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absolute-return fund
A fund whose objective is to produce absolute, positive returns, not just to outperform a benchmark.

accredited investor
An institution or high-net-worth individual that meets the following criteria for investing in hedge funds (as defined by the U.S. Securities and Exchange Commission):

active premium
An investment’s annualized return minus a benchmark’s annualized return.

administrator

Administrators act as the unofficial CFO of a hedge fund, offering a wide variety of services ranging from NAV calculation to tax services. The primary function of the administrator is to provide independent calculation of the NAV. This role is increasingly required by investors who are often uncomfortable when they see a fund valuing its own portfolio.

advisory portfolio
A portfolio managed by an external portfolio manager. The holder of the advisory portfolio acts as an advisor, providing investment recommendations to the portfolio manager.

aggressive growth investment strategy
An investment strategy that strives to produce the greatest possible return through investment in highly speculative or relatively risky assets, leveraging to the extent possible.

AIMR^®
Association for Investment Management and Research.

alpha
A measure of the value-add of an investment manager. Typically, a manager's performance is compared to that of a Treasury Bill or other risk-free investment. If a funds performance for a given period exceeded the return of the benchmark by two percentage points, it would be said to have an alpha of 2.0 for that period.

alternative investments
Professionally managed assets that have a low correlation to traditional public markets. This low correlation creates significant portfolio benefits through risk reduction and return enhancement. Alternative investments seek to capitalize on market inefficiencies while neutralizing the overall direction of the capital markets and interest rates. Alternative investments employ techniques and instruments that are unavailable to traditional investment approaches and may invest in either listed or unlisted companies or securities. Alternative investments include hedge funds, private equity, real estate, oil and gas, and timber.

annual rate of return

Compounded gain or loss in a fund's net asset value during a calendar year.
 

annualized return
Average compound annual return for a period >1 year.

arbitrage investment strategy
The simultaneous purchase and sale of similar instruments in different markets to take advantage of price discrepancies.

asset class
An investment type, such as commodities, cash, stocks, bonds, real estate, etc.

AUM
Assets Under Management.

average annual return (AAR)
Cumulative return divided by the number of years of the life of the investment or account, with the compounding factored in. In reverse, the average annual return times a given number of years equals the cumulative return for that time frame. AAR is used to compare returns of two or more investments of unequal track records.
 

average monthly return
Cumulative gains and losses divided by the number of months of the investment's life, with compounding taken into account.

average rate of return
The mean average of a fund's returns over x number of periods. Calculated by dividing the sum of the rates of return for those periods by the number of periods.

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