Alpha
A statistical measure of an investment’s unique return (return not attributable to other known return sources such as equity market returns). For example, when comparing a market neutral hedge fund to the equity market, in theory, the equity beta should be close to zero and alpha will be close to or equal to the fund’s entire excess return.
Alternatives
Any asset class or strategy that differs from traditional long-only stocks or bonds (this can include alternative asset classes like real estate and commodities or hedge fund strategies like long/short equity and global macro).
Arbitrage
A strategy designed to capture relative mispricing in pairs of related assets (e.g., convertible, merger and event-driven arbitrage).
Derivatives
Highly customizable and flexible alternative financial instruments that give investors access to underlying assets or asset classes without having to invest in the physical security. Examples include swaps, futures contracts, and options.
(Equity) Beta
A statistical measure of the relationship between an investment and the equity market. A higher beta means more exposure to or impact from changes in the equity market. Market neutral strategies try to achieve a low-to-zero equity beta.
Equity Market Neutral
A subset long/short equity strategies which (unlike many long/short equity funds) are designed explicitly to be uncorrelated to equities over the long-run.
Factors, Styles, or Alternative Risk Premia
Well-known, rules-based investment strategies that are uncorrelated to traditional markets and have been proven to provide positive returns over time (e.g., stock selection value, multi-asset carry, trend following value premium, momentum premium).
Global Macro
A strategy that invests across multiple asset classes (bonds, currencies, commodities, equities) based on prices and macroeconomic fundamentals, using a variety of quantitative and qualitative inputs.
Hedge Funds
A category of investment strategies typically designed to pursue returns that are diversifying to traditional long-only stocks and bonds. Compared to more traditional active investments, hedge funds tend to make more use of leverage, shorting, and derivates in their construction. Hedge funds can be offered in various vehicle types (UCITS, mutual funds, LPs, SMAs).
Liquid Alternatives
Sometimes used to distinguish between illiquid private assets like direct real estate, private credit, and private equity and more-liquid alternative strategies like hedge funds and alternative asset classes like commodities. Sometimes used interchangeably with hedge funds.
Long/Short Equity
A strategy which goes long attractive stocks and short unattractive stocks. Because of their short positions, these strategies usually have less than 100% net exposure to the market.
Multi-Asset
Sometimes called “risk parity”, this strategy seeks to go long major asset classes (stocks, nominal bonds, credit, commodities and inflation-linked bonds) usually in a risk-balanced (as opposed to 60/40 or balanced-capital) approach.
Multi-Strategy
A strategy that combines multiple strategies into a single fund (e.g., trend, arbitrage, and long/short equity wrapped into a single fund).
Trend Following
A strategy that uses futures to go long recently-outperforming assets and short recently under-performing assets.