Encyclopedia of alternative investments

Th e entries of the encyclopedia focus on hedge funds, managed futures, commodities, and venture capital written by well-known and respected academics and professionals from around the w

Encyclopedia

of Alternative Investments

Encyclopedia

of Alternative Investments

Edited by Greg N Gregoriou

Boca Raton, FL 33487-2742

© 2009 by Taylor & Francis Group, LLC

Chapman & Hall/CRC is an imprint of Taylor & Francis Group, an Informa business

No claim to original U.S Government works

Printed in the United States of America on acid-free paper

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International Standard Book Number-13: 978-1-4200-6488-9 (Hardcover)

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Library of Congress Cataloging-in-Publication Data

Encyclopedia of alternative investments / editor, Greg N Gregoriou.

p cm.

Includes bibliographical references and index.

ISBN 978-1-4200-6488-9 (hardback : alk paper)

1 Investments Encyclopedias 2 Asset allocation Encyclopedias 3 Portfolio management Encyclopedias 4 Investment analysis Encyclopedias I Gregoriou, Greg N., 1956- II

Title: Alternative investments

Ennis Knupp and Associates

Chicago,Illinois, USA

Illinois Institute of Technology

Chicago, Illinois, USA

Acknowledgments xxvii

Introduction xxix

Editor xxxi

Contributors xxxiii

List of Contributor Entries xxxix

A Absolute Return 1

Sean Richardson Absolute Return Index 2

Elisabeth Stocker Acceleration 3

Douglas Cumming Accredited Investor 3

Sean Richardson Active Premium 4

Carlos López Gutiérrez Activists 5

Dieter G Kaiser Aftermarket 6

Colin Read Aftermarket Orders 7

Colin Read Aftermarket Performance 7

Steven D Dolvin Agency Problem 8

Oana Secrieru Aggregation 11

François-Éric Racicot Agricultural Trade Option Merchant 12

Franziska Feilke Allowances 13

Abdulkadir Civan Alpha 13

Markus Leippold Alternative Asset 14

Begoña Torre Olmo Alternative Asset Class 16

Marno Verbeek Alternative Alpha 17

Georges Hübner Alternative Betas 17

Georges Hübner Alternative Investment Strategies 18

Zsolt Berenyi Angel Financing 20

Oana Secrieru Angel Groups 20

Stephan Bucher Angel Investor 21

Winston T H Koh

Commodity Futures Indices:

Spot, Excess, and Total

Miriam Gandarillas Iglesias

Commodity Pool Operator (CPO) 89

Miriam Gandarillas Iglesias

Commodity Price Index 90

Covenants (Venture Capital

and Private Equity Context) 118

Sven Olboeter

EDHEC Alternative Indexes 163

Noël Amenc and Lionel Martellini

EDHEC CTA Global Index 164

Corneliu Crisan and Simon Vuille

Eligible Contract Participant 164

Michael Gorham

Enumerated Agricultural Commodities 165

Stefan Ulreich

Equal Weighted Strategies Index (HFRX) 165

Elisabeth Stocker

Miriam Gandarillas Iglesias

Fixed Income Arbitrage 184

IPOX (Initial Public Off ering Index) 251

Katrina Winiecki Dee

Live Hogs Market 272

Municipals Over Bonds Spread

Kok Fai Phoon

Open Trade Equity 332

Pearson Correlation Coefficient 353

Fabrice Douglas Rouah

Peer Group Based Style Factors 354

Fabrice Douglas Rouah

Sliding Fee Scale 436

T Takedown 473

I would like to thank all the contributors for making this encyclopedia project possible

Without them, this would have been merely a thought that would have never materialized

I am indebted to them, and owe my deepest appreciation and gratitude for their

prompt-ness in the submission of entries

I would also like to extend my sincere thanks to Dr Sunil Nair, fi nance editor for

Chapman & Hall, U.K., for supporting and believing in me In addition, I sincerely thank

all the editorial board members for their support and suggestions Special thanks also go

to the copy editor for a wonderful job in reviewing each entry as well as Tom Skipp and

Glenon Butler at Chapman & Hall/Routledge/Taylor & Francis, and Justine M Augustine

at Macmillan Publishing Solutions

Each of the entries is the original work of the relevant author Th e publisher, chief editor,

and the editorial board are not responsible for the accuracy of the individual entries

Greg N Gregoriou, PhD

Professor of Finance State University of New York (Plattsburgh)

Plattsburgh, New York

Th e main objective of this encyclopedia is to be the most authoritative source on

alter-native investments for academics, students, professionals, and practitioners Th e entries

of the encyclopedia focus on hedge funds, managed futures, commodities, and venture

capital written by well-known and respected academics and professionals from around the

world

Greg N Gregoriou, PhD, is a professor of fi nance in the School of Business and Economics

at State University of New York (Plattsburgh) He is hedge fund editor for the Journal of

Derivatives and Hedge Funds , editorial board member of the Journal of Wealth Management

and the Journal of Risk Management in Financial Institutions He is the co- author of a

book with Professor Joe Zhu entitled Evaluating Hedge Fund and CTA Performance: Data

