Poison Pill

# Poison Pill

**Category:** regulatory-compliance · **Level:** intermediate

**Summary:** A shareholder rights plan that deters hostile acquisitions or activist campaigns by triggering severe dilution above a threshold.

**Definition:** Typical trigger: 10-15% accumulation. On trigger, all shareholders except the triggerer receive rights to buy stock at deep discount. Used defensively in M&A and against activists. Delaware courts apply Unocal/Revlon scrutiny; modern 'NOL pills' are upheld more readily than traditional anti-takeover pills.


Most Favored Nation Clause

# Most Favored Nation Clause
_(MFN)_

**Category:** fund-operations · **Level:** intermediate

**Summary:** A side-letter provision granting an LP the right to elect into any superior terms granted to other LPs.

**Definition:** MFNs are typically tiered (MFN with respect to LPs of equal or smaller commitment; MFN with all LPs only for specific term types). Administered by the GP, who provides each MFN'd LP a periodic schedule of competing terms. The most heavily negotiated clause in any side letter.


Outsourced CIO

# Outsourced CIO
_(OCIO)_

**Category:** fund-operations · **Level:** intermediate

**Summary:** An external manager hired to handle full investment management — manager selection, asset allocation, reporting — for an institutional asset owner.

**Definition:** Replaced traditional FoFs for many endowments, foundations, and family offices post-2008. ~$3.5tn under OCIO management globally (2024). Major providers: Mercer, BlackRock, Russell, NEPC, Cambridge, Wilshire. Fees: 30-100bp on assets, generally lower than the historical FoF 1/10.


Commodity Trading Advisor

# Commodity Trading Advisor
_(CTA)_

**Category:** regulatory-compliance · **Level:** intermediate

**Summary:** A CFTC-regulated person providing advice or trading on futures, options on futures, or swaps.

**Definition:** Registration with CFTC and NFA. Rule 4.7 exempts advisors to qualified eligible persons (QEPs) from much of the disclosure burden. Most managed futures funds operate as CTAs.


Risk Budget

# Risk Budget

**Category:** portfolio-construction · **Level:** intermediate

**Summary:** An allocation of total portfolio risk (often expressed as VaR or vol contribution) across PMs, strategies, or factors.

**Definition:** Multi-strat platforms allocate risk budgets to each PM (e.g., 40-80bp daily vol contribution). PMs can use leverage to monetize their budget; cuts cascade as drawdowns accumulate. Risk budgeting > capital budgeting because risk allocation respects diversification.


Marginal Risk Contribution

# Marginal Risk Contribution
_(MRC)_

**Category:** portfolio-construction · **Level:** advanced

**Summary:** The contribution of an asset to total portfolio risk: w_i × (Σw)_i / σ_p.

**Definition:** Sum of MRC × weight equals σ_p (Euler decomposition). Risk parity sets MRC equal across assets. Identifies which positions are 'expensive' from a risk perspective at the margin — useful in active risk management.


Efficient Frontier

# Efficient Frontier

**Category:** portfolio-construction · **Level:** intermediate

**Summary:** The set of portfolios offering the maximum expected return for each level of risk.

**Definition:** Markowitz (1952). With a risk-free asset, the frontier becomes a straight line — the Capital Market Line — through the tangency portfolio. Empirically the unconstrained tangency is unstable; practical implementations use constraints, shrinkage, and Black-Litterman blending.


Shrinkage Estimator

# Shrinkage Estimator

**Category:** portfolio-construction · **Level:** advanced

**Summary:** An estimator that shrinks a sample covariance matrix toward a structured target to reduce estimation error.

**Definition:** Ledoit-Wolf (2003) shrinkage toward a constant-correlation target is the standard. James-Stein shrinkage of the mean reduces optimization sensitivity. Both improve out-of-sample portfolio Sharpe meaningfully.


Bayesian Prior

# Bayesian Prior

**Category:** quantitative-methods · **Level:** intermediate

**Summary:** A probability distribution representing pre-data beliefs, combined with the likelihood to produce a posterior.

**Definition:** In portfolio construction (Black-Litterman), the equilibrium-implied returns serve as the prior; analyst views update it. In risk modeling, priors regularize parameter estimates when sample sizes are limited.


Value Factor

# Value Factor

**Category:** quantitative-methods · **Level:** intermediate

**Summary:** The cross-sectional return spread between cheap and expensive stocks (typically by book/price, earnings/price, or composite multiples).

**Definition:** HML in Fama-French. Documented since Graham-Dodd. Suffered a deep drawdown 2017-2020 ('value's lost decade'), partial recovery 2021-22, mixed since. Decomposed into: value-of-value (relative cheapness), structural value (industry mix), value-trap risk.


Momentum Crash

# Momentum Crash

**Category:** quantitative-methods · **Level:** advanced

**Summary:** Severe drawdowns in cross-sectional momentum strategies, typically when low-quality losers suddenly outperform.

**Definition:** Major events: Q1 2009 (junk rally off March lows), Aug 2007, Mar-Apr 2020. Daniel-Moskowitz (2016) identified bear-market reversals as the dominant driver. Modern momentum implementations include 'momentum crash insurance' via low-vol filters or vol scaling.


Stationarity

# Stationarity

**Category:** quantitative-methods · **Level:** intermediate

**Summary:** A stochastic process whose statistical properties (mean, variance, autocorrelation) do not vary over time.

**Definition:** Strong stationarity: full distribution invariant. Weak (covariance) stationarity: first two moments invariant. Most financial returns are weakly stationary; prices and yields are not (must be differenced or modeled as I(1)). Tests: ADF, KPSS, Phillips-Perron.


Kalman Filter

# Kalman Filter

**Category:** quantitative-methods · **Level:** advanced

**Summary:** Recursive algorithm that estimates the hidden state of a linear-Gaussian system from noisy observations.

**Definition:** Used in finance for: dynamic beta estimation, latent factor extraction, dynamic hedge ratio in pairs trading, state-space term-structure models. Computationally O(n³) per step — practical for moderate state dimensions.


Log-Optimal Portfolio

# Log-Optimal Portfolio

**Category:** portfolio-construction · **Level:** advanced

**Summary:** The portfolio that maximizes the expected logarithm of wealth — Kelly's growth-optimal solution.

**Definition:** Kelly (1956), Latane (1959), Thorp (1969). Maximizes long-run geometric growth rate. Outperforms any other strategy almost surely as N → ∞. In practice, fractional Kelly is preferred to control drawdowns.


Fractional Kelly

# Fractional Kelly

**Category:** portfolio-construction · **Level:** intermediate

**Summary:** A scaled-down Kelly bet (typically half-Kelly) that trades growth for drawdown reduction.

**Definition:** Half-Kelly delivers ~75% of the expected log growth with ~25% of the variance. Quarter-Kelly is common for institutional allocators. The compromise reflects that estimation error in μ and σ makes full Kelly significantly riskier than the math suggests.


Fundamental Law of Active Management

# Fundamental Law of Active Management

**Category:** quantitative-methods · **Level:** advanced

**Summary:** Grinold's identity: IR ≈ IC × √breadth.

**Definition:** Decomposes information ratio into per-bet skill (IC) and number of independent bets per year (breadth). Implies: a low-IC signal applied to thousands of names can outperform a high-IC signal on a few. The math reason quants chase breadth.


Amihud Illiquidity

# Amihud Illiquidity

**Category:** market-microstructure · **Level:** advanced

**Summary:** Average absolute return per dollar of volume — a low-frequency proxy for market impact.

**Definition:** ILLIQ = mean(|return| / dollar volume). Higher = more illiquid. Robust across regimes and asset classes; the workhorse illiquidity measure in academic literature. Amihud-weighted long-short portfolios capture an illiquidity premium.


Alternative Trading System

# Alternative Trading System
_(ATS)_

**Category:** market-microstructure · **Level:** intermediate

**Summary:** A non-exchange trading venue regulated under SEC Reg ATS — includes dark pools and ECNs.

**Definition:** ATSs file Form ATS-N detailing operations, subscriber types, and order handling. Major US ATSs in 2026: UBS ATS, Sigma X, IEX, Liquidnet, MS Pool, Crossfinder. Aggregate ATS share ~12-15% of US equity volume.


Midpoint Peg

# Midpoint Peg

**Category:** market-microstructure · **Level:** intermediate

**Summary:** An order type that prices at the midpoint of the National Best Bid and Offer (NBBO).

**Definition:** Hidden order type used in dark pools. Earns half-spread relative to taking liquidity, but suffers adverse selection when the midpoint moves before fill. IEX's discretionary peg adds latency arb protection.


Effective Spread

# Effective Spread

**Category:** market-microstructure · **Level:** intermediate

**Summary:** Twice the absolute difference between trade price and the midpoint quote at the time of execution.

**Definition:** Effective spread = 2 × |P_trade − P_mid|. Reflects what the trader actually paid (after price improvement). Always ≤ quoted spread. Realized spread (effective spread minus permanent impact) measures market maker profit.


Market Maker

# Market Maker

**Category:** market-microstructure · **Level:** intro

**Summary:** A firm that posts continuous two-sided quotes (bid and ask), profiting from the spread net of inventory and adverse-selection costs.

**Definition:** Major US equity market makers in 2026: Citadel Securities, Virtu, Jane Street, Hudson River Trading, Two Sigma Securities. Designated market maker (DMM) on NYSE; lead market maker (LMM) on Nasdaq. Options market makers: Citadel, Susquehanna, Optiver, IMC, Jump.


Market Impact

# Market Impact

**Category:** trading-execution · **Level:** intermediate

**Summary:** The adverse price movement caused by one's own trading activity.

**Definition:** Decomposed into temporary (recovers post-trade) and permanent (persists) impact. Square-root impact model: ΔP/σ ≈ Y × σ × √(Q/V), where Y ≈ 1 for equities (Almgren et al. 2005). Capacity is largely a market-impact constraint.


Variance Risk Premium

# Variance Risk Premium
_(VRP)_

**Category:** derivatives-options · **Level:** advanced

**Summary:** The persistent gap between implied and realized variance — investors pay a premium to hedge volatility.

**Definition:** VRP = E[implied² − realized²] > 0 on average across most markets. The fundamental return source for short-vol strategies (variance swaps, short straddles, put writing). Punctuated by sharp losses during vol spikes — the textbook negatively-skewed strategy.


Skew

# Skew

**Category:** quantitative-methods · **Level:** intermediate

**Summary:** The third standardized moment of a distribution; in options, the slope of the implied-vol smile.

**Definition:** Statistical skew: positive = long right tail, negative = long left tail. Equity returns are negatively skewed. Options market skew (put-call IV asymmetry) reflects demand for downside hedging. SKEW index from CBOE measures the implied skewness in SPX options.


Term Structure

# Term Structure

**Category:** fixed-income-credit · **Level:** intermediate

**Summary:** The relationship between yields/prices and time to maturity, holding credit/instrument type fixed.

**Definition:** Yield curve in rates; futures curve in commodities; vol term structure in options. Decomposed (Nelson-Siegel, Svensson) into level, slope, and curvature components. Three-factor PCA explains > 99% of curve moves.


Term Premium

# Term Premium

**Category:** fixed-income-credit · **Level:** advanced

**Summary:** The compensation for holding longer-duration bonds beyond what expected future short rates would imply.

**Definition:** Long yield = average expected short rate + term premium. Negative term premium prevailed 2014-2021 due to QE. Modeling: ACM (Adrian-Crump-Moench) and KW (Kim-Wright) are the standard Fed estimates.


Recession Indicator

# Recession Indicator

**Category:** macroeconomics · **Level:** intermediate

**Summary:** Economic or market signal historically associated with subsequent recession onset.

**Definition:** Most-cited: 2s10s and 3M-10Y inversions, Sahm Rule (3-month average unemployment rate > 0.5pp above 12-month low), LEI six-month change negative, NY Fed yield-curve recession probability model. None has a perfect track record — the post-2022 inversion was the longest without a follow-on recession.


Fiscal Dominance

# Fiscal Dominance

**Category:** macroeconomics · **Level:** advanced

**Summary:** A regime in which monetary policy is constrained by fiscal needs — central banks cannot raise rates without triggering debt-service crises.

**Definition:** Sargent-Wallace 'unpleasant monetarist arithmetic'. Becomes acute at high debt/GDP and short debt average maturity. The 2024-26 US fiscal trajectory has put fiscal dominance back in the macro discussion. Policy implications: structurally higher inflation tolerance, larger central bank balance sheets, and YCC-adjacent interventions.


