Alternative Investment Performance and Returns Flashcards
What is the “J Curve Effect”
Represents the initial negative return in the capital commitment phase followed by an acceleration of returns through the capital deployment phase.
What is “Multiple of Invested Capital” or MOIC?
A simplified calculation that measures the total value of all distributions and residual asset values relative to an initial total investment; also known as a money multiple.
What is a “Prime Broker”?
A broker that provides services that commonly include custody, administration, lending, short borrowing, and trading.
What is “Margin Financing”?
A financing arrangement whereby the prime broker lends shares, bonds, or derivatives and the investment manager deposits cash or other collateral into a margin account at the prime broker based on certain fractions of the investment positions.
What does “Fair Value” mean?
A market-based measure of an investment based on observable or derived assumptions to determine a price that market participants would use to exchange an asset or liability in an orderly transaction.
What is a ‘redemption fee’?
A fee charged to discourage redemptions and to offset the transaction costs for the remaining investors in the fund.
What is a ‘notice period’?
The length of time (typically 30-90days) in advance that investors may be required to notify a fund of their intent to redeem some or all of their investment. This allows the fund manager to liquidate a position in an orderly fashion without magnifying losses.
What is a “Lockup Period”?
The minimum holding period before investors are allowed to make withdrawals or redeem shares from a fund. It’s purpose is to allow investment managers the proper time to execute upon a strategy and realize results.
What is a “Gate”?
A provision that, when implemented, limits or restricts redemptions for a period of time.
What are “Founders class shares”?
A way to entice early participation in startup funds whereby managers offer incentives that entitle investors to a lower fee structure and/or other favorable terms.
What is an “Either/Or” fee?
A custom fee arrangement whereby major investors are offered a structure where managers agree to charge either a lower management fee or a higher incentive fee, whichever is greater.
What is survivorship bias?
Relates to the inclusion of only current investment funds in a database. As such, the returns of funds that are no longer available in the marketplace are excluded from the database.
What is “Backfill Bias”?
A problem whereby certain surviving hedge funds may be added to databases and various hedge fund indexes only after they are initially successful and start to report their returns.
