Glossary

The time period in which an investor in a fund may withdraw his or her capital from the fund. For example, quarterly redemption allows an investor to withdraw capital every quarter.

Relative Value Arbitrage attempts to take advantage of relative pricing discrepancies between instruments, including equities, debt, options and futures. Managers may use mathematical, fundamental or technical analysis to determine misvaluations. Securities may be mispriced relative to the underlying security, related securities, groups of securities or the overall market. Many funds use leverage and seek opportunities globally. Arbitrage strategies include dividend arbitrage, pairs trading, options arbitrage and yield curve trading.

Risk relative to return - the return achieved per unit of risk or the risk associated with a particular level of reward, typically represented by the Sharpe ratio. Improving the risk-adjusted return depends either on increasing returns and maintaining the level of risk, or maintaining the level of returns and lowering the associated risk.

A special account used to hold and separate customers´ assets from those of the broker or firm.

Self-regulatory organizations (i.e., the futures exchanges and National Futures Association) enforce minimum financial and sales practice requirements for their members.

A measure of risk-adjusted performance that indicates the level of excess return per unit of risk. In the calculation of Sharpe ratio, excess return is the return over and above the short-term risk free rate of return and this figure is divided by the risk, which is represented by the annualized volatility or standard deviation. In summary the Sharpe Ratio is equal to compound annual rate of return minus rate of return on a risk-free investment divided by the annualized monthly standard deviation. The greater the Sharpe ratio the greater the risk-adjusted return.

Selling securities that are borrowed rather than owned in the expectation of buying them back at a cheaper price. Short Selling involves the sale of a security not owned by the seller, a technique used to take advantage of an anticipated price decline. To make a short sale, the seller borrows securities from a third party in order to make delivery to the purchaser. The seller returns the borrowed securities to the lender by purchasing the securities in the open market. If the seller can buy that stock back at a lower price, a profit results. If the price rises, however, a loss occurs. A short seller must generally pledge other securities or cash with the lender in an amount equal to the market price of the borrowed securities. This deposit may be increased or decreased in response to changes in the market price of the borrowed securities.

Skewness characterizes the degree of asymmetry of a distribution of returns around its mean. Positive skewness indicates a distribution with an asymmetric tail extending toward more positive values. Negative skewness indicates a distribution with an asymmetric tail extending toward more negative values.

The difference between the sample or target price for buying or selling an asset and the actual price at which the transaction takes place.

A measure of risk-adjusted performance that indicates the level of excess return per unit of downside risk. It differs from the Sharpe ratio in that it recognizes investors´ preference for upside (´good´) over downside (´bad´) volatility and uses a measure of ´bad´ volatility as provided by semi-deviation - the annualized standard deviation of the returns that fall below a target return, say the risk free rate.

A widely used measurement of risk usually used to represent volatility derived by calculating the square root of the variance of the returns of an investment from their mean.

This ratio is also a comparison of historical reward and risk and was developed by Deane Sterling Jones. The Sterling Ratio is equal to the average annual rate of return for the past three calendar years divided by the average of the maximum annual drawdown in each of those three years plus 10%.

The particular investment process employed by a manager in the application of an investment style.

Stress testing is a method of determining how the program will behave during a period of financial crisis. We use the worst monthly S&P500 returns as a stress time. You can also use hypothetical scenarios (for example Monte Carlo simulation) or known historical events (for example Russian debt default in 1998 or 9/11 terrorist attacks).

Typically provides principal protection, invests across a range of styles and managers, provides increased investment exposure and requires a high level of structuring expertise with respect to blending investment approaches, financing, liquidity and risk management.

A generic investment approach, such as equity hedge and long/short, event driven, arbitrage, global macro, fund of funds, that has developed as a result of numerous managers aiming to exploit a particular type of market inefficiency, sharing a broadly similar conceptual understanding of that inefficiency, and employing a broadly similar investment methodology in order to extract value. Practitioners of a particular style will have their own investment process or strategy with unique distinguishing features and techniques.

The general idea of Style Analysis is to attempt to explain, or understand, the return stream of a given fund in terms of a set of asset classes (or style factors). Specifically, for a set of n asset classes, to try and find a corresponding set of n fixed weights (or percentages). These weights are then applied to the returns of their respective asset classes, with the hope that their sum closely approximates the returns of the given fund, for each data-period in succession and over the range of data periods as a whole. At the same time, it is desired that the composition determined by the analysis reflect the actual style of the target fund.

This is a part of the multifactor analysis. We use the returns-based method developed by F.S.Lhabitant in 2001 (please refer to the PFGBEST white paper database section section) which is an adjusted application of the analysis initially suggested by Sharpe in 1998. CS/Tremont hedge fund indices are used as factors and Beta coefficients are used as exposure to these style indices.

The basic premise of technical analysis is that prices move in trends that persist and this characteristic can be used to achieve superior returns. Technical analysis often uses computer programs to examine market data such as prices and volume of trading to make an estimate of future price trends and an investment decision.

Unlike fundamental analysis, technical analysis is not concerned with the financial position of a company.

The total percentage return of an investment over a specified period, calculated by expressing the difference between the investment´s initial price and final price as a percentage of the initial price.

A performance report produced by an investment manager that is made available, usually on a monthly basis, to clients with holdings in a particular product. The report details the change in net asset value of a product and explains performance in light of market conditions as well as any relevant portfolio changes and developments.

The actual performance of an investment since inception, usually represented by audited monthly returns, net of fees.

The general direction of the market, a relatively persistent upward or downward price movement over a period, sometimes represented by the mean of price changes in that period.

A generic term used to describe the ´instrument´ (share, bond, unit) which is issued by a product. Investors subscribe to or invest in a product by buying units and redeem their holding by selling units at the prevailing net asset value per unit, as detailed in the relevant product prospectus.

VAMI is defined as the growth in value of an average $1000 investment. VAMI is calculated by multiplying (1 + current monthly ROR) X (previous monthly VAMI). VAMI assumes the reinvestment of all profits and interest income. Incentive and Management Fees have been deducted.

A widely used risk measurement technique that calculates (at a pre-specified level of probability) the loss that would be experienced in a day or some other pre-specified time horizon in the event of an increase in volatility or an adverse correlated move in market prices, assets or the investments making up a portfolio. At Man, the proprietary measure of VAR is also known as Total Portfolio Risk (TPR).

Volatility is the measurement of risk used most often in the investment industry. Put simply, it measures how variable price changes are in relation to the price trend for an investment. It is important to note that volatility says nothing about the direction of the trend itself. Expressed in slightly more technical terms, volatility is a measure of how much a set of returns for an investment deviates from the price trend or mean of that investment. It is usually calculated as ´standard deviation´ and expressed as ´annualized volatility´ - the standard deviation on a yearly basis.

World Equity Benchmark Securities are exchange traded funds that track various foreign country indices such as the U.K., German, and French equivalents of the S & P 500 Index.

The relative proportion of each of a group of securities or asset classes within a single investment portfolio.

The amount of interest or dividend paid on a loan or an investment, expressed as a percentage. The yield on a stock is calculated by dividing the dividend by the current market price.