A May 6, 1997, "no-action letter" from the SEC to Lamp Technologies of Dallas indicating that
an online hedge-fund database would not violate restrictions against marketing hedge funds. The landmark letter cleared
the way for others to launch hedge-fund performance databases on the Internet, and expressed the SEC's opinion that such
databases did not represent the type of general hedge-fund advertising that was prohibited under rule
502(c) of Regulation D under the Securities Act of 1933
The borrowed money that an investor employs to increase buying power and increase its exposure to an
investment. Users of leverage seek to increase their overall invested amounts in hopes that the returns on their positions
will exceed their borrowing costs. The extent of a fund's leverage is stated either as a debt-to-equity ratio or as a percentage
of the fund's total assets that are funded by debt. Example: If a fund has $1 million of equity capital and it borrows another
$2 million to bring its total assets to $3 million, its leverage can be stated as "two times equity" or as 67%
($2 million divided by $3 million). Ratios of between two and five to one are common. Leverage can also come in the form of short sales,
which involve borrowed securities
Many hedge funds are structured as limited partnerships, which are business organizations managed by
one or more general partners who are liable for the fund's debts and obligations. The investors in such a structure are
limited partners who do not participate in day-to-day operations and are liable only to the extent of their investments.
The period of time -- often one year -- during which hedge-fund investors are initially prohibited from
redeeming their shares.
Long-biased investment strategy
An approach taken by fund managers who tend to hold considerably more long positions than short positions.
Long/short investment strategy
An approach in which fund managers buy stocks whose prices they expect will increase and takes short positions
in securities (usually in the same sector) whose prices they believes will decline. The strategy, also known as the Jones Model,
is designed to generate profits during bullish periods in the overall stock market, while serving as a source of capital protection
in a falling stock market.