Monetary Policy

# Monetary Policy

**Category:** macroeconomics · **Level:** intro

**Summary:** Central bank actions to influence money supply, interest rates, credit conditions, and inflation.

**Definition:** Tools: policy rate, balance sheet (QE/QT), forward guidance, reserve requirements, FX intervention, macroprudential measures. The 2008-2024 era saw central bank balance sheets expand from 5% to 30%+ of GDP across major economies.


Neutral Rate

# Neutral Rate
_(r*)_

**Category:** macroeconomics · **Level:** advanced

**Summary:** The real interest rate consistent with full employment and stable inflation — neither stimulative nor restrictive.

**Definition:** Unobserved; estimated via macro models (Laubach-Williams, Holston-Laubach-Williams). Estimates fell from ~3% in 1990s to ~0.5% in 2010s, debated to be rising again post-pandemic. Central to Fed framework: policy is restrictive when real fed funds > r*.


Emerging Market Debt

# Emerging Market Debt

**Category:** global-markets · **Level:** intermediate

**Summary:** Sovereign and corporate debt issued by emerging market countries, in either hard currency (USD/EUR) or local currency.

**Definition:** Hard currency (USD): JPM EMBI Global ~$1.5tn outstanding. Local currency: GBI-EM ~$2.5tn. Hedge fund EM debt strategies: long/short sovereign, distressed sovereign (Argentina 2001/2014/2020, Venezuela, Lebanon, Sri Lanka), CDS basis, corporate event-driven.


Sovereign CDS

# Sovereign CDS

**Category:** fixed-income-credit · **Level:** advanced

**Summary:** Credit default swap on sovereign reference entities.

**Definition:** Liquid for top-30 sovereigns; thin elsewhere. ISDA defines specific sovereign credit events. The 2012 Greek sovereign restructuring was the first major sovereign CDS event under standardized documentation. Sovereign CDS spreads embed both default risk and currency redenomination risk.


Anchoring

# Anchoring

**Category:** behavioral-finance · **Level:** intro

**Summary:** Cognitive bias where individuals rely too heavily on the first piece of information encountered when making decisions.

**Definition:** Tversky-Kahneman (1974). In markets: investors anchor on purchase price (disposition effect), 52-week highs/lows, IPO prices, prior analyst targets. Drives sticky valuations and slow adjustment to new information.


Loss Aversion

# Loss Aversion

**Category:** behavioral-finance · **Level:** intro

**Summary:** Tendency to feel losses more strongly than equivalent gains, by an empirical factor of ~2x.

**Definition:** Kahneman-Tversky prospect theory (1979). λ ≈ 2.25. Drives the disposition effect (selling winners too soon, holding losers too long), home bias, and reluctance to rebalance.


Overconfidence Bias

# Overconfidence Bias

**Category:** behavioral-finance · **Level:** intermediate

**Summary:** Systematic tendency to overestimate one's knowledge, abilities, or precision of estimates.

**Definition:** Manifests in trading as excessive turnover and concentrated bets. Barber-Odean (2000) showed retail traders' overconfidence destroys ~6.5% of returns annually via excess trading. Survives even after expensive feedback — partly because outcomes are noisy enough to confirm any belief.


Herding

# Herding

**Category:** behavioral-finance · **Level:** intro

**Summary:** Tendency to follow others' actions rather than acting on private information.

**Definition:** Drives momentum, bubbles, and post-news drift. Banerjee (1992) information cascades model. Manifests in HF crowding (13F overlap), in IPO subscription, in factor exposures.


Narrative Fallacy

# Narrative Fallacy

**Category:** behavioral-finance · **Level:** intermediate

**Summary:** The tendency to construct simple causal stories from complex or random data.

**Definition:** Taleb (2007). In markets: post-hoc 'why the market moved' narratives, attribution of returns to skill rather than noise, dismissal of base rates in favor of compelling case studies.


Private Equity

# Private Equity
_(PE)_

**Category:** alternative-investments · **Level:** intro

**Summary:** Investment in private companies, typically via leveraged buyouts (LBOs), growth equity, or venture capital.

**Definition:** PE structure: 10-year closed-end LP, GP commitment 1-2%, 2/20 fee, hurdle ~8%, J-curve. Major firms: Blackstone, KKR, Apollo, CVC, Carlyle, Bain Capital, TPG. Hedge fund / PE convergence: long-dated 'hybrid' vehicles, GP stakes (Petershill, Dyal), co-invest sleeves.


Co-Investment

# Co-Investment

**Category:** alternative-investments · **Level:** intermediate

**Summary:** Direct investment alongside a sponsor in a single deal, typically with reduced or zero fees.

**Definition:** Common in PE; less common in hedge funds. LP allocates capital to a specific deal alongside the fund's LP commitment. Fees: typically 0% management / 10-20% promote, or zero on smaller commitments. Major LPs (CalPERS, GIC, ADIA) have built dedicated co-invest programs to reduce blended fees.


Illiquidity Premium

# Illiquidity Premium

**Category:** alternative-investments · **Level:** intermediate

**Summary:** Excess return demanded for holding assets that cannot be quickly converted to cash at a fair price.

**Definition:** Pastor-Stambaugh (2003) found ~3-4%/yr equity illiquidity premium. PE return premium over public equity (the 'illiquidity premium') has compressed over the past decade as PE AUM scaled. Disputed: Phalippon argues the premium has largely disappeared net of fees.


EV/EBITDA

# EV/EBITDA

**Category:** equities-analysis · **Level:** intro

**Summary:** Enterprise value divided by EBITDA — capital-structure-neutral valuation multiple.

**Definition:** EV = Equity Value + Debt − Cash. Better than P/E for cross-leverage comparability. Standard PE multiple in LBO modeling (entry/exit), in M&A precedent transactions, and in trading comp analysis.


Free Cash Flow Yield

# Free Cash Flow Yield

**Category:** equities-analysis · **Level:** intro

**Summary:** Free cash flow divided by enterprise value (or market cap) — cash earnings yield.

**Definition:** FCF = CFO − capex (sometimes adjusted for SBC, leases, working capital normalization). FCF yield is the value investor's go-to metric — harder to game than reported earnings.


ROIC

# ROIC

**Category:** equities-analysis · **Level:** intermediate

**Summary:** Return on Invested Capital — NOPAT divided by invested capital.

**Definition:** Measures capital productivity independent of capital structure. Compounding companies sustain ROIC > WACC for decades. Key input to economic-value-added (EVA) and McKinsey's value driver framework.


SFDR

# SFDR

**Category:** esg-sustainable · **Level:** intermediate

**Summary:** EU regulation requiring asset managers to classify funds as Article 6, 8, or 9 based on sustainability characteristics.

**Definition:** Article 8: 'promotes' E/S characteristics. Article 9: explicit sustainable investment objective. Major reclassification waves in 2022-23 as ESMA tightened expectations. PAI (Principal Adverse Impact) statements required.


Climate VaR

# Climate VaR

**Category:** esg-sustainable · **Level:** advanced

**Summary:** Extension of VaR that incorporates climate-related transition and physical risks.

**Definition:** Methodologies: MSCI Climate VaR, Ortec Finance, Carbon Delta. Measures portfolio NPV impact under transition scenarios (1.5°C / 2°C / 3°C) over 15-year horizons. Increasingly required by EU TCFD/ISSB reporting.


Transition Risk

# Transition Risk

**Category:** esg-sustainable · **Level:** intermediate

**Summary:** Financial risk from the transition to a low-carbon economy — policy, technology, market preference shifts.

**Definition:** Analytical buckets: policy/legal, technology, market, reputation. Sectors most exposed: energy, materials, autos, utilities. Stranded-asset risk — fossil reserves that cannot be burned under net-zero pathways.


Scope 3 Emissions

# Scope 3 Emissions

**Category:** esg-sustainable · **Level:** intermediate

**Summary:** Indirect GHG emissions in a company's value chain not under direct operational control.

**Definition:** GHG Protocol Scope 1 (direct operations), Scope 2 (purchased energy), Scope 3 (everything else: supply chain, transport, product use, end-of-life). For most companies Scope 3 dwarfs 1+2. Heavily debated: methodology, data quality, double-counting.


Tokenized Fund

# Tokenized Fund

**Category:** crypto-digital-assets · **Level:** advanced

**Summary:** Fund interests issued as on-chain tokens, typically ERC-20 or ERC-3643 with permissioning.

**Definition:** BlackRock BUIDL (USD treasuries on Ethereum), Franklin OnChain Money, Ondo OUSG. Total tokenized money market funds ~$2bn (2024). Promises: 24/7 settlement, programmable composability, fractional access. Constraints: KYC/AML still gates investor onboarding; secondary liquidity remains thin.


MEV

# MEV

**Category:** crypto-digital-assets · **Level:** advanced

**Summary:** Profits extractable from reordering, including, or excluding transactions in a block.

**Definition:** Originally 'miner extractable value', renamed for proof-of-stake. Forms: arbitrage, liquidations, sandwich attacks, JIT (just-in-time liquidity). Ethereum MEV ~$700m+ annual extracted (2024). Specialized firms (Flashbots, Wintermute, Jump) compete; MEV-Boost relays separate block building from validation.


Research Unbundling

# Research Unbundling

**Category:** regulatory-compliance · **Level:** advanced

**Summary:** MiFID II requirement that asset managers pay for sell-side research separately from execution.

**Definition:** Effective Jan 2018. Reduced sell-side research budgets by 30-50%; analyst coverage of small/mid caps shrunk. The 2024 EU Listing Act allows opt-in rebundling as a partial reversal. SEC granted no-action relief expiring 2023, leaving US managers in regulatory limbo.


Volcker Rule

# Volcker Rule

**Category:** regulatory-compliance · **Level:** intermediate

**Summary:** Dodd-Frank Section 619 limiting bank proprietary trading and hedge fund / PE fund sponsorship.

**Definition:** Banks may not engage in short-term prop trading or own > 3% of any HF/PE fund. Exemptions: market-making, hedging, underwriting. The 2020 amendments significantly relaxed several restrictions. Effect: large bank prop desks closed (Goldman PIA, Morgan Stanley PDT spun out, Citi/JPM/MS prop closed) — talent flowed into independent hedge funds and prop firms.


Insider Trading

# Insider Trading

**Category:** regulatory-compliance · **Level:** intermediate

**Summary:** Trading securities while in possession of material non-public information in breach of a fiduciary duty.

**Definition:** US: Rule 10b-5 + extensive case law. Tipper-tippee analysis (Newman, Salman, Blaszczak) requires personal benefit to tipper. Major hedge fund cases: Galleon (2009-2011), SAC (2009-2014), Insys (2017). Penalties: criminal (up to 20 years), civil (treble damages), barring orders.


Restricted List

# Restricted List

**Category:** regulatory-compliance · **Level:** intermediate

**Summary:** Internal list of securities for which a fund's compliance prohibits trading due to MNPI risk or conflicts.

**Definition:** Watch list: monitored, may trade with elevated scrutiny. Restricted list: trading prohibited. Triggers: deal/investment-banking activity, M&A discussions, expert network calls in restricted sectors, board representation.


Blocker Corporation

# Blocker Corporation

**Category:** regulatory-compliance · **Level:** advanced

**Summary:** An offshore (typically Cayman) corporation interposed between a US tax-exempt LP and a US trade or business to block UBTI.

**Definition:** ECI/UBTI shielding: the blocker pays US corporate tax on its share of fund income (~21% federal); the tax-exempt LP receives clean dividends. Used in master-feeder structures and PE side-cars holding US partnership interests. The 2017 TCJA's 21% corporate rate made blockers more economic than under the prior 35% rate.


Effectively Connected Income

# Effectively Connected Income
_(ECI)_

**Category:** regulatory-compliance · **Level:** advanced

**Summary:** Income earned by foreign persons from a US trade or business, taxed on a net basis at graduated US rates.

**Definition:** Foreign LPs investing in US partnerships generally must file US returns and pay US tax on ECI. Hedge fund 'trader' status (vs 'dealer') exempts most non-US investor income from ECI under Section 864(b). PE structures that involve operating businesses or real estate generate ECI — handled via blocker corporations.


Newcits

# Newcits

**Category:** fund-operations · **Level:** intermediate

**Summary:** Hedge-fund-style strategies packaged as UCITS funds — daily liquidity, regulated leverage, retail-marketable.

**Definition:** Common newcits: equity L/S, market neutral, macro, managed futures (limited futures sleeves). Constraints: 200% gross VaR or 100% commitment leverage, daily liquidity, no direct commodity exposure. AUM in alt-UCITS reached €700bn by 2025.


