Absolute return

A common term in the hedge fund industry, absolute returns are synonymous with positive returns. Absolute returns differ from relative returns in that they are concerned with achieving positive returns regardless of the performance of any other measure or benchmark.

Accredited Investor

A term used by provincial and territorial securities regulatory bodies to define financially sophisticated investors that can purchase hedge funds and other exempt securities for lower minimums than other investors. Typically, individual accredited investors must have a liquid net worth of $1 million or earn income of $200,000 in each of the previous two years or earn a combined income of $300,000 in conjunction with their spouse.

Active management

Investment strategy that actively manages a portfolio with the objective of producing returns in excess of a specified benchmark. Active managers rely on analytical research, forecasts and their own judgment and experience in making investment decisions. The opposite of active management is passive management or indexing.

Administrator

Processes subscriptions and redemptions and calculates the value of the investors' holdings, either as a Net Asset Value (NAV) or as a partnership share. Administrators usually look after other back-office needs such as fund accounting and unitholder records.

Alpha

Alpha (?) is a measure of "excess return" (a fund's performance over and above the market's rate of return). As such, it represents the value-added return that can be attributed to the fund manager's actions rather than to the performance of the overall market.

Alternative asset class

A term commonly used to refer to non-traditional assets (versus traditional assets like stocks, bonds and cash) such as hedge funds, managed futures, real estate, private equity and collectibles (such as art, coins, wine, etc).

Alternative investment strategies (AIS)

Portfolio management strategies that invest in alternative asset classes.

Annualized return

Converts a rate of return to an annual basis.

Annualized Sharpe ratio

See Sharpe ratio.

Annualized standard deviation

See Standard deviation.

Arbitrage

The simultaneous buying and selling of a security at two different prices in two different markets. The arbitrageur makes money by taking advantage of the price disparity by selling in one market while simultaneously buying in the other. For example, ABC security can be bought in New York for $10.00 per share and sold in London for $10.50 per share; an arbitrageur may simultaneously purchase ABC security in New York and sell the same amount in London, making a profit of $0.50 per share.

Asset allocation

An investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon.