Term of Focus - Redemption Fee


Redemption fee

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


Hedge Fund Glossary

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R-squared

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."

Redemption fee

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

Regulation D

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 of volatility.

Risk-free rate

The theoretical return on a risk-free investment, usually a U.S. security.

 



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