| Hedge fund | A pooled investment vehicle that employs diverse strategies (long/short, leverage, derivatives) with fewer regulatory constraints; targets absolute returns; typically structured as a limited partnership |
| Long/short equity | A hedge fund strategy that buys undervalued stocks (long) and sells overvalued stocks (short); typically maintains a net long bias |
| Market neutral | An equity strategy that maintains approximately equal long and short positions to eliminate market (beta) exposure; profits solely from stock selection (alpha) |
| Merger arbitrage (risk arbitrage) | An event-driven strategy that buys the target company and shorts the acquirer in announced M&A deals; profits from the spread closing upon deal completion |
| Distressed securities | An event-driven strategy investing in the debt or equity of companies in financial distress, bankruptcy, or restructuring; profits from recovery in value |
| Activist investing | An event-driven strategy where the fund takes a significant ownership stake and actively pushes for changes (board seats, restructuring, divestitures) to unlock shareholder value |
| Convertible bond arbitrage | A relative value strategy that goes long a convertible bond and short the underlying equity; profits from mispricing between the bond and its embedded equity option |
| Global macro | An opportunistic strategy making top-down bets on macroeconomic trends across interest rates, currencies, commodities, and equity markets |
| Managed futures (CTA) | A systematic strategy using futures contracts to implement trend-following or mean-reversion strategies across multiple asset classes |
| Master-feeder structure | A fund structure where multiple feeder funds (serving different investor types or jurisdictions) pool capital into a single master fund that executes all investments |
| Fund of funds (FoF) | A fund that invests in multiple underlying hedge funds; provides diversification and access but charges an additional layer of fees |
| Lock-up period | The initial period (typically 1—2 years) during which investors cannot redeem their capital from a hedge fund |
| Notice period | The advance notice (typically 30—90 days) an investor must provide before redeeming from a hedge fund |
| Liquidity gate | A restriction limiting the total amount of redemptions in any period (e.g., 10—25% of fund NAV per quarter) to manage large outflows |
| Survivorship bias | The upward bias in reported hedge fund returns caused by the removal of failed or closed funds from databases; only surviving funds remain in the data |
| Backfill bias (instant history bias) | The upward bias in reported hedge fund returns caused by retroactively adding a fund’s prior (typically strong) performance when it first enters a database |