Soft Close

# Soft Close

**Category:** fund-operations · **Level:** intermediate

**Summary:** A fund stops accepting new investors but allows existing investors to add capital.

**Definition:** First step in capacity management. Typically followed by a hard close (no new capital from anyone) when the strategy approaches optimal AUM. The opposite of distress: signals a fund is at or near capacity.


Deleveraging

# Deleveraging

**Category:** risk-management · **Level:** intermediate

**Summary:** Reduction of leverage or risk exposure, often forced by margin calls or risk-limit breaches.

**Definition:** Procyclical: a drawdown triggers risk reduction, which contributes to further selling, which deepens the drawdown. The dynamic behind LTCM 1998, Aug 2007 quant quake, March 2020 dash for cash, and August 2024 yen carry unwind.


Margin Call

# Margin Call

**Category:** risk-management · **Level:** intro

**Summary:** A demand from a broker for additional collateral to cover losses on a leveraged position.

**Definition:** Triggered when account equity falls below maintenance margin. Failure to post triggers liquidation at the broker's discretion. The Archegos 2021 case: Hwang refused several margin calls, forcing dealers to unwind ~$160bn notional in days.


Asset-Liability Mismatch

# Asset-Liability Mismatch

**Category:** risk-management · **Level:** intermediate

**Summary:** Difference between the liquidity profile of fund assets and fund redemption terms.

**Definition:** When fund offers monthly liquidity but holds quarterly-or-worse-liquid assets, redemption pressure forces fire sales. Causes of major fund failures (Woodford 2019, H2O 2020, multiple emerging market funds 2018). Liquidity ladders match expected redemption windows to asset liquidation timeframes.


Close-Out Netting

# Close-Out Netting

**Category:** fund-operations · **Level:** advanced

**Summary:** ISDA Master mechanism that nets all outstanding obligations between two counterparties on default.

**Definition:** On an event of default, all outstanding trades between counterparties are valued and reduced to a single net amount payable one way. Without close-out netting, gross exposures would dwarf net — multiplying systemic risk. Enforceability of netting was central to Title VII Dodd-Frank reforms.


MAR Ratio

# MAR Ratio

**Category:** quantitative-methods · **Level:** intermediate

**Summary:** Original Calmar variant: compound annual return divided by maximum drawdown over the strategy's full history.

**Definition:** Predates Calmar; used by Managed Account Reports (MAR) industry magazine in the 1980s. Calmar typically uses a 36-month rolling window; MAR uses inception-to-date. Both compute return / drawdown.


Martin Ratio

# Martin Ratio

**Category:** quantitative-methods · **Level:** advanced

**Summary:** Excess return divided by the Ulcer Index — Sharpe with drawdown depth-and-duration in the denominator.

**Definition:** Martin = (R_p − R_f) / Ulcer Index. Penalizes both depth and duration of drawdowns, unlike Calmar which only sees the maximum point.


Time to Recovery

# Time to Recovery

**Category:** risk-management · **Level:** intermediate

**Summary:** Number of periods between a drawdown trough and the next NAV high.

**Definition:** A 15% drawdown that recovers in 3 months is qualitatively different from one that takes 36 months — both have the same MDD. Time-to-recovery is a key allocator metric, often presented as the 'underwater chart'.


Coherent Risk Measure

# Coherent Risk Measure

**Category:** risk-management · **Level:** advanced

**Summary:** Artzner-Delbaen-Eber-Heath axiomatic class: monotonicity, sub-additivity, positive homogeneity, translation invariance.

**Definition:** VaR fails subadditivity (it can violate diversification logic). Expected Shortfall is coherent — a key reason FRTB replaced VaR with ES.


Scenario Analysis

# Scenario Analysis

**Category:** risk-management · **Level:** intermediate

**Summary:** Estimating portfolio P&L under specified joint-shock scenarios — historical replays or hypothetical constructs.

**Definition:** Differs from VaR in being deterministic rather than probabilistic. Standard practice: a 5-10 scenario standing book that includes 1987, 1998, 2008, March 2020, plus current-stress hypotheticals (e.g., 'rates +200bp / equities −20% / vol +25').


Suspension

# Suspension

**Category:** fund-operations · **Level:** intermediate

**Summary:** A fund's right to halt redemptions entirely under conditions specified in the LPA.

**Definition:** More severe than a gate — a complete halt rather than a cap. Triggers usually: market closure, inability to value > 10-25% of assets, regulatory event. Suspensions of major funds (BNP Paribas Aug 2007, Bear Stearns funds 2007, Carmignac/H2O 2020) often signal terminal distress.


Investment Management Agreement

# Investment Management Agreement
_(IMA)_

**Category:** fund-operations · **Level:** intermediate

**Summary:** Bilateral contract under which a manager is granted limited discretionary trading authority over a separately-managed account.

**Definition:** Specifies investment guidelines, risk limits, fees, fee crystallization, termination terms, reporting cadence. Foundation of SMA relationships. Negotiated heavily at inception, less frequently amended thereafter.


Anchor Investor

# Anchor Investor

**Category:** fund-operations · **Level:** intermediate

**Summary:** An LP whose commitment provides credibility for a fund's launch, often in exchange for fee discounts, capacity rights, or GP equity.

**Definition:** Distinct from seeders (who take equity in the GP) — anchors typically just take fee discounts and capacity. Common anchors: family offices, sovereign wealth funds, university endowments. A signal of fund quality to other LPs.


Transparency

# Transparency

**Category:** fund-operations · **Level:** intermediate

**Summary:** The level of position-level, exposure, and risk reporting a fund provides to its investors.

**Definition:** Standard transparency: monthly NAV, periodic risk report, attribution. Enhanced transparency: weekly or daily exposure, position-level reporting (often via aggregator like NAV-related FactSet or RiskMetrics). SMAs offer full transparency by definition. Trade-off: position-level disclosure can leak strategy edge.


Mortgage-Backed Security

# Mortgage-Backed Security
_(MBS)_

**Category:** fixed-income-credit · **Level:** intermediate

**Summary:** A bond backed by a pool of residential or commercial mortgages.

**Definition:** Agency MBS (Fannie/Freddie/Ginnie) — credit guaranteed, prepayment risk only. Non-agency MBS — credit and prepayment risk. CMOs slice cash flows into tranches by duration/credit. Negative convexity from prepayment option drives convexity-hedging flow that amplifies rate moves.


Default Probability

# Default Probability
_(PD)_

**Category:** fixed-income-credit · **Level:** intermediate

**Summary:** Estimated probability that a borrower will default within a specified horizon.

**Definition:** Risk-neutral PD implied from CDS spreads: PD ≈ s/(1−R). Real-world PD from rating-agency transition matrices, Merton-distance-to-default models, machine learning. Material differences between risk-neutral and real-world PDs reflect risk and liquidity premia.


Factor Tilt

# Factor Tilt

**Category:** portfolio-construction · **Level:** intermediate

**Summary:** Deliberate over- or under-weighting of factor exposures (size, value, momentum, quality, low-vol) relative to a benchmark.

**Definition:** Smart-beta and quant funds construct portfolios as a deliberate combination of factor tilts. Active managers may unintentionally tilt — performance attribution decomposes returns into market beta + factor tilts + residual alpha.


Systemic Risk

# Systemic Risk

**Category:** risk-management · **Level:** intermediate

**Summary:** The risk that the failure of one institution or strategy triggers cascading failures across the financial system.

**Definition:** Post-2008 framework: SIFIs (systemically important financial institutions), G-SIBs, FSOC designation, Basel surcharges, living wills. Hedge fund systemic risk monitored via Form PF, Office of Financial Research analytics, BIS triennial surveys.


Risk-Off

# Risk-Off

**Category:** macroeconomics · **Level:** intro

**Summary:** Market regime in which investors collectively de-risk, selling risk assets and buying perceived safe havens.

**Definition:** Classic risk-off rotation: equities down, USD/JPY/CHF up, gold up, Treasuries up (most regimes). The 'risk-on / risk-off' duality dominated post-2008 markets but broke down in 2022 when Treasuries sold off alongside equities.


GARCH

# GARCH

**Category:** quantitative-methods · **Level:** intermediate

**Summary:** Generalized AutoRegressive Conditional Heteroskedasticity — econometric class modeling time-varying volatility.

**Definition:** Engle (1982 ARCH), Bollerslev (1986 GARCH). Models volatility as a function of past shocks and past variance. Standard tool in vol forecasting; foundation for vol-targeting allocation, dynamic risk budgets, and conditional VaR.


Modified IRR

# Modified IRR
_(MIRR)_

**Category:** alternative-investments · **Level:** advanced

**Summary:** IRR variant that assumes interim cash flows are reinvested at a specified reinvestment rate (typically the cost of capital).

**Definition:** Corrects IRR's unrealistic reinvestment-at-IRR assumption. MIRR = ((FV of positive CFs at reinvestment rate) / |PV of negative CFs at finance rate|)^(1/n) − 1. Often produces more conservative return estimates than IRR.


Collateralized Reinsurance

# Collateralized Reinsurance

**Category:** insurance-reinsurance · **Level:** advanced

**Summary:** Reinsurance contracts fully collateralized by capital posted by hedge fund / ILS investors.

**Definition:** Differs from rated reinsurance by funded-to-the-limit collateral. Reduces counterparty risk for cedents (no rating downgrade risk). Major vehicles: sidecars, segregated-account companies (Bermuda), collateralized reinsurance funds.


Crisis Alpha

# Crisis Alpha

**Category:** hedge-fund-strategies · **Level:** intermediate

**Summary:** Returns generated specifically during market crises, when most other strategies are losing.

**Definition:** Greyserman-Kaminski (2014). Trend-following strategies historically deliver crisis alpha — sustained directional moves in crises (2008, 2022) play to trend's strength. True crisis alpha must be uncorrelated with risk assets in stress, not just on average.


Long/Short Equity

# Long/Short Equity (Strategy)
**Family:** equity-hedge

**Summary:** Hold long positions in expected outperformers, short positions in expected underperformers. Net exposure tunes market beta.

**Mechanism:** Pick stocks (or baskets) on fundamental, quantitative, or hybrid signals. Hedge market exposure by shorting individual names, sector ETFs, or index futures. P&L = idiosyncratic spread of longs over shorts + (residual net exposure × market move).

**Return drivers:** stock selection, sector tilt, factor exposure, net exposure timing

**Instruments:** common stock, single-stock options, sector ETFs, index futures

**Holding period:** weeks to quarters

**Leverage typical:** gross 1.5–4.0× net -0.2–0.7

**Sharpe typical:** 0.5–1.5

**Best environment:** Wide single-stock dispersion, low correlation across names, fundamental research valued by the market.

**Worst environment:** Compressed dispersion, factor crowding, sustained low-vol bull markets where shorts compress alpha.

**Practitioners:** A.W. Jones (originator, 1949), Julian Robertson (Tiger), Stephen Mandel (Lone Pine), John Griffin (Blue Ridge), Lee Ainslie (Maverick)

**History:** Originated by Alfred Winslow Jones in 1949 with the first 'hedged fund' — long undervalued stocks, short overvalued, leverage to amplify. Tiger Management and the 'Tiger Cubs' formalized fundamental L/S in the 1980s-2000s. The 2010s saw factor-decomposition exposing how much of L/S returns were value/quality factor beta. The 2020s saw consolidation: many traditional L/S funds shrank or shut as multi-strat pods absorbed talent.


Equity Market Neutral

# Equity Market Neutral (Strategy)
**Family:** equity-hedge

**Summary:** Long/short equity book engineered to zero-out market beta (and often factor exposures), capturing pure idiosyncratic spread.

**Mechanism:** Construct longs and shorts so weighted beta is ~0; in factor-neutral variants, also zero out size, value, momentum, sector. Returns come from cross-sectional stock selection.

**Return drivers:** stock selection (idiosyncratic alpha), fast factor exposures within constraints

**Instruments:** common stock, futures (for hedging residual beta)

**Holding period:** days to weeks

**Leverage typical:** gross 4–12× net -0.05–0.05

**Sharpe typical:** 1.0–2.5

**Best environment:** High dispersion, stable factor regimes.

**Worst environment:** Factor regime shifts (Q1 2009 momentum crash, March 2020 quant carnage).

**Practitioners:** AQR, Two Sigma Compass, PDT Partners (Morgan Stanley/Mike Reed), DE Shaw

**History:** Outgrowth of Bamberger/Tartaglia's stat arb at Morgan Stanley APT in the 1980s. Modern multi-manager pods are the institutional successor.


Merger Arbitrage

# Merger Arbitrage (Strategy)
**Family:** event-driven

**Summary:** Capture the spread between announced acquisition price and target market price; manage the risk that the deal breaks.

