A measure of the degree to which a hedge fund's returns are
correlated to the broader financial market. A figure of 1 would be a perfect
correlation, while 0 would be no correlation and minus-1 would be a perfect
inverse correlation. Any figure below 0.3 is considered non-correlated.
The result is used to determine whether a hedge fund follows a market-neutral
investment strategy. Sometimes referred to as "R."
Rate of return
The annual appreciation in the value of a fund or any other
type of investment, stated as a percentage of the total amount invested.
Sometimes referred to a simply the "return."
A charge, intended to discourage withdrawals that a hedge-fund
manager levies against investors when they cash in their shares in the
fund before a specified date
A provision in the Securities Act of 1933 that allows privately
placed transactions to take place without SEC registration and prohibits
hedge funds from advertising themselves to the general public. It also
outlines which parties qualify as company insiders.
Regulation D investment strategy
An approach in which the fund manager provides financing to
publicly traded companies, usually in exchange for a privately placed
convertible note issued at a discount. Also known as PIPES (private investments
in public entities).
Relative-value investment strategy
A market-neutral investment strategy that seeks to identify
investments whose values are attractive, compared to similar securities,
when risk, liquidity and return are taken into account.
Risk arbitrage investment strategy
Purchasing stocks of companies that are likely takeover targets,
while assuming short positions in the would-be acquiring companies. Risk
arb players can employ an event-driven investment strategy or merger arbitrage
investment strategy, seeking situations such as hostile takeovers, mergers
and leveraged buyouts. Such funds typically experience moderate amounts
The theoretical return on a risk-free investment, usually
a U.S. security.