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38 Cards in this Set
- Front
- Back
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Aggreation of IRRs |
Refers to the relationship between the IRRs of indv invets and the IRR of the combined cash flows of the investments |
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Avg tracking error |
Refers to teh excess of an investments return relative to its benchmark |
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Beta |
A measure of teh volatility, or sys risk, of a sec or port in comparison to the market as a whole |
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Borrowing type of cash flow patterns |
CF pattern where the inital cash flow is postive and the remaining CF are neg. There is only 1 IRR that solves the equation. A high IRR is undesirable since the IRR represents the cost of borrowing and not the ROR |
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Carried interest |
share of the profits $$ of an invement or fund that is paid to the investment manager in excess of the amout the manager contibuets to the partnership |
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Catch-up provision |
A clause in teh agreement between the GP and teh LP of the PE fund. Once the LP have received a certain portion of their expected retrun, teh PG can then receive a majority of profits until the previously agreed upon profit split is reached |
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Catch-up rate |
% of profits used to catch up the incentive fee once the hurdel rate is met. A full catch up rate is 100% It must be higher than the rate of carried interest in order to be effective |
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Clawback clause |
A clause in teh ageement betwee the GP and the LP of teh PE Fund. Clawback gives LPs teh right to reclaim a portion of disburements to a GP for rofitable investments based on significicant losses from the later investments in the port |
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Complex CF pattern |
An investment involving eaitehr borrowing or multiple sign changes |
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Correlation coefficient |
Measure of the strenth and direction of the linear relationship between two variables that is defined as the sample covariance of the variables divided by the producet of their sample standard deviations |
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Covariance |
Measures the linear relationship between 2 random variables. Unlike the corr. coefficient, covariance is very sensitive to teh scale of the 2 variables |
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Deal by deal carried int. |
Carried int owed to managers is calculated on a deal by deal basis |
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Dollar weighted returns |
ROR that takes CF and outflows into consideration |
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First order of autocorrelation |
Refers to the corr between the return in the period t and the return in the immediately previous time period |
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Fully collateralized |
An assumption that the forward contract is assumed to be paired with a quanity of capital equal in value to the notional principal of the contract |
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Hard hurdle rate |
A return that fund LP partners must receive before the GPs begin to receive incentive fees |
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Information ratio |
Active return divided by active return (Rp-Benchmark return)/Tracking error of port relative to its benchmark |
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IRR |
ROR used to measure and compare teh profitability of investments. The term internal referes to the fact that its calc does not incorp environmental factors (eg. interest rate or inflation) It is also the rate that makes teh NPV of all cash flows (both + and - ) from a particular investment equal to zero. |
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Jensens Alpha |
Actual port return minus its expected return given its risk as measured by Beta. A direct measure of the abslute amount by which an asset is estimated to perform, if positive, the return on efficiently priced assets of equal sys risk in a single factor market model Jens Alpha= Port Return- RFR + Port Beta * (Market Return -Rfr) |
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Lifetime IRRs |
An IRR that is calc'd using all of the invesmtments CFs occurring over the entire life of the investments |
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M2 (M-Squared) Approach |
Expresses the excess return of an investment after its risk has been leveraged or deleverged to equal the risk (vol) of the market port. Most attractive Portfolio has the highest M2 |
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Moneyness |
Refers to the degree to which an option is in the money, near the money or out of the money |
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Notional principle |
The value of the asset underlying or used in as a reference to a derivative position |
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Partially collateralized |
Describes a position with collateral lower in value than the notional value |
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Perfect linear positive correlation |
When 2 assets move in exactly the same direction (corr coef of +1) |
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Point to point IRR |
The inital and terminal CFs are both appraised values since they occur during the lifetime of the investment (after inception and before termination) |
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Reinvestment assumption |
The assumption of the rate that CFs generated from an investment are reinvested at |
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Return on notional pricipal |
Divides economic gain or loss by the notional principle of the contract |
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Return on VAR (RoVaR) |
The expected or average return of an asset divided by a specified VaR |
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Sharpe ratio |
Measure of return adjusted for teh risk of the investement or portfolio Formual: Risk of Port- Risk free rate/ SD of Port |
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Soft hurdle rate |
Allows fund managers to earn an incetive fee on all profits given the hurdle rate has been achieved |
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Sortino Ratio |
Like Sharpe, it is a measure of the return adjusted for the risk of the investment. Unlike Sharpe ratio, it penalizes only thsoe returns falling below a user specified target or required ROR, while the Sharpe ratio penalizes both upside and downside vol equally |
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Sortino Ratio formual |
Expected Risk of Port- Target ROR/Target semi SD |
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Treynor Ratio |
Measure of the return adjusted for the risk of the portfolio. Usus sys risk (Beta) instead of total risk Formual: Rp-Rf/Beta P |
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Vesting |
Process of granting full ownership of conferred rights such as incetive fees |
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Waterfall |
Details what amout must be distriubted to the LPs before the fund managers or GPs can take a share of the funds profits$$ |
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Well diversified Ports |
A port where Sys risk and total risk are equal since idosyncratic reis is diversifed away |
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Do it |
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