**Mechanism:** Cash deal: long target after announcement. Stock deal: long target, short acquirer in the announced exchange ratio. Hedge regulatory and execution-risk subsets via options where economical.

**Return drivers:** base rate of deal closure (>95% historically), spread compression (annualized 4-8% in normal markets), occasional retrades and bumps

**Instruments:** common stock, single-stock options, credit (for LBO targets)

**Holding period:** weeks to months (until deal close or break)

**Leverage typical:** gross 1.5–4× net –

**Sharpe typical:** 0.7–1.5

**Best environment:** High M&A volume, predictable regulators, accommodating financing markets.

**Worst environment:** Hostile antitrust environment (FTC Khan, EU Vestager), tightening credit conditions, surprise rate moves widening all spreads.

**Practitioners:** Paulson & Co (pre-2010), York Capital (event), Kellner Capital, Pentwater, Magnetar

**History:** Practiced informally since the 1940s; institutionalized by Goldman's risk arb desk under Robert Rubin in the 1970s-80s. The 2024-26 era is the most regulator-hostile environment in decades.


Convertible Arbitrage

# Convertible Arbitrage (Strategy)
**Family:** relative-value

**Summary:** Long the convertible bond, short the underlying stock in delta-equivalent quantity; harvest gamma, vega, and credit-spread carry.

**Mechanism:** Decompose convert into bond floor + embedded call. Delta-hedge the call by shorting stock; rehedge as delta moves. Capture convex P&L (long gamma), realized vol < implied (long vega vs IV), and bond carry minus stock borrow.

**Return drivers:** gamma scalping, vega (realized > implied), credit spread tightening, bond carry

**Instruments:** convertible bonds, common stock (short hedge), CDS (credit hedge)

**Holding period:** months to a year

**Leverage typical:** gross 3–8× net –

**Sharpe typical:** 0.5–1.5

**Best environment:** Active convert issuance, rising realized vol, tightening credit.

**Worst environment:** 2008-style credit crisis where forced deleveraging crushed all converts simultaneously.

**Practitioners:** Citadel Wellington (early), Highbridge, AQR Convertible, Calamos, Polygon

**History:** Largest hedge fund strategy by AUM in early 2000s. Nearly destroyed in 2008 (HFRI Conv Arb -34% in 2008, +60% in 2009 as forced sellers gave way to fundamental buyers). Steady but smaller strategy since.


Global Macro

# Global Macro (Strategy)
**Family:** global-macro

**Summary:** Top-down directional and relative-value bets across rates, FX, equity indices, and commodities driven by macroeconomic theses.

**Mechanism:** Form macro views (rate cycles, growth, inflation, central bank policy, geopolitics). Express via futures, swaps, options for capital efficiency. Common trades: rate steepeners/flatteners, FX carry, breakeven inflation, equity-vs-rates RV.

**Return drivers:** regime change, policy surprises, term-structure mispricing, EM sovereign mispricing

**Instruments:** rate futures, swaps, FX forwards/options, equity index futures, commodity futures

**Holding period:** weeks to quarters

**Leverage typical:** gross 3–15× net –

**Sharpe typical:** 0.4–1.5

**Best environment:** Regime change (1992 ERM, 2008 GFC, 2022 inflation surge).

**Worst environment:** Compressed-vol bull markets with no macro turning points (2014-2019 was brutal for discretionary macro).

**Practitioners:** George Soros, Stanley Druckenmiller, Louis Bacon (Moore), Paul Tudor Jones, Alan Howard (Brevan Howard), Said Haidar

**History:** The 'big bet' era (Soros breaks the BoE, 1992) defined the 1990s. Shrunk through the 2010s zero-rate compression. Powerful resurgence in 2022-2024 as inflation broke the regime open.


Managed Futures (CTA)

# Managed Futures (CTA) (Strategy)
**Family:** managed-futures

**Summary:** Systematic trading of liquid futures contracts across global markets, dominated by trend-following.

**Mechanism:** Signal generation: typically combinations of trend (multi-timescale moving averages, breakouts, momentum), carry, value, and volatility-scaled positioning. Trade ~100-300 futures markets across rates, FX, equities, and commodities. Risk-allocate via inverse-vol or equal-risk-contribution.

**Return drivers:** sustained directional moves, crisis alpha (long puts via trend), diversification across uncorrelated markets

**Instruments:** futures (rates, FX, equity, commodity), occasional FX forwards, no individual securities

**Holding period:** weeks to months

**Leverage typical:** gross 5–20× net –

**Sharpe typical:** 0.4–1.0

**Best environment:** Sustained directional moves across many markets (1980s rate decline, 2008 GFC, 2022 inflation).

**Worst environment:** Choppy mean-reverting markets without sustained trends (2009-2013 was painful).

**Practitioners:** Man AHL, Winton, BlueTrend (Leda Braga), Aspect Capital, Campbell & Co, Millburn, Graham Global, Lynx Asset Management

**History:** Roots in 1970s commodity trading (Dunn, Henry, Donchian). Exploded in 1980s-90s via institutional adoption (Man Group, Winton). 2022 was the strategy's best year since 2008 (SG Trend Index +27%).


Statistical Arbitrage

# Statistical Arbitrage (Strategy)
**Family:** quantitative

**Summary:** High-breadth, short-horizon mean-reversion or relative-value trading driven by statistical signals — typically thousands of small positions held for hours to days.

**Mechanism:** Cross-sectional mean reversion within sector or factor neutralization. Modern signals: order-book imbalance, alt-data nowcasts, ML embeddings, news/text sentiment, microstructure features. Positions sized inverse-vol with portfolio-level beta and factor neutrality.

**Return drivers:** mean reversion in residual returns, microstructure flow, alt-data signals

**Instruments:** common stock, ADRs, ETFs (for hedging)

**Holding period:** minutes to days

**Leverage typical:** gross 4–12× net –

**Sharpe typical:** 1.5–4.0

**Best environment:** Stable microstructure, moderate vol, dispersion across names.

**Worst environment:** August 2007 quant quake; March 2020 deleveraging cascade.

**Practitioners:** DE Shaw, Renaissance Medallion (closed), Two Sigma, PDT Partners, Jane Street (adjacent), Hudson River Trading (adjacent)

**History:** Pioneered at Morgan Stanley APT under Bamberger (early 1980s) and Tartaglia (later 1980s). Spawned a diaspora — DE Shaw, Renaissance, PDT, and the modern HFT firms all trace lineage. The August 2007 'quant quake' (week of Aug 6-10, 2007) saw cross-firm deleveraging produce -10 sigma single-day moves; survivors thrived after.


Fixed Income Relative Value

# Fixed Income Relative Value (Strategy)
**Family:** relative-value

**Summary:** Long/short bond and rate-derivative trades exploiting small mispricings — basis trades, swap spreads, on-the-run/off-the-run, butterfly trades.

**Mechanism:** Pair long cheap with short rich (e.g., long off-the-run / short on-the-run), finance via repo, hold to convergence. High leverage (20-100×) is required to make small basis points meaningful.

**Return drivers:** mean reversion of mispricing, carry while waiting, occasional widening when shocks force unwinds

**Instruments:** Treasuries (cash and futures), swaps, repo, options on rates

**Holding period:** weeks to quarters

**Leverage typical:** gross 15–80× net –

**Sharpe typical:** 1.0–2.5

**Best environment:** Stable rate vol, deep repo markets, no forced deleveraging.

**Worst environment:** Liquidity crunches force forced unwinds (LTCM 1998, March 2020).

**Practitioners:** LTCM (defunct), Citadel Fixed Income, Millennium Rates, ExodusPoint, PIMCO Tactical

**History:** John Meriwether's Salomon prop desk → LTCM (1994-98) defined the genre and its risks. The Treasury basis trade has grown to ~$1tn in 2026, a regulatory focus.


Distressed Debt

# Distressed Debt (Strategy)
**Family:** credit

**Summary:** Investing in deeply discounted debt of companies in or near restructuring, often with the intent of converting to equity.

**Mechanism:** Buy fulcrum debt at distressed prices (typically 30-70 cents). Either trade out on news or work through restructuring (committee membership, plan sponsorship, loan-to-own equity). Returns realized on emergence (12-36 months typical).

**Return drivers:** recovery > price paid, fulcrum-to-equity conversion uplift, DIP financing fees, trading distressed names through volatility

**Instruments:** bank debt, high-yield bonds, trade claims, bespoke financings

**Holding period:** 1-3 years (event-driven)

**Leverage typical:** gross 1.0–2.0× net –

**Sharpe typical:** 0.5–1.2

**Best environment:** Default cycle peak (2002, 2009, 2020, 2024-25 partial).

**Worst environment:** Default-rate trough with cheap financing keeping zombie companies alive.

**Practitioners:** Oaktree (Howard Marks), Apollo, Elliott, Davidson Kempner, King Street, Silver Point, Centerbridge

**History:** Pioneered by Drexel alum (Marks at TCW) and bond traders (Tepper at Goldman/Appaloosa). The 2008-2010 cycle made several mega-fortunes; 2020 was a missed cycle (Fed action prevented the workout). 2024-25 commercial real estate distress is the next test.


Credit Long/Short

# Credit Long/Short (Strategy)
**Family:** credit

**Summary:** Long credits with improving fundamentals or attractive carry, short credits at risk of widening; commonly hedged via CDS or index credit.

**Mechanism:** Single-name high yield or IG bond/loan picks long, hedged with CDS, CDX/iTraxx index, or other credits. Capital structure arbitrage (long bond / short equity, or vice versa) is a sub-strategy.

**Return drivers:** spread tightening on longs, spread widening on shorts, carry differential, convexity of credit

**Instruments:** bonds, loans, CDS single-name, CDX/iTraxx index

**Holding period:** months to a year

**Leverage typical:** gross 2–5× net –

**Sharpe typical:** 0.5–1.5

**Best environment:** Mid-cycle dispersion, moderate vol, healthy primary issuance.

**Worst environment:** Credit blow-ups in late cycle when correlations go to 1.

**Practitioners:** Brigade Capital, BlueMountain (defunct), BlueBay, GoldenTree, King Street, Diameter


Activist

# Activist (Strategy)
**Family:** event-driven

**Summary:** Take large positions in companies and publicly campaign for changes — capital allocation, board composition, M&A, breakup — to unlock value.

**Mechanism:** Build 5-10% position. File 13D. Issue letters, white papers, board nominees, sometimes proxy contests. Catalysts: cost cuts, divestitures, buybacks, sale of company, new CEO. Holding periods 18-36 months typical.

**Return drivers:** catalyst-driven multiple expansion, improved capital allocation, M&A premium, settlement-driven board changes

**Instruments:** common stock, options (defensive), swaps for stealth accumulation pre-13D

**Holding period:** 18 months to 3 years

**Leverage typical:** gross 1–1.5× net –

**Sharpe typical:** 0.4–1.2

**Best environment:** Mid-cycle when targets are mispriced and management is willing to engage; bull markets that reward catalysts.

**Worst environment:** Bear markets where catalysts are overwhelmed by beta.

**Practitioners:** Carl Icahn (Icahn Enterprises), Bill Ackman (Pershing Square), Nelson Peltz (Trian), Paul Singer (Elliott), Daniel Loeb (Third Point), Jeff Smith (Starboard), ValueAct

**History:** 1980s 'corporate raiders' (Icahn, Pickens, Lindner) → 1990s value activism (Steinhardt, Tisch) → 2000s on engagement-style (Ackman, Loeb, Peltz). The 2024 'universal proxy card' SEC rule lowered barriers for board contests.


Multi-Strategy (Pod Shop)

# Multi-Strategy (Pod Shop) (Strategy)
**Family:** multi-strategy

**Summary:** A platform allocating capital to many independent portfolio managers (pods), each with strict risk limits and short stop-loss leashes.

**Mechanism:** Centralized risk, technology, financing, compliance. Each pod runs a sub-book in a defined strategy (equity sector L/S, rates RV, commodity macro, credit, vol, etc). Risk allocator manages capital and stop-losses. Pass-through expense structure (typically 5-8% gross) funds infrastructure and PM comp.

**Return drivers:** diversification across uncorrelated alpha streams, tight risk control limiting drawdowns, scale economies in technology and financing

**Instruments:** all liquid asset classes — equity, rates, FX, commodity, credit

**Holding period:** varies by pod (days to years)

**Leverage typical:** gross 4–8× net –

**Sharpe typical:** 1.5–3.5

**Best environment:** Almost all environments — the model's diversification is its edge.

**Worst environment:** March 2020-style cross-strategy deleveraging cascades; 'pod-quake' moments when too many pods crowd into the same factor.