Envelopment Analysis Approach+ CD-ROM, published by John Wiley & Sons, and has

edited and co-edited 24 books for John Wiley & Sons, McGraw-Hill, Elsevier-Butterworth/

Heinemann, Chapman & Hall/Routledge/Taylor & Francis, Palgrave-MacMillan, and Risk

books Dr Gregoriou’s articles have also appeared in the Journal of Portfolio Management,

Journal of Futures Markets, European Journal of Operational Research, and the Annals of

Operations Research A native of Montréal, Professor Gregoriou obtained his joint PhD at

the University of Québec at Montréal in fi nance, which merges the resources of Montréal’s

four major universities: University of Québec, McGill University, Concordia University,

and HEC Professor Gregoriou’s interests focus on hedge funds, funds of hedge funds, and

managed futures

Stephan Bucher

Dresdner Bank AGFrankfurt, Germany

Robert Christopherson

State University of New York (Plattsburgh)Plattsburgh, New York, USA

Abdulkadir Civan

Fatih University

Istanbul, Turkey

Alain Coën

University of Québec at Montréal

Montréal, Québec, Canada

Toronto, Ontario, Canada

Katrina Winiecki Dee

Glenwood Capital Investments, LLC

Chicago, Illinois, USA

Timothy W Dempsey

DHK Financial Advisors Inc

Portsmouth, New Hampshire, USA

Bill N Ding

University at Albany (SUNY)

Albany, New York, USA

Mohamed Djerdjouri

State University of New York (Plattsburgh)

Plattsburgh, New York, USA

Miriam Gandarillas Iglesias

University of CantabriaCantabria, Spain

Michael Gorham

Illinois Institute of TechnologyChicago, Illinois, USA

University of Québec at Montréal

Montréal, Québec, Canada

Jodie Gunzberg

Marco Consulting Group

Chicago, Illinois, USA

Carlos López Gutiérrez

Philipp Krohmer

CEPRES GmbHCenter of Private Equity ResearchMunich, Germany

Annick Lambert

University of Québec at Outaouais

Gatineau, Québec, Canada

New York (Plattsburgh)

Plattsburgh, New York, USA

Tremont Group Holdings Inc

Rye, New York, USA

Mehmet Orhan

Fatih UniversityIstanbul, Turkey

Walter Orth

University of Duisburg-EssenDuisburg-Essen, Germany

Paolo M Panteghini

University of BresciaBrescia, Italy

Kok Fai Phoon

Monash UniversityVictoria, Australia

University of Québec at Outaouais

Gatineau, Québec, Canada

State University of New York (Plattsburgh)

Plattsburgh, New York, USA

Christine Rehan

Technical University at Braunschweig

Braunschweig, Germany

Sean Richardson

Tremont Group Holdings Inc

Rye, New York, USA

Joan Rockey

Option Opportunities Company

Chicago, Illinois, USA

Fabrice Douglas Rouah

McGill University

Montréal, Québec, Canada

Juan Salazar

University of Québec at Outaouais

Gatineau, Québec, Canada

Roberto Savona

University of BresciaBrescia, Italy

Bernd Scherer

Morgan StanleyLondon, England, UK

Daniel Schmidt

CEPRES GmbHCenter of Private Equity ResearchMunich, Germany

Frank Schuhmacher

University of LeipzigLeipzig, Germany

Josef A Schuster

IPOX Schuster, LLCChicago, Illinois, USA

M Nihat Solakoglu

Bilkent UniversityAnkara, Turkey

Elisabeth Stocker

University of PassauPassau, Germany

Julia Stolpe

Technical University at BraunschweigBraunschweig, Germany

Jerome Teiletche

University Paris-Dauphine

Paris, France

Raymond Th éoret

University of Québec at Montréal

Montréal, Québec, Canada

Jörg Richard Werner

University of BremenBremen, Germany

Raff aele Zenti

Leonardo SGR SpA–Quantitative PortfolioManagement

Milan, Italy

Jochen Zimmermann

University of BremenBremen, Germany

List of Contributor Entries

Aft ermarket Orders

Aft ermarket Performance

Annualized Compound Return

Annualized Standard Deviation

Approved Delivery Facility

Backfi lling BiasBack PricingBackwardationBasis

Basis GradeBasis SwapBeauty ContestBenchmarkBetaBid-Ask SpreadBlock TradeBonds (Overview of Types)Bookbuilding

Booking the BasisBottom-Up InvestingBridge FinancingBridge LoanBTOP 50 IndexBucketingBuyer’s MarketCalendar ReportCall OptionCalmar RatioCancellationCapital CallCapital CommitmentCapital DistributionCapital Structure ArbitrageCarried Interest

Carrying ChargeCarve-OutCash CommodityCash MarketCash SettlementCash Settlement (An Example)

Commodity Credit Corporation (CCC)

Commodity Exchange Act

Commodity Futures Indices: Spot, Excess,

and Total Return

Commodity Futures Modernization

Commodity Pool Operator (CPO)

Commodity Price Index

Commodity Research Bureau (CRB)

Commodity Swap

Commodity Trading Advisor (CTA)

