Alternative Investments

What is commodity spot versus futures?

Spot is immediate-delivery price; futures is contracted future-delivery price.

What is commodity convenience yield?

Noncash benefit of holding physical inventory.

How does convenience yield affect futures pricing?

Higher convenience yield generally lowers fair futures relative to spot/carry, other things equal.

What is contango?

Futures price higher at longer maturities for comparable contracts/conditions.

What is backwardation?

Futures price lower at longer maturities for comparable contracts/conditions.

What is roll yield?

Return impact of replacing expiring futures with later-dated contracts; depends on curve and spot path.

What is total futures return decomposition?

Spot price change + roll component + collateral yield, under a specified convention.

What is cap rate in property valuation?

Net operating income divided by property value.

How is real estate value approximated using direct capitalization?

Value = stabilized NOI / capitalization rate.

What is discounted cash flow real estate valuation?

PV of forecast property cash flows plus discounted terminal sale value.

What is a REIT?

Real estate investment trust providing exposure to income-producing real estate.

What is FFO in REIT analysis?

Net income plus real-estate depreciation/amortization, adjusting for certain property sale gains/losses.

Why use AFFO?

Adjust FFO for recurring capital expenditure and other cash sustainability items, with varying definitions.

What is hedge fund high-water mark?

Highest reference NAV above which performance fees may be charged.

What is a hurdle rate?

Minimum return threshold for incentive fees, according to fund terms.

What is long-short equity?

Long selected equities and short others to manage net market exposure.

What is market-neutral strategy?

Targets low market beta via offsetting exposures; other risks remain.

What is merger arbitrage?

Trades expected acquisition completion spread while assuming deal-break risk.

What is distressed investing?

Investment in troubled issuers where restructuring/default analysis drives returns.

What is convertible arbitrage?

Often long convertible security and hedge associated stock/rate/credit risks.

What is event-driven investing?

Positions tied to corporate events including mergers, spin-offs and restructurings.

What is leverage's effect in hedge funds?

Amplifies both gains and losses, as well as liquidity and margin risks.

What is lockup period?

Minimum holding period during which investors typically cannot redeem.

What is redemption gate?

Limit on investor withdrawals in a period, under fund agreement.

What is survivorship bias in hedge fund indexes?

Failed or closed funds disappear, potentially overstating reported performance.

What is backfill bias?

Successful funds add favorable earlier returns when entering a database.

How do you express commodity cost-of-carry futures pricing?

Futures ≈ Spot×exp[(r+storage-convenience yield)T], under idealized assumptions.

What is normal backwardation theory?

Futures price below expected future spot price because hedgers compensate long risk bearers.

Why is contango not identical to negative expected return?

Futures curve slope alone does not establish future spot changes or total return.

What is collateral return in a fully collateralized futures position?

Interest earned on cash collateral backing futures exposure.

What is basis risk in commodity hedging?

Hedge instrument's price changes differ from hedged physical exposure's price changes.

What is a commodity index roll schedule?

Rule for replacing expiring futures contracts; timing can affect returns.

What is a commodity producer's typical hedge?

Short futures/forward to reduce risk of falling output sale prices.

What is a commodity consumer's typical hedge?

Long futures/forward to reduce risk of rising input prices.

What is property NOI before capital spending?

Property operating revenue less operating expenses; generally excludes financing and income tax.

What is a real-estate terminal cap-rate estimate?

Terminal property sale value ≈ forecast post-sale-year NOI / terminal cap rate.

How is a REIT NAV per share constructed?

(Fair value properties + other assets - liabilities) / shares outstanding.

What is a REIT price-to-FFO multiple?

REIT price per share / FFO per share using consistent periods.

What is a weakness of appraisal-based property indexes?

Appraisal smoothing and stale valuations may understate observed return volatility.

What distinguishes relative-value hedge funds?

Seek mispriced relative relationships, often hedging broad market risk but retaining basis/leverage risks.

What is global macro hedge fund strategy?

Positions on economic trends across rates, currencies, equities and commodities.

What are managed futures/CTA strategies?

Systematic or discretionary positions primarily in futures, often trend following.

What is a fund-of-funds structure?

Allocates capital to multiple underlying funds for manager diversification, with layered fees.

What is a hard versus soft performance-fee hurdle?

Hard charges fees only above hurdle; soft may apply to whole gain once hurdle met.

How is net exposure calculated for long-short equity?

Long market value minus short market value, divided by capital, under stated convention.

How is gross exposure calculated?

Absolute long plus absolute short positions divided by capital, under stated convention.

What can make hedge fund reported volatility misleading?

Illiquid or model-marked holdings, stale prices, smoothing and survivorship selection.