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Acronym for private investments in public entities. Investments typically made by funds following Regulation D investment strategy.
A large bank or securities firm that provides various administrative, back-office and financing services to hedge funds and other professional investors. Prime brokers can provide a wide variety of services, including trade reconciliation (clearing and settlement), custody services, risk management, margin financing, securities lending for the purpose of carrying out short sales, record keeping, and investor reporting. A prime brokerage relationship doesn't preclude hedge funds from carrying out trades with other brokers, or even employing others as prime brokers. To compete for business, some prime brokers act as incubators for funds, providing office space and services to help new fund managers get off the ground.
Entities that buy illiquid stakes in privately held companies, sometimes by participating in leveraged buyouts. Like hedge funds, the vehicles are structured as private investment partnerships in which only qualified investors may participate. Such funds typically charge a management fee of 1.5% to 2.5%, as well as an incentive fee of 25% to 30%. Most private-equity funds employ lock-up periods of five to ten years, longer than those of hedge funds
Issues those are exempt from public-registration provisions in section 4-2 of the Securities Act of 1933. Hedge fund shares are generally offered as private placements, which are typically offered to only a few investors, rather than the general public. They must meet the following criteria:
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."
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.
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).
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.
Purchasing stocks of companies that are likely takeover targets, while assuming short positions in the would-be acquiring companies. Risk arbitrage 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.
The theoretical return on a risk-free investment, usually a U.S. security.
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