Glossary

Backtesting

Testing a strategy or model on historical data to determine its accuracy and viability.

Balanced Fund

An investment fund combining stocks, bonds, and other securities to balance income and capital growth. Fairtree’s balanced funds aim to deliver consistent returns through diversified portfolios.

Base Erosion and Profit Shifting (BEPS)

Tax planning strategies that exploit gaps in tax rules to shift profits to low or no-tax locations. Offshore investment structures are often scrutinised under BEPS regulations to ensure compliance.

Bear Market

A market condition where asset prices are falling, usually by 20% or more from recent highs. Bear markets reflect widespread pessimism, often due to economic downturns or other negative factors, and can lead to lower investor confidence.

Bearish

A term used to describe a negative outlook on an asset or market, where investors expect prices to fall. Bearish sentiment can lead to increased selling and decreased investment in the asset.

Beta

A measure of an asset’s volatility in relation to the market. A beta above 1 indicates higher volatility than the market, while a beta below 1 shows lower volatility. Fairtree considers beta when assessing risk for its portfolios.

Bid-Ask Spread

The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). A smaller spread generally indicates high liquidity, while a larger spread suggests lower liquidity.

Blue-Chip Stocks

Stocks of large, reputable companies with a long history of solid financial performance and stability. Blue-chip companies are often leaders in their industries, making them popular choices for conservative investors seeking reliable returns.

Bond Yield

The return an investor receives from a bond, often expressed as an annual percentage. Bond yield is influenced by the bond’s price, interest rate, and time to maturity, helping investors evaluate income potential.

Bottom-Up Analysis

An investment strategy focused on individual companies’ fundamentals rather than macroeconomic indicators. Fairtree’s team conducts bottom-up analysis to select high-quality securities.

Bull Market

A market condition characterized by rising asset prices, typically over an extended period. Bull markets indicate investor confidence and optimism about future economic growth, often leading to increased buying activity.

CPI (Consumer Price Index)

An index measuring changes in the cost of a basket of consumer goods and services, used as an inflation indicator. Fairtree monitors CPI as part of its economic analysis to protect client portfolios from inflation risks.

Capital Appreciation

An increase in the market value of an investment over time, which provides potential returns when the asset is sold. Fairtree focuses on capital appreciation in its equity investments.

Capital Gain

The profit realized when an asset is sold for more than its purchase price. Capital gains can provide significant returns for investors, but they may also be subject to taxes.

Capital Markets

 Financial markets where savings and investments are channelled between suppliers and those in need of capital, such as equities and bonds. Fairtree operates within capital markets to provide diverse investment opportunities.

Carried Interest

A share of a hedge fund’s profits that is paid to the fund manager as compensation, usually after surpassing a performance threshold. Carried interest aligns the manager’s incentives with those of the investors.

Cash Equivalents

Highly liquid assets, like treasury bills, that can easily be converted into cash. Fairtree may include cash equivalents in portfolios to provide liquidity and preserve capital.

Certificate of Deposit (CD)

A savings account that holds a fixed amount of money for a specified term, offering a higher interest rate than a regular savings account. CDs are low-risk investments, though they require locking in funds for the term duration.

Collateralised Debt Obligation (CDO)

A financial instrument that pools various loans and sells them as tranches to investors.

Collective Investment Scheme (CIS)

A pooled fund structure allowing multiple investors to invest together in a portfolio of assets. Fairtree offers CIS options to enable access to a diversified range of investments.

Commodities

Basic goods used in commerce that are interchangeable with others of the same type, such as metals, energy, and agricultural products. Fairtree manages commodity investments to capture