**Practitioners:** Citadel (Wellington), Millennium, Point72, ExodusPoint, Balyasny (BAM), Schonfeld, Walleye, Hudson Bay, Verition, Eisler

**History:** Steve Cohen's SAC (1992-2013) was the prototype. Citadel and Millennium institutionalized the platform model. Post-2017 model dominance: 8 of the 10 largest hedge funds by AUM in 2026 are multi-strat platforms. Capacity is the binding constraint: most are closed to new capital.


Volatility Arbitrage

# Volatility Arbitrage (Strategy)
**Family:** relative-value

**Summary:** Trade implied vs realized volatility, vol surface relative value, dispersion (index vol vs single-name vol), and tail-vol structures.

**Mechanism:** Sub-strategies: (1) variance swap RV (long realized / short implied); (2) dispersion (short index vol / long basket of single-name vol); (3) skew/term-structure RV; (4) tail vol (long deep OTM puts as portfolio convexity).

**Return drivers:** variance risk premium (RV < IV on average), dispersion premium, skew mispricing

**Instruments:** options, variance swaps, VIX futures, OTC vol structures

**Holding period:** days to months

**Leverage typical:** gross 2–8× net –

**Sharpe typical:** 0.6–2.0

**Best environment:** Modestly volatile range markets — short-vol thrives.

**Worst environment:** Vol spike (Volmageddon Feb 2018, COVID March 2020) destroys short-vol strategies.

**Practitioners:** Capstone (Paul Britton), QVT, LMR Partners, Saba Capital (Boaz Weinstein), Universa (Mark Spitznagel — long-vol counter-example)


Discretionary Equity Sector Specialist

# Discretionary Equity Sector Specialist (Strategy)
**Family:** equity-hedge

**Summary:** Deep-research single-sector L/S funds (TMT, healthcare, energy, consumer, financials) — concentrated portfolios reflecting expert insight.

**Mechanism:** Sector PMs hold 20-60 names, often with a 70/30 long-short tilt. Edge comes from primary research, expert networks, channel checks, and deep industry contacts.

**Return drivers:** stock selection within sector, sub-sector rotation, earnings-event timing

**Instruments:** common stock, single-stock options

**Holding period:** quarters to years

**Leverage typical:** gross 1.5–3× net –

**Sharpe typical:** 0.5–1.5

**Practitioners:** Coatue (TMT), Whale Rock (TMT), RA Capital (biotech), Perceptive Advisors (biotech), Glenview (healthcare), Tybourne (TMT), Senator (consumer)


Crypto Quantitative

# Crypto Quantitative (Strategy)
**Family:** digital-assets

**Summary:** Systematic crypto strategies — basis (cash-and-carry), funding-rate harvesting, perpetual futures market making, MEV extraction, on-chain stat arb, spot-perp triangulation.

**Mechanism:** Most common: long spot BTC/ETH, short perpetual to harvest funding (cash-and-carry). Other: cross-exchange arb, vol surface RV (Deribit), DEX-CEX arb, MEV (sandwich, arb, liquidations), validator/staking yield.

**Return drivers:** funding rate carry, spot-perp basis, cross-venue spread, MEV extraction, staking yield

**Instruments:** spot crypto (BTC, ETH, SOL, etc), perpetual futures, crypto options (Deribit), DeFi protocols

**Holding period:** minutes to weeks

**Leverage typical:** gross 1–5× net –

**Sharpe typical:** 1.0–4.0

**Best environment:** Bull markets with persistent positive funding (10-50% annualized basis trade).

**Worst environment:** Funding rate inversions, exchange counterparty events (FTX Nov 2022).

**Practitioners:** Pantera Capital, Galaxy Digital Trading, Wintermute, Jane Street (crypto adjacent), Cumberland (DRW), Genesis Trading (defunct)


Insurance-Linked Strategies

# Insurance-Linked Strategies (Strategy)
**Family:** credit

**Summary:** Allocate to catastrophe bonds, ILS, and reinsurance sidecars to capture insurance risk premium uncorrelated with traditional markets.

**Mechanism:** Cat bonds: investor receives spread, principal at risk if defined catastrophe occurs. Sidecars: minority equity in special-purpose reinsurer. Collateralized reinsurance: provide collateral for specific reinsurance contracts.

**Return drivers:** catastrophe risk premium, diversification (truly uncorrelated), rising rate environment after major losses ('hard market')

**Instruments:** cat bonds, ILW (industry loss warranties), reinsurance sidecars, collateralized reinsurance

**Holding period:** 1-5 years (multi-year reinsurance contracts)

**Leverage typical:** gross 1–1× net –

**Sharpe typical:** 0.5–1.3

**Best environment:** Post-event 'hard market' with rate hardening (2023-2024 was a generational entry point).

**Worst environment:** Major loss years (2017 Atlantic hurricane season, 2022-23 secondary perils).

**Practitioners:** Nephila, Credit Suisse ILS (now Stone Ridge), RenaissanceRe Medici, AlphaCat, Twelve Capital, Aeolus


Sharpe Ratio

# Sharpe Ratio (Formula)

**Summary:** Excess return per unit of total volatility.

**LaTeX:** `S = \frac{R_p - R_f}{\sigma_p}`

**Plain text:** `S = (R_p - R_f) / sigma_p`

**Variables:**
  - R_p: Portfolio return — Mean periodic return of the portfolio.
  - R_f: Risk-free rate — Periodic risk-free rate (T-bill, OIS, SOFR).
  - σ_p: Portfolio standard deviation — Standard deviation of excess periodic returns.

**Intuition:** Reward per unit of risk. Higher = better risk-adjusted performance.

**Assumptions:** Returns are i.i.d. and approximately normal; Volatility is a complete summary of risk

**Edge cases:** Skewed return distributions distort Sharpe — use Sortino or Omega.; Illiquid books' reported σ is artificially low (autocorrelated returns) — Sharpe is overstated.; Annualize by multiplying by √(periods per year) only if returns are i.i.d.

**Worked example:**
  Given: {"monthly_R_p": 0.012, "monthly_R_f": 0.003, "monthly_sigma_p": 0.018}
  Steps: Compute monthly excess return: 0.012 − 0.003 = 0.009 / Monthly Sharpe: 0.009 / 0.018 = 0.50 / Annualize: 0.50 × √12 = 1.73
  Result: Annualized Sharpe ≈ 1.73


Sortino Ratio

# Sortino Ratio (Formula)

**Summary:** Excess return per unit of downside deviation.

**LaTeX:** `S_o = \frac{R_p - T}{\sigma_d}, \quad \sigma_d = \sqrt{\frac{1}{N}\sum_{t} \min(R_t - T, 0)^2}`

**Plain text:** `Sortino = (R_p - T) / sigma_d`

**Variables:**
  - R_p: Portfolio return — Mean return
  - T: Target return — Minimum acceptable return (often 0 or R_f)
  - σ_d: Downside deviation — RMS of returns below target

**Intuition:** Penalize only the bad volatility — don't punish a strategy for upside.


Calmar Ratio

# Calmar Ratio (Formula)

**Summary:** Annualized return divided by absolute max drawdown.

**LaTeX:** `C = \frac{\text{Annualized Return}}{|MDD|}`

**Plain text:** `Calmar = Annualized Return / |MDD|`

**Variables:**
  - MDD: Maximum drawdown — Largest peak-to-trough decline over period

**Intuition:** Return per unit of worst-case loss. Speaks to investors who fear drawdowns more than wiggles.


Information Ratio

# Information Ratio (Formula)

**Summary:** Active return over benchmark per unit of tracking error.

**LaTeX:** `IR = \frac{R_p - R_b}{\sigma(R_p - R_b)}`

**Plain text:** `IR = (R_p - R_b) / TE`

**Variables:**
  - R_p: Portfolio return — Periodic portfolio return
  - R_b: Benchmark return — Periodic benchmark return
  - σ(R_p − R_b): Tracking error — Standard deviation of active returns

**Intuition:** Sharpe of relative performance. Grinold's law: IR ≈ IC × √breadth.


Jensen's Alpha

# Jensen's Alpha (Formula)

**Summary:** Excess return over the CAPM-predicted return given the portfolio's beta.

**LaTeX:** `\alpha = R_p - [R_f + \beta(R_m - R_f)]`

**Plain text:** `alpha = R_p - [R_f + beta * (R_m - R_f)]`

**Variables:**
  - R_p: Portfolio return —
  - R_f: Risk-free rate —
  - R_m: Market return —
  - β: Portfolio beta —

**Intuition:** What the portfolio earned above what its beta should have earned.


Beta

# Beta (Formula)

**Summary:** Slope of regression of asset returns on market returns.

**LaTeX:** `\beta = \frac{\mathrm{Cov}(R_i, R_m)}{\mathrm{Var}(R_m)}`

**Plain text:** `beta = Cov(R_i, R_m) / Var(R_m)`

**Variables:**
  - R_i: Asset return —
  - R_m: Market return —

**Intuition:** Sensitivity of the asset to the market. β=1 moves with the market; β=0 is independent.


Treynor Ratio

# Treynor Ratio (Formula)

**Summary:** Excess return per unit of systematic (beta) risk.

**LaTeX:** `T = \frac{R_p - R_f}{\beta_p}`

**Plain text:** `T = (R_p - R_f) / beta_p`

**Variables:**
  - R_p: Portfolio return —
  - R_f: Risk-free rate —
  - β_p: Portfolio beta —

**Intuition:** Use when idiosyncratic risk is diversified away — only β matters.


Parametric (Variance-Covariance) VaR

# Parametric (Variance-Covariance) VaR (Formula)

**Summary:** Closed-form VaR assuming normal portfolio returns.

**LaTeX:** `\text{VaR}_{\alpha} = -\mu + z_{\alpha} \cdot \sigma`

**Plain text:** `VaR_alpha = -mu + z_alpha * sigma`

**Variables:**
  - μ: Mean return — Often assumed 0 for short horizons
  - σ: Portfolio volatility —
  - z_α: Standard-normal quantile — z_0.95 = 1.645, z_0.99 = 2.326

**Intuition:** Convert volatility into a tail-loss number under the normal assumption.

**Edge cases:** Massively underestimates VaR for fat-tailed strategies (credit, commodities, vol).; Ignores skewness and tail dependence.

**Worked example:**
  Given: {"portfolio_USD": 100000000, "daily_sigma": 0.012, "confidence": 0.99}
  Steps: z_0.99 = 2.326 / VaR = $100m × 0.012 × 2.326 = $2,791,200
  Result: 1-day 99% VaR ≈ $2.79m


Expected Shortfall

# Expected Shortfall (Formula)

**Summary:** Average loss in the worst (1−α) percent of cases.

**LaTeX:** `\mathrm{ES}_\alpha = \frac{1}{1-\alpha} \int_{\alpha}^{1} \text{VaR}_u \, du`

**Plain text:** `ES_alpha = (1/(1-alpha)) * integral_alpha^1 VaR_u du`

**Variables:**
  - α: Confidence level — e.g., 0.975 for Basel III FRTB

**Intuition:** How bad is bad? VaR tells you the threshold; ES tells you the average beyond it.


Maximum Drawdown

# Maximum Drawdown (Formula)

**Summary:** Largest peak-to-trough decline in NAV over a window.

**LaTeX:** `MDD = \max_{t \in [0,T]}\, \max_{s \le t}\, \frac{V_s - V_t}{V_s}`

**Plain text:** `MDD = max over t of [max over s<=t of (V_s - V_t) / V_s]`

**Variables:**
  - V_t: NAV at time t —

**Intuition:** Worst pain ever felt by an investor in this strategy.


Ulcer Index

# Ulcer Index (Formula)

**Summary:** Quadratic mean of percentage drawdowns from running peaks.

**LaTeX:** `UI = \sqrt{\frac{1}{N}\sum_{t=1}^{N} D_t^2}, \quad D_t = \frac{V_t - \max_{s \le t} V_s}{\max_{s \le t} V_s} \times 100`

**Plain text:** `UI = sqrt(mean(D_t^2))`

**Variables:**
  - D_t: Drawdown from running high (%) —

**Intuition:** Captures depth and duration of drawdowns, not just the worst point.


Kelly Criterion (continuous form)

# Kelly Criterion (continuous form) (Formula)

**Summary:** Bet size that maximizes long-run log wealth.

**LaTeX:** `f^* = \frac{\mu - r}{\sigma^2}`

**Plain text:** `f* = (mu - r) / sigma^2`

**Variables:**
  - μ: Expected return —
  - r: Risk-free rate —
  - σ²: Variance of return —

**Intuition:** Risk-adjusted growth-optimal bet size. Halve it for psychological survivability (half-Kelly).


Black-Scholes Call

# Black-Scholes Call (Formula)

**Summary:** Closed-form European call price under geometric Brownian underlying.

**LaTeX:** `C = S_0 \Phi(d_1) - K e^{-rT} \Phi(d_2), \quad d_1 = \frac{\ln(S_0/K) + (r + \sigma^2/2)T}{\sigma\sqrt{T}}, \quad d_2 = d_1 - \sigma\sqrt{T}`

**Plain text:** `C = S * N(d1) - K * exp(-rT) * N(d2)`

**Variables:**
  - S_0: Spot price —
  - K: Strike —
  - r: Risk-free rate —
  - σ: Volatility —
  - T: Time to expiry (years) —
  - Φ: Standard normal CDF —

**Intuition:** Replicating portfolio: Δ shares of stock financed by borrowing K·exp(-rT)·N(d2). The hedge ratio Δ = N(d1).

