater risk and can result in a loss that is proportionally greater than the amount invested.

Liquidity

A relative term to describe the speed at which an asset or assets can be converted into cash (liquidated) and vice versa. Common terms include
  • Daily
  • Weekly
  • Monthly
  • Other - such as quarterly or ad hoc.

Lock-up period

An interval during which an investment may not be sold.

Long investments

Buying securities that are considered undervalued in the expectation that they will rise in value.

Long-Short

Profits from taking long and offsetting short positions in undervalued and overvalued securities with a fixed or variable underlying net long or short exposure.
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