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Hedge Funds of Funds: A Guide for Investors by Chris Jones

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Glossary

Absolute Return

A fund manager seeks to generate absolute returns if he aims to generate positive returns irrespective of the movements of underlying markets or benchmarks.

Alpha

Return generated through skill rather than just passive market exposure.

Arbitrage

A risk free instantaneous profit from financial markets; nowadays taken to mean a low risk market independent profit.

Beta

The reliance of any return or portfolio on passive underlying market exposure.

Beta Neutral

A portfolio is beta neutral if its long and short positions are matched to leave no residual market exposure.

Capacity

The maximum amount of assets that can be managed in a given hedge fund, as decided by the hedge fund manager. A hedge fund manager may search for capacity in a hedge fund when it looks soon to close but they want to get in. A hedge fund that has enough assets under management to close to new investment is said to be at capacity.

Closed

A fund that is closed will not take in any new investors or investments.

Convertible Bond

A corporate bond that can be converted into an equity from the same issuer.

Convertible Bond Arbitrage

A hedge fund strategy based on misevaluations and arbitrage opportunities in the convertible bond market.

Credit Derivatives

Options, swaps and other derivatives based on the credit rating of an underlying company or index.

Credit Spreads

The difference in yield between corporate and government bonds.

Crystallised Loss

A loss that cannot be regained from a given position ...

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