**Assumptions:** Constant σ and r; No dividends (or continuous yield q); Continuous trading; Log-normal returns; No frictions

**Edge cases:** Vol smile shows the constant-σ assumption is wrong — practitioners invert BS to quote in implied-vol terms.; American options require numerical methods (binomial, PSOR, LSM).


Black-Scholes Delta (Call)

# Black-Scholes Delta (Call) (Formula)

**Summary:** First derivative of call price with respect to spot.

**LaTeX:** `\Delta_{call} = \Phi(d_1)`

**Plain text:** `Delta_call = N(d1)`

**Variables:**
  - d_1: Black-Scholes d1 term —

**Intuition:** Hedge ratio: shares of stock per option to maintain delta neutrality.


Black-Scholes Gamma

# Black-Scholes Gamma (Formula)

**Summary:** Second derivative of option price with respect to spot.

**LaTeX:** `\Gamma = \frac{\phi(d_1)}{S\sigma\sqrt{T}}`

**Plain text:** `Gamma = phi(d1) / (S * sigma * sqrt(T))`

**Variables:**
  - φ(d_1): Standard normal PDF at d1 —
  - S: Spot —

**Intuition:** Convexity of option payoff. Maximum at the strike.


Black-Scholes Vega

# Black-Scholes Vega (Formula)

**Summary:** Derivative of option price with respect to volatility.

**LaTeX:** `\nu = S\sqrt{T} \, \phi(d_1)`

**Plain text:** `Vega = S * sqrt(T) * phi(d1)`

**Intuition:** Dollar P&L per 1 vol point change. Maximum for ATM, longer-dated options.


Modified Duration

# Modified Duration (Formula)

**Summary:** Approximates % price change of a bond per 1% rate change.

**LaTeX:** `D_{mod} = \frac{D_{Mac}}{1 + y/n}, \quad \frac{\Delta P}{P} \approx -D_{mod} \Delta y`

**Plain text:** `D_mod = D_Mac / (1 + y/n);  dP/P ~ -D_mod * dy`

**Variables:**
  - D_Mac: Macaulay duration —
  - y: Yield to maturity —
  - n: Compounding periods per year —


Convexity

# Convexity (Formula)

**Summary:** Second-order rate sensitivity of bond price.

**LaTeX:** `C = \frac{1}{P}\sum_{t=1}^{N} \frac{t(t+1) \, CF_t}{(1+y)^{t+2}}, \quad \frac{\Delta P}{P} \approx -D_{mod}\Delta y + \frac{1}{2} C (\Delta y)^2`

**Plain text:** `Price change ~ -D_mod * dy + 0.5 * C * (dy)^2`

**Variables:**
  - CF_t: Cash flow at time t —
  - y: Yield —

**Intuition:** Curvature of the price-yield relationship. Long convexity = profit from rate volatility.


Yield to Maturity

# Yield to Maturity (Formula)

**Summary:** The IRR of a bond's cash flows that equates PV to current price.

**LaTeX:** `P = \sum_{t=1}^{N}\frac{CF_t}{(1+y)^t}`

**Plain text:** `P = sum(CF_t / (1+y)^t)`

**Intuition:** What you earn if you hold the bond to maturity and reinvest coupons at y.


CDS Spread (simplified)

# CDS Spread (simplified) (Formula)

**Summary:** Annual CDS premium implied by default probability and recovery.

**LaTeX:** `s \approx p \cdot (1 - R)`

**Plain text:** `spread ~ default_probability * (1 - recovery)`

**Variables:**
  - s: CDS spread (annual) —
  - p: Annual default probability (risk-neutral) —
  - R: Recovery rate —

**Intuition:** Premium compensates for expected loss given default times the probability of default.


Merton Distance to Default

# Merton Distance to Default (Formula)

**Summary:** Standard deviations between firm asset value and default threshold.

**LaTeX:** `DD = \frac{\ln(V/D) + (\mu_V - \sigma_V^2/2)T}{\sigma_V \sqrt{T}}`

**Plain text:** `DD = [ln(V/D) + (mu - sigma^2/2)*T] / (sigma * sqrt(T))`

**Variables:**
  - V: Firm asset value —
  - D: Default barrier (face debt) —
  - μ_V: Drift of assets —
  - σ_V: Volatility of assets —

**Intuition:** How many standard deviations the firm sits above default. EDF = N(−DD).


Geometric Brownian Motion

# Geometric Brownian Motion (Formula)

**Summary:** The continuous-time price process underlying Black-Scholes.

**LaTeX:** `dS_t = \mu S_t \, dt + \sigma S_t \, dW_t`

**Plain text:** `dS = mu*S*dt + sigma*S*dW`

**Variables:**
  - S_t: Asset price at time t —
  - μ: Drift —
  - σ: Volatility —
  - dW: Wiener increment —

**Intuition:** Log-returns are normal with mean (μ−σ²/2)dt and variance σ²dt.

**Edge cases:** Returns are not log-normal in practice — fat tails, jumps, vol clustering.; Negative interest rates break GBM-based rate models — Vasicek/HW preferred.


Ornstein-Uhlenbeck Process

# Ornstein-Uhlenbeck Process (Formula)

**Summary:** Continuous-time mean-reverting stochastic process.

**LaTeX:** `dX_t = \theta(\mu - X_t)\,dt + \sigma\,dW_t`

**Plain text:** `dX = theta*(mu - X)*dt + sigma*dW`

**Variables:**
  - θ: Mean-reversion speed —
  - μ: Long-run mean —
  - σ: Volatility —

**Intuition:** Used for spreads, vol, rates. Half-life of mean reversion = ln(2)/θ.


Vasicek Short-Rate Model

# Vasicek Short-Rate Model (Formula)

**Summary:** Mean-reverting Gaussian short-rate model.

**LaTeX:** `dr_t = a(b - r_t)\,dt + \sigma \, dW_t`

**Plain text:** `dr = a*(b - r)*dt + sigma*dW`

**Variables:**
  - a: Mean-reversion speed —
  - b: Long-run mean rate —
  - σ: Rate volatility —

**Edge cases:** Allows negative rates (a feature post-2014, an annoyance pre-2014).


GARCH(1,1)

# GARCH(1,1) (Formula)

**Summary:** Conditional variance with persistent volatility clustering.

**LaTeX:** `\sigma_t^2 = \omega + \alpha \epsilon_{t-1}^2 + \beta \sigma_{t-1}^2`

**Plain text:** `sigma^2_t = omega + alpha*eps^2_{t-1} + beta*sigma^2_{t-1}`

**Variables:**
  - ω: Long-run variance constant —
  - α: ARCH coefficient (shock impact) —
  - β: GARCH coefficient (volatility persistence) —

**Edge cases:** α + β < 1 required for stationarity; α + β ≈ 1 is the IGARCH case (RiskMetrics EWMA).


# Exponentially-Weighted Moving Average Variance (Formula)

**Summary:** RiskMetrics-style variance with exponential decay.

**LaTeX:** `\sigma_t^2 = \lambda \sigma_{t-1}^2 + (1-\lambda) r_{t-1}^2`

**Plain text:** `sigma^2_t = lambda*sigma^2_{t-1} + (1-lambda)*r^2_{t-1}`

**Variables:**
  - λ: Decay parameter — Typical 0.94 for daily (RiskMetrics)

**Intuition:** Recent shocks weighted more than older ones — smoothing without long memory.


Almgren-Chriss Optimal Execution

# Almgren-Chriss Optimal Execution (Formula)

**Summary:** Closed-form trading schedule that minimizes expected cost plus risk × variance of cost.

**LaTeX:** `x_t = X \cdot \frac{\sinh(\kappa(T - t))}{\sinh(\kappa T)}, \quad \kappa = \sqrt{\frac{\lambda \sigma^2}{\eta}}`

**Plain text:** `x_t = X * sinh(kappa*(T-t)) / sinh(kappa*T)`

**Variables:**
  - X: Total shares to trade —
  - T: Time horizon —
  - η: Permanent impact coefficient —
  - σ: Volatility —
  - λ: Risk aversion —

**Intuition:** Trade faster when risk-averse (high λ) or when impact is low (small η). Trade slower when patient.


Kyle's Lambda

# Kyle's Lambda (Formula)

**Summary:** Linear price impact coefficient from Kyle's (1985) microstructure model.

**LaTeX:** `\Delta P = \lambda \cdot Q`

**Plain text:** `delta_P = lambda * Q`

**Variables:**
  - Q: Net order flow —
  - λ: Price impact (illiquidity) coefficient —

**Intuition:** Higher λ = thinner market. The slope at which a market maker shifts price for incremental flow.


Amihud Illiquidity Measure

# Amihud Illiquidity Measure (Formula)

**Summary:** Average absolute return per unit dollar volume.

**LaTeX:** `\text{ILLIQ}_i = \frac{1}{D_i}\sum_{t=1}^{D_i} \frac{|R_{i,t}|}{V_{i,t}}`

**Plain text:** `ILLIQ_i = mean(|R_t| / Volume_t)`

**Variables:**
  - R_t: Daily return —
  - V_t: Daily dollar volume —

**Intuition:** How much price moves per dollar traded. High illiquidity → high impact.


# Grinold's Fundamental Law of Active Management (Formula)

**Summary:** Information ratio decomposes into information coefficient times the square root of breadth.

**LaTeX:** `IR \approx IC \cdot \sqrt{N}`

**Plain text:** `IR ~ IC * sqrt(N)`

**Variables:**
  - IC: Information coefficient — Correlation between forecast and realized return
  - N: Breadth — Number of independent bets per year

**Intuition:** Skill (IC) × diversification (breadth) = risk-adjusted active return. The math reason quants seek breadth.


Markowitz Efficient Frontier (Tangency)

# Markowitz Efficient Frontier (Tangency) (Formula)

**Summary:** Tangency portfolio weights with risky assets and a risk-free asset.

**LaTeX:** `w \propto \Sigma^{-1} (\mu - r \mathbf{1})`

**Plain text:** `w ~ Sigma^-1 * (mu - r * 1)`

**Variables:**
  - Σ: Covariance matrix —
  - μ: Expected returns vector —
  - r: Risk-free rate —

**Intuition:** Optimal weights tilt toward higher Sharpe assets, downweight correlated ones. Notoriously sensitive to μ estimation error.


Internal Rate of Return (IRR)

# Internal Rate of Return (IRR) (Formula)

**Summary:** Discount rate that zeros NPV of a cash flow stream.

**LaTeX:** `0 = \sum_{t=0}^{N} \frac{CF_t}{(1+IRR)^t}`

**Plain text:** `0 = sum(CF_t / (1+IRR)^t)`

**Variables:**
  - CF_t: Cash flow at period t —

**Intuition:** Annualized rate that makes the investment NPV-neutral.

**Edge cases:** IRR may have multiple roots when cash flows change sign more than once.; Assumes interim cash flows reinvest at IRR — Modified IRR (MIRR) corrects this.


Delaware Limited Partnership

# Delaware Limited Partnership (Structure)

**Summary:** The default US onshore hedge fund vehicle.

**Purpose:** House US-taxable investors as limited partners; the GP entity (typically a Delaware LLC) holds management and incentive economics.

**Mechanics:** GP-LP relationship governed by an LPA. LPs receive K-1s reporting their share of fund income (passed through). State-of-formation: Delaware (Court of Chancery jurisprudence). Often paired with an offshore feeder in a master-feeder structure.

**Tax:** Pass-through (Subchapter K). LPs taxed on share of income each year regardless of distributions.

**Eligibility:** Accredited investors under Reg D 506(b)/(c); typically also Qualified Purchasers if the fund relies on 3(c)(7).