Community Development Venture Capital

Companion Fund

Company Buy-Back

Conditional Value-at-Risk (CVaR)

Confi rmation Statement

Cotton MarketCounterparty RiskCovenants

Covenants (Venture Capital and Private Equity Context)

Covenants (in Loans or Securities Issues)Covered Options

Crack SpreadCRB ReutersCredit Default SwapCross-HedgeCross-TradingCrude Oil MarketCSFB Tremont Hedge Fund IndexCurb Trading

Currency Classifi cationDeal Flow

Deferred Delivery MonthDeferred Futures

Deliverable GradesDelivery DateDelivery InstrumentDelivery NoticeDelivery PointDemand RightsDerivatives Transaction Execution Facility (DTEF)

Designated Contract MarketDesignated Self-Regulatory OrganizationDirect Public Off ering

DirectionalDiscretionary AccountDiscretionary CTADiscretionary TradingDistressed DebtDistressed Securities

List of Contributor Entries • xli

Diversifi ed Classifi cation

Double Hedging

Dow Jones-AIG Commodity Index

Down Capture Ratio

Dynamic Asset Allocation

Early Redemption Policy

Early Stage Finance

Economically Deliverable Supply

EDHEC Alternative Indexes

EDHEC CTA Global Index

Eligible Contract Participant

Enumerated Agricultural Commodities

Equal Weighted Strategies Index (HFRX)

Equally Weighted Index (HFRX)

First Notice Day

First Stage Financing

First Time Fund

Five Against Note Spread (FAN Spread)

Fixed Income Arbitrage

FlippingFloatFloor BrokerFloor TraderFollow-on FundingForward ContractsForward MarketForward Volatility AgreementFree on Board (FOB)

Fundamental AnalysisFundraising

Funds of FundsFungibilityFuturesFutures Commission MerchantFutures Contract

Futures Industry AssociationGain Standard DeviationGain-to-Loss RatioGate

GatekeeperGeneral Partner Contribution/CommitmentGeneralized Treynor Ratio

German Entrepreneurial IndexGlobal Hedge Fund IndexGlobal Macro

Goldman Sachs Commodity IndexGrain Futures Act

Grandstanding ProblemGreenshoe

Greenshoe OptionGross SpreadGuaranteed Introducing BrokerHedge

Hedge FundHedge Fund ReplicationHedge Ratio

HedgingHFRI Convertible Arbitrage IndexHFRI Distressed Index

HFRI Fund Weighted Composite IndexHigh Watermark

High Net Worth Individual

Initial Public Off ering

Institutional Buy Out

IPOX

Intangibles Company

Intercommodity Spread

Interdelivery Spread

Interest Rate Swap

Internal Rate of Return (IRR)

In-the-Money Options

Intrinsic Value

Introducing Broker

Investable Hedge Fund Indexes

IPO Action Track

IPO Price

IPO Sentiment Index

IPOX (Initial Public Off ering Index)

Jensen Alpha

Jones Model

Kurtosis

Large Order Execution Procedures

Last Notice Day

Last Trading Day

Loss Standard DeviationManaged Funds

Managed Funds Association (MFA)Management Buy-In

Management Buy-OutManagement FeeManager SkillMany-to-ManyMargin

Maintenance MarginManaged AccountManaged Account PlatformsMargin Call

Mark-to-MarketMarket NeutralMarket OrderMarket-Timing StrategyMaximum DrawdownMaximum Price FluctuationMerger Arbitrage

Mezzanine FinanceMinimum Acceptable ReturnMinimum Price FluctuationModern Portfolio Th eoryModifi ed Jones ModelModifi ed Sharpe RatioModifi ed Value-at-RiskMortgage-Backed Securities (MBS)Mount Lucas Management IndexMulti-Manager Hedge FundMulti-Strategy Fund

Municipals Over Bonds Spread (MOB Spread)

Naked OptionsNational Futures Association

List of Contributor Entries • xliii

National Introducing Brokers

Association (NIBA)

Natural Gas

Net Asset Value (NAV)

Nearby Delivery Month

Off ering Date

Off ering Memorandum

Off ering Price

Off ering Range

Off set

Off shore Fund

Off shore Jurisdiction

Off shore Tax Haven

Over-the-Counter Market (OTC)

Ownership Buyout (OBO)

Pairs TradingPar

Participating UnderwritersPearson Correlation Coeffi cientPeer Group Based Style FactorsPenalty Bid

Performance FeePerformance PersistencePiggyback RegistrationPipeline

PitPooled FundPosition LimitPosition TraderPost-Money ValuationPostponement

Prearranged TradingPreliminary ProspectusPremium

Pre-Money ValuationPrice Basing

Price DiscoveryPrice LimitPrice RangePrice RevisionPrime BrokerPrincipalPrincipal ShareholderPrivate EquityPrivate PlacementPrivately HeldProjectionProspectusPublic Commodity FundsPublic Market Equivalent (PME)Public Off ering

Public to PrivatePublic Venture CapitalPut Option

PyramidingQualifi ed InvestorQuiet FilingQuiet Period