Accredited Investor

An institution or wealthy investor who meets standards set by the SEC for net worth and income as they relate to some restricted offerings — in the US, most funds require potential investors to qualify as accredited investors, which requires $1 million of net worth, $200,000 of individual income, or $300,000 of joint income (with spouse) for two documented years and an expectation that such income level will continue. Some limited partnerships and angel investor networks accept only accredited investors.

Benefits —Alternative Investments

May help suitable investors to diversify their portfolios with the result of more favorable risk versus return characteristics. Benefits include potenially higher returns, reduced volatility, low correlation with other investments, and in some instances more liquidity than some other investments.

Angel Investing

Funding gap often filled by accredited investors and equity investment companies who specialize in investments in startups from the range of $250,000 to $1m instead of the $1 to $2m range amounts that most Venture Capital Funds prefer to invest. Also, see: Venture Capital

Commodities

Any uniform good (Agricultural: e.g., wheat, corn, soybean, coffee; Livestock & Meat: e.g., pork bellies, live cattle; Energy: e.g., light, sweet crude, brent crude, heating oil; Precious Metals: e.g., gold, platinum; Industrial Metals: e.g., copper, lead, aluminum; Rare Metals: cobalt, titanium; Other: e.g., ethanol, polypropylene) which is interchangeable with another product of the same type that can be either bought or sold in bulk through futures contracts. Also, includes any product which trades on a commodity exchange such as foreign currencies, financial instruments (T-bills, bonds, notes) and stock indexes. Generally, well-established commodities have actively traded spot and derivative markets.

Convertible Bond

A bond that an investor can return to the issuing company in exchange for a predetermined number of shares in the company.

Depository Receipt Arbitrage

Securities, known as American Depositary Receipt (ADRs) or Global Depositary Receipt (GDRs) typically trade at a lower value when first released. However, they are exchangeable into the original security and actually have the same value. In this case there is a spread between the perceived value and real value, which can be extracted. Since the ADR is trading at a value lower than what it is worth, one can purchase the ADR and expect to make money as its value converges on the original.

Enery

Includes renewable energy such as wind, solar and hydro power; plus power yielded from traditional oil and gas drilling and pumping activities.

Foreign Currency Trading

Currency trading involves the exchange of one currency for another; for example, US Dollars for Euros. Currencies trade in pairs and a trader buys the currency that he thinks will appreciate in value relative to the other. Like the stock exchange, money can be made or lost on the foreign exchange market by investors and speculators buying and selling at the right times. Currencies can be traded at spot and foreign exchange options markets. The spot market represents current exchange rates, whereas options are derivatives of exchange rates

Forward Price — Futures

Contract terms (price) are set now, but delivery and payment occurs at a future date.

Fund Of Funds

"Fund that uses an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. Fund of Fund (FoF) investments can be divided into different types of "funds" with each generally using a different investment method: e.g., Mutual Fund FoF, Hedge Fund FoF, Private Equity FoF, and Investment Trust FoF.

Hedge Funds

A private investment fund which is managed 'aggressively' to get maximum rates of returns by using derivatives and swaps, selling short, and/or arbitrage techniques. Hedge funds may often seek to offset potential losses in the principal markets they invest in by hedging via any number of methods. Typically, the fund charges a performance fee and open only to a limited number of investors. Hedge funds are not currently subject to any direct regulation by the SEC, the NASD, or other federal regulating commission.

Leveraged Buy Outs (LBO)

A debt-financed transaction, usually via bank loans and bonds, aimed at taking a public corporation private. These bonds are normally rated below investment-grade, and are referred to as high-yield or junk bonds. Investors can participate in an LBO through either the purchase of the debt or the purchase of equity through an LBO fund. Reliance on debt to finance the acquisition increases the risk.

Limited Partnership

A business organization, typically a Direct Participation Program with one or more general partners, who manage the business and assume legal debts and obligations, and one or more limited partners, who are liable only to the extent of their investments. Limited partners also enjoy rights to the partnership's cash flow, but are not liable for company obligations. Typical limited partnerships are in real estate, oil and gas, and equipment leasing, but they also finance movies, research and development, and other projects.

Master Limited Partnership (MLP)

Public limited partnership composed of corporate assets spun off (roll out) or private limited partnerships (roll up) with income, capital gains, and/or tax shelter orientations. Interests are represented by depositary receipts traded in secondary market. Investors thus enjoy liquidity.

Mezzanine Capital

Broad financial term that refers to unsecured, high-yield, subordinated debt or preferred stock that represents a claim on a company's assets that is senior only to that of a company's shareholders. It is a more expensive financing source for a company than secured debt or senior debt because of the increased credit risk, i.e. in the event of default, mezzanine debt is less likely to be repaid in full. It is only secured by the equity of the company, and not the company's tangible assets (e.g., property, cash or accounts receivable). In compensation for the increased risk, mezzanine debt holders require a higher interest payment or an equity stake in the company. However, it is a cheaper source of financing than equity as the current equity holders achieve less dilution

Municipal Bond Arbitrage

Hedge fund strategy involves one of two approaches: One approach is to capture the inefficiencies arising from the heavy participation of high income investors seeking tax-exempt income, as well as the "crossover buying" arising from corporations' or individuals' changing income tax situations. Many of the inefficiencies arise from the highly fragmented nature of the municipal bond market. Second approach, construct leveraged portfolios of AAA- or AA-rated tax-exempt municipal bonds with the duration risk hedged by shorting the appropriate ratio of taxable corporate bonds.

Private Equity

Investments can be divided into the following categories: Venture Capital: an investment to create a new company, or expand a smaller company that has undeveloped or developing revenues; Buy-out: acquisition of a significant portion or a majority control in a more mature company. The acquisition normally entails a change of ownership; Special situation: investments in a distressed company, or a company where value can be unlocked as a result of a one-time opportunity (Changing industry trends, government regulations etc.). Private equity firms generally receive a return on their investments through one of three ways: an IPO, a sale or merger of the company they control, or a recapitalization. Unlisted securities may be sold directly to investors by the company (called a private offering) or to a private equity fund, which pools contributions from smaller investors to create a capital pool.

Private Offering

Generally, any sale of securities in a corporation not subject to registration requirements under the Securities Act of 1933. Unlisted securities may be sold directly to accredited investors by the company.

Public Real Estate Investment Trusts (REITS)

Offer several benefits over actually owning properties. First, they are highly liquid (listed and traded on major exchanges just like stocks), unlike traditional real estate. Second, they enable sharing in non-residential properties as well, such as hotels, malls, and other commercial or industrial properties. Third, there's no minimum investment. They do not necessarily increase and decrease in value along with the broader market. However, REITs pay yields in the form of dividends no matter how the shares perform.

Real Estate Limited Partnership

A direct participation program formed to build new structures and generate income from existing property, or profit from the capital appreciation of undeveloped land.

Venture Capital

Venture capital is a type of private equity capital typically provided by professional, outside investors to new, growth businesses. Generally made as cash in exchange for shares in the investee company, venture capital investments are usually high risk, but offer the potential for above-average returns. A venture capital fund is a pooled investment vehicle (often a limited partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. Also, see: Angel Investing