**Jurisdictions:** Delaware (US)

**Pros:** Pass-through taxation; Mature legal precedent; LP liability limited

**Cons:** UBTI for tax-exempt LPs unless invested via blocker; K-1 timing/complexity


Cayman Islands Exempted Company

# Cayman Islands Exempted Company (Structure)

**Summary:** The default offshore hedge fund vehicle for non-US and US tax-exempt investors.

**Purpose:** Tax-neutral aggregation of non-US and US tax-exempt capital. The Cayman entity is treated as a corporation for US tax — providing a 'blocker' against UBTI for tax-exempt LPs.

**Mechanics:** Exempted Company under Cayman Companies Act. Registered with CIMA (Cayman Islands Monetary Authority) under Mutual Funds Act. AEOI/CRS/FATCA reporting required. Typical board: 2 independent Cayman directors + 1 sponsor director.

**Tax:** Cayman: 0% income tax, 0% capital gains. US tax-exempt LPs: corporate blocker shields UBTI. Non-US LPs: not subject to US tax on capital gains (subject to FIRPTA).

**Eligibility:** Same Reg D / 3(c)(1) or 3(c)(7) gates as onshore feeder for US investors; non-US accept under local exemptions.

**Jurisdictions:** Cayman Islands

**Pros:** Tax neutrality; UBTI blocker for tax-exempts; Familiar to global LPs; Mature service-provider ecosystem

**Cons:** AEOI/FATCA reporting overhead; EU AIFMD marketing requires NPPR or reverse-solicitation; OECD BEPS substance pressure


Master-Feeder Structure

# Master-Feeder Structure (Structure)

**Summary:** Two or more feeder funds in different jurisdictions pool assets in a single master fund where trading occurs.

**Purpose:** Tax-neutral aggregation of US-taxable, US tax-exempt, and non-US capital while maintaining a single trading book.

**Mechanics:** (1) Onshore feeder (Delaware LP) for US-taxable. (2) Offshore feeder (Cayman Ltd) for US tax-exempt and non-US. (3) Master (Cayman Ltd) where assets and trading reside. Each feeder owns master shares pro-rata to its capital. Performance allocations and management fees flow from the feeders to the GP/manager.

**Tax:** K-1 to onshore LPs, blocker treatment for tax-exempts via offshore feeder, no US tax for non-US (subject to FIRPTA).

**Eligibility:** Set at feeder level; typically Reg D / QP standards.

**Jurisdictions:** Cayman Islands (master + offshore feeder), Delaware (onshore feeder)

**Pros:** Single trading book; Tax neutrality across LP classes; Operational efficiency

**Cons:** More entities = more fees and admin; Pro-rata cross-class issues if master suspends


Luxembourg RAIF

# Luxembourg RAIF (Structure)

**Summary:** Reserved Alternative Investment Fund — flexible Luxembourg vehicle for AIFs requiring an authorized AIFM.

**Purpose:** Marketing-passportable EU vehicle for hedge fund-style strategies under AIFMD without direct CSSF authorization of the fund itself.

**Mechanics:** Set up in 1-3 weeks (no CSSF approval required), but requires an authorized AIFM. Can be structured as SCSp (limited partnership), SA, Sàrl, or umbrella with sub-funds. Often used for credit, PE, and infra; growing presence in liquid alts.

**Tax:** 0.01% subscription tax (SICAV-RAIF) or full corporate tax (other forms). Treaty access varies by sub-fund/legal form.

**Jurisdictions:** Luxembourg

**Pros:** Fast setup; Passport across EU under AIFMD; Familiar to European institutional LPs

**Cons:** Requires authorized AIFM; Not retail-marketable (RAIF is for professional investors)


Irish ICAV

# Irish ICAV (Structure)

**Summary:** Irish Collective Asset-management Vehicle — corporate fund vehicle, popular for UCITS and AIFMD funds.

**Purpose:** EU-passportable fund structure with Irish tax-treaty access (especially favorable for US equity exposure via 0% withholding).

**Mechanics:** Authorized by the Central Bank of Ireland. Can elect check-the-box for US tax purposes — partnership treatment shields tax-exempt LPs from UBTI without corporate blocker friction.

**Tax:** Irish: no fund-level tax for non-Irish residents. US: check-the-box partnership election available.

**Jurisdictions:** Ireland

**Pros:** US tax-treaty (0% on US dividends for US-tax purposes if QFII status); Check-the-box flexibility; Strong UCITS ecosystem

**Cons:** Higher setup and ongoing costs than RAIF; Central Bank approval required


Section 3(c)(1) Fund

# Section 3(c)(1) Fund (Structure)

**Summary:** US private fund relying on Investment Company Act exemption for funds with ≤100 beneficial owners.

**Purpose:** Avoid registration as an investment company under the ICA.

**Mechanics:** Limit beneficial owners to 100 (with knowledgeable-employee carve-outs and certain look-throughs). Rely on Reg D 506 for the offering exemption. Investors must be accredited.

**Eligibility:** Accredited investors only (Reg D requirement); 100-investor cap.

**Pros:** Lower investor-eligibility bar than 3(c)(7); Suitable for emerging managers

**Cons:** Hard cap at 100 LPs; Difficult to scale assets without converting to 3(c)(7)


Section 3(c)(7) Fund

# Section 3(c)(7) Fund (Structure)

**Summary:** US private fund relying on ICA exemption for funds whose investors are all Qualified Purchasers — no investor-count cap.

**Purpose:** Scale beyond the 100-investor cap of 3(c)(1) by restricting to QPs.

**Mechanics:** All beneficial owners must be QPs ($5m investments individuals, $25m entities). 'Section 12(g)' record-holder limit (2,000 holders / 500 non-accredited) caps practical scale before 1934 Act registration is triggered.

**Eligibility:** Qualified Purchasers only.

**Pros:** No 100-investor cap; Standard for institutional-scale funds

**Cons:** Higher eligibility bar excludes many accredited individuals


Side Pocket

# Side Pocket (Structure)

**Summary:** Segregated accounting compartment for illiquid or hard-to-value positions within a hedge fund.

**Purpose:** Prevent stale-mark dilution between subscribers and redeemers when an asset becomes illiquid or impaired.

**Mechanics:** On designation, the asset is moved to the side pocket. Existing investors hold pro-rata Series-B shares; new subscribers do not participate; redemptions of side-pocket shares occur only on realization. Performance fees on side-pocket P&L crystallize at realization.

**Jurisdictions:** Cayman, Delaware

**Pros:** Fair to all classes when illiquidity emerges; Preserves manager flexibility

**Cons:** Investor sentiment damage when used; SEC scrutiny of designation criteria post-2008


Gate

# Gate (Structure)

**Summary:** Redemption restriction limiting the percentage of fund AUM (or per-investor stake) redeemable in a single window.

**Purpose:** Prevent fire-sale liquidations that would crystallize losses for remaining LPs.

**Mechanics:** Investor-level gate: caps each LP at e.g. 25% of stake per quarter. Fund-level gate: caps total redemptions at e.g. 10% of AUM per quarter, pro-rated. Excess requests roll to the next redemption date.

**Pros:** Protects continuing LPs; Buys time in a liquidity crunch

**Cons:** Reputational damage; Often leads to wholesale redemptions when lifted


Managed Account / SMA

# Managed Account / SMA (Structure)

**Summary:** A separately managed account where the LP holds assets in their own name with the manager trading via limited POA.

**Purpose:** Customization, transparency, and bankruptcy-remote custody for institutional LPs.

**Mechanics:** LP opens accounts at LP-selected prime broker and custodian. Manager receives investment management agreement (IMA) with limited POA to trade. LP holds full position transparency, customizes guidelines, retains custody, and pays a negotiated (often lower) fee schedule.

**Pros:** Custody control (no commingling); Position transparency; Customizable guidelines (ESG, exclusions, leverage); Often lower fees

**Cons:** Higher operational burden for LP; Manager dilution of attention vs commingled fund; Capacity gating by managers


UCITS

# UCITS (Structure)

**Summary:** EU regulated fund structure with daily liquidity, restricted leverage, and pan-EEA marketing passport.

**Purpose:** Retail-marketable EU fund vehicle. Hedge fund strategies adapted into 'newcits' run as UCITS.

**Mechanics:** Constraints: daily liquidity to investors, max 200% gross VaR-based leverage (or 100% commitment-method), 5/10/40 concentration rules, restricted instrument types (no direct commodities, limited derivatives use). UCITS V (2014) framework.

**Pros:** Pan-EEA passport; Retail-marketable; Investor familiarity in Europe

**Cons:** Liquidity and leverage constraints incompatible with many HF strategies; Higher operating cost (depositary)


Founders / Founder Share Class

# Founders / Founder Share Class (Structure)

**Summary:** A discounted share class for early or large investors who anchor a new fund's launch.

**Purpose:** Incentivize early capital commitment and lock in long-duration backers.

**Mechanics:** Typical terms: 1% management / 10% performance (vs 1.5%/20% for standard); often 2-year hard lock-up; capacity to invest up to a threshold (e.g., $25m or 15% of fund); rolls into standard class when AUM crosses a level.

**Pros:** LP gets economics; GP gets stable anchor capital

**Cons:** Permanent vs phase-out structure can become a drag at scale


Seed Deal

# Seed Deal (Structure)

**Summary:** An anchor LP provides initial capital plus revenue share or equity in the management company in exchange for capacity and economics.

**Purpose:** Solve the chicken-and-egg of new-fund launches: PMs need capital, capital wants to see capital.

**Mechanics:** Typical seed: $50-200m anchor commitment, 2-3 year lock, in exchange for 10-25% of fee revenue (sometimes capped, sometimes perpetual) or equity in the GP. Major seeders: Investcorp-Tages, Borealis, Reservoir, Stable Asset Management, Proteus, Blackstone Strategic Alliance.

**Pros:** GP launches at credible scale; Seeder gets economics + capacity

**Cons:** Permanent revenue dilution; Strings attached on operations and brand


Pass-Through Expense Structure

# Pass-Through Expense Structure (Structure)

**Summary:** Multi-strat platform fee model where actual expenses (PM comp, technology, financing, infrastructure) are charged to the fund instead of a fixed management fee.

**Purpose:** Fund the platform's enormous infrastructure (PMs, tech, data, financing) without an artificial management fee cap.

**Mechanics:** Investors are charged actual platform expenses, typically running 5-8% of AUM gross. Performance fees layer on top of expenses. LPs receive itemized expense reports. Disclosure has tightened post-2022 SEC rules on private fund advisor fees.

**Pros:** Aligned: expenses are actual costs; Allows competitive PM compensation; Has produced sustained Sharpe 2-4 returns

**Cons:** All-in cost often 5-8% gross — much higher than 2/20; Less transparency historically (now improving); SEC private fund advisor rules increasing reporting burden


Investment Advisers Act of 1940

# Investment Advisers Act of 1940 (Regulation — US)
_Investment Advisers Act of 1940_

**Regulator:** SEC
 · **Enacted:** 1940

**Summary:** The foundational US statute governing investment advisers, requiring registration, fiduciary duty, and a regulated compliance program.

**Scope:** Applies to any person who, for compensation, advises others on investments in securities. Hedge fund managers fall under it.

**Key provisions:**
  • Section 206 — antifraud, fiduciary duty
  • Rule 206(4)-7 — written compliance program
  • Rule 206(4)-8 — antifraud rule for advisers to pooled investment vehicles
  • Section 204 — books and records (Rule 204-2)
  • Custody Rule 206(4)-2 — surprise audit, qualified custodian

**Filings:** Form ADV (Annual + amendments: Registration and brochure); Form CRS (Annual + on material change: Retail relationship summary)

**Official:** https://www.sec.gov/about/laws/iaa40.pdf


Investment Company Act of 1940

# Investment Company Act of 1940 (Regulation — US)

**Regulator:** SEC
 · **Enacted:** 1940

**Summary:** Governs investment companies (mutual funds, closed-end funds). Hedge funds rely on Section 3(c)(1) or 3(c)(7) exclusions.

**Scope:** Anyone holding themselves out as an investment company OR primarily engaged in investing in securities.

**Key provisions:**
  • Section 3(c)(1) — exclusion for funds with ≤100 beneficial owners (or 250 under emerging growth amendment)
  • Section 3(c)(7) — exclusion for funds whose investors are all Qualified Purchasers
  • Rule 12d1 — fund-of-funds investment limits

**Official:** https://www.sec.gov/about/laws/ica40.pdf


Form ADV

# Form ADV (Regulation — US)

**Regulator:** SEC

**Summary:** Investment adviser registration form, with public Part 1 (data) and Part 2 (client brochure).

**Key provisions:**
  • Part 1A — adviser business data, AUM, employees, custody, disciplinary history (publicly available via IAPD)
  • Part 2A — narrative client brochure
  • Part 2B — brochure supplements on supervised persons
  • Part 3 / Form CRS — retail relationship summary

**Filings:** Form ADV (Annual within 90 days of FY end + amendments on material change: Registration / disclosure)

**Official:** https://www.sec.gov/divisions/investment/iaregulation/iadisclosure.shtml


Form PF

# Form PF (Regulation — US)

**Regulator:** SEC / CFTC
 · **Enacted:** 2011

**Summary:** Confidential filing by private fund advisers reporting fund-level risk, leverage, and exposure data; used for systemic-risk monitoring by SEC and FSOC.

**Key provisions:**
  • Section 1 — basic adviser data, all filers
  • Section 2 — large hedge fund advisers (> $1.5bn): quarterly reporting
  • Section 3 — large liquidity fund advisers: monthly
  • Section 4 — large private equity advisers
  • 2024 amendments: 72-hour event reporting on stress (≥20% drawdown, large redemptions, prime broker termination, counterparty default)

**Filings:** Form PF (Quarterly (large hedge fund), Annual (others), 72hr event-driven: Systemic risk monitoring)

**Official:** https://www.sec.gov/about/forms/formpf.pdf


Regulation D

# Regulation D (Regulation — US)

**Regulator:** SEC

**Summary:** Securities Act exemptions allowing private placement of securities to accredited investors without full SEC registration.

**Key provisions:**
  • Rule 504 — offerings up to $10m, limited investor restrictions
  • Rule 506(b) — unlimited offering, no general solicitation, accredited investors + up to 35 sophisticated non-accredited
  • Rule 506(c) — unlimited offering, general solicitation permitted, all purchasers must be verified accredited

**Filings:** Form D (Within 15 days of first sale: Notice filing)

**Official:** https://www.sec.gov/fast-answers/answers-regdhtm.html


ICA Section 3(c)(1)

# ICA Section 3(c)(1) (Regulation — US)

**Regulator:** SEC

**Summary:** Investment Company Act exclusion for funds with no more than 100 beneficial owners.

**Key provisions:**
  • 100-investor cap (250 under JOBS Act 'venture capital' carve-out)
  • Knowledgeable employee carve-outs (Rule 3c-5)
  • Look-through rules for fund-of-funds investors (10% test)


ICA Section 3(c)(7)

# ICA Section 3(c)(7) (Regulation — US)

**Regulator:** SEC

**Summary:** Investment Company Act exclusion for funds whose investors are all Qualified Purchasers.

**Key provisions:**
  • All beneficial owners must be QPs ($5m investments individuals, $25m entities)
  • No investor count cap, but 1934 Act Section 12(g) registration triggered at 2,000 holders / 500 non-accredited


Dodd-Frank Act

# Dodd-Frank Act (Regulation — US)
_Dodd-Frank Wall Street Reform and Consumer Protection Act_

**Regulator:** SEC, CFTC, FRB, FDIC, OCC, FSOC
 · **Enacted:** 2010

**Summary:** Post-GFC reform that mandated hedge fund SEC registration, introduced Form PF, created the Volcker Rule, and overhauled OTC derivatives.

**Key provisions:**
  • Title IV — eliminated 'private adviser' exemption; mandated SEC registration > $150m AUM
  • Title VII — central clearing, exchange trading, and trade reporting for OTC derivatives
  • Volcker Rule (Section 619) — limits bank prop trading and HF/PE sponsorship
  • Title VIII — designation of systemically important FMUs
  • Title X — created CFPB

**Official:** https://www.govinfo.gov/content/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf


AIFMD

# AIFMD (Regulation — EU)
_Alternative Investment Fund Managers Directive (2011/61/EU)_

**Regulator:** ESMA + national competent authorities (e.g., CSSF, CBI, BaFin, AMF, FCA-pre-Brexit)
 · **Enacted:** 2011

**Summary:** EU regime governing managers of non-UCITS funds — depositary, capital, leverage, remuneration, transparency, and reporting.

**Key provisions:**
  • Authorization required for AIFMs with > €100m leveraged or > €500m unleveraged AUM
  • Independent depositary required
  • Annex IV reporting (semi-annual or quarterly by AUM)
  • Marketing passport for EU AIFs / EU AIFMs
  • AIFMD II (2024) — loan-originating funds, delegation, liquidity management tools

**Official:** https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32011L0061


UCITS V

# UCITS V (Regulation — EU)
_Undertakings for Collective Investment in Transferable Securities Directive V (2014/91/EU)_

**Regulator:** ESMA + national competent authorities
 · **Enacted:** 2014

**Summary:** EU retail-marketable fund framework — daily liquidity, restricted leverage, eligible asset rules. Underlies 'liquid alts' / 'newcits'.

**Key provisions:**
  • Daily redemption
  • Max 200% gross VaR or 100% commitment-method leverage
  • 5/10/40 concentration rule
  • Eligible asset list (Article 50) — no direct commodities, restricted derivatives use
  • Independent depositary

**Official:** https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0091


MiFID II

# MiFID II (Regulation — EU)
_Markets in Financial Instruments Directive II (2014/65/EU) and MiFIR_

**Regulator:** ESMA + national competent authorities
 · **Enacted:** 2014

**Summary:** EU framework for trading venues, transparency, best execution, transaction reporting, and (controversially) research unbundling.

**Key provisions:**
  • Best execution (Article 27) and execution-quality reporting (RTS 27/28, 2024 partial repeal)
  • Transaction reporting (RTS 22) — granular post-trade reporting
  • Pre/post-trade transparency on equity and non-equity
  • Systematic Internaliser regime
  • Research unbundling (2024 EU Listing Act allows opt-in rebundling)
  • Position limits and reporting on commodity derivatives

**Official:** https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0065


EMIR

# EMIR (Regulation — EU)
_European Market Infrastructure Regulation (648/2012)_

**Regulator:** ESMA + national competent authorities
 · **Enacted:** 2012

**Summary:** EU regulation for OTC derivatives — central clearing, risk mitigation for non-cleared trades, trade reporting.

**Key provisions:**
  • Central clearing obligation for standardized OTC derivatives
  • Margin requirements for non-centrally cleared derivatives (UMR phases 1-6, 2016-2022)
  • Trade reporting to TRs
  • EMIR Refit (2019) — reduced reporting burden on small counterparties
  • EMIR 3.0 (2024) — active account requirement at EU CCPs


Regulation 13D

# Regulation 13D (Regulation — US)

**Regulator:** SEC
 · **Enacted:** 1968

**Summary:** Beneficial ownership reporting for > 5% positions in publicly traded equity, with disclosure of intent.

**Key provisions:**
  • Schedule 13D — > 5% with active intent, must file within 5 business days (revised down from 10 in 2024)
  • Schedule 13G — > 5% passive, less disclosure
  • Section 13(f) — quarterly position reporting by managers > $100m discretionary AUM
  • Section 13(h) — large trader reporting

**Official:** https://www.sec.gov/divisions/corpfin/guidance/cfslb14e.htm


Regulation SHO

# Regulation SHO (Regulation — US)

**Regulator:** SEC
 · **Enacted:** 2005

**Summary:** US regulation governing short selling — locate requirements, close-out obligations, threshold security restrictions.

**Key provisions:**
  • Rule 200 — order marking (long, short, short exempt)
  • Rule 201 — alternative uptick rule (price test, triggered on 10% intraday decline)
  • Rule 203 — locate and close-out requirements
  • Rule 204 — close-out obligations (T+2 for short sales, T+1 since May 2024)


FATCA

# FATCA (Regulation — US)
_Foreign Account Tax Compliance Act_

**Regulator:** IRS
 · **Enacted:** 2010

**Summary:** US law requiring foreign financial institutions to report on US account holders or face 30% withholding.

**Key provisions:**
  • FFI agreement
  • Form W-8BEN-E
  • 30% withholding on US-source FDAP for non-compliant FFIs
  • Intergovernmental Agreements (IGAs) — Model 1 and Model 2


CRS

# CRS (Regulation — global)
_Common Reporting Standard_

**Regulator:** OECD + national tax authorities
 · **Enacted:** 2014

**Summary:** OECD-developed multilateral framework for automatic exchange of financial account information.

**Key provisions:**
  • Self-certification of tax residency
  • Annual reporting of accounts to home jurisdictions
  • 100+ participating jurisdictions


CFTC CTA Registration

# CFTC CTA Registration (Regulation — US)

**Regulator:** CFTC / NFA

**Summary:** Registration regime for Commodity Trading Advisors and Commodity Pool Operators.

**Key provisions:**
  • CTA registration for advisors trading futures, swaps, and other commodity interests
  • CPO registration for operators of commodity pools (often dual-registered with SEC)
  • Rule 4.7 exemption for advisors to QEPs (qualified eligible persons)
  • NFA membership and compliance obligations


Hart-Scott-Rodino Act

# Hart-Scott-Rodino Act (Regulation — US)
_Hart-Scott-Rodino Antitrust Improvements Act of 1976_

**Regulator:** FTC + DOJ Antitrust Division
 · **Enacted:** 1976

**Summary:** Pre-merger notification regime for transactions exceeding size thresholds (size-of-transaction $119.5m for 2024 indexed annually).

**Key provisions:**
  • Notification + 30-day waiting period (15 days for cash tender offers and bankruptcy)
  • Second Request authority for in-depth review
  • Expedited review of investment-only positions (< 10%, no participation)
  • 2024 HSR rule overhaul — significantly expanded disclosure


# A.W. Jones founds the first 'hedged fund' (1949-01-01)

**Summary:** Sociologist-turned-investor Alfred Winslow Jones launches A.W. Jones & Co with $100,000, structuring it as a long/short equity partnership with leverage and a 20% incentive allocation. The blueprint for an entire industry.

**Actors:** Alfred Winslow Jones

**Mechanism:** Long undervalued stocks, short overvalued ones, use leverage. Charge 20% of gains; no management fee.

**Lessons:**
  • Hedging market exposure was the original innovation; the leverage and fee structure became the genre's signature.


Soros 'breaks the Bank of England'

# Soros 'breaks the Bank of England' (1992-09-16)

**Summary:** Black Wednesday. George Soros's Quantum Fund shorts ~$10bn of GBP against the deutschmark; the BoE is forced to withdraw GBP from the ERM. Quantum reportedly made $1bn+ on the trade.

**Actors:** George Soros, Stanley Druckenmiller, Quantum Fund

**Mechanism:** Identified that GBP was overvalued in the ERM; the BoE could not credibly defend the peg given UK economic weakness and German rates. Built the position quietly, then publicly disclosed for crowding effect.

**Magnitude:** $1.0bn+ Quantum profit; ~$3.4bn UK reserves spent

**Lessons:**
  • A central bank can lose to the market when the peg is fundamentally untenable.
  • Reflexive feedback loops accelerate currency unwinds.


LTCM collapse

# LTCM collapse (1998-09-23)

**Summary:** Long-Term Capital Management — the John Meriwether-led fund staffed by Salomon's RV desk, Robert Merton, and Myron Scholes — loses ~$4.6bn in months as Russia defaults, swap spreads blow out, and forced deleveraging cascades through every relative-value position. The Fed orchestrates a $3.6bn 14-bank rescue.

**Actors:** John Meriwether, Robert Merton, Myron Scholes, consortium of 14 Wall Street banks

**Mechanism:** Massive convergence trades (swap spreads, on/off-the-run Treasuries, Italian rates, equity vol) at 25× leverage. When Russia defaulted, all RV positions widened simultaneously and forced unwinds destroyed the book.

**Magnitude:** $4.6bn loss; $1.25tn notional positions

**Lessons:**
  • Correlation goes to 1 in a crisis.
  • Liquidity-providing strategies become liquidity-demanding strategies in stress.
  • VaR badly underestimates tail risk in fat-tailed strategies.
  • Single-PB exposure is fatal.


Tiger Management closes

# Tiger Management closes (2000-03-30)

**Summary:** Julian Robertson closes Tiger Management after $7.7bn in redemptions and underperformance during the dot-com bubble — Tiger's value discipline was punished by tech mania. Robertson seeded ~30 'Tiger Cubs' from his alumni.

**Actors:** Julian Robertson

**Mechanism:** Long undervalued (paper, airlines, tobacco) / short overvalued (tech). The value-tech spread blew out for 18 months before the bubble burst — Tiger ran out of patience and capital first.

**Lessons:**
  • You can be right and broke at the same time.
  • Manager quality outlives any single fund — Tiger Cubs (Lone Pine, Maverick, Blue Ridge, Viking, Tiger Global) reproduced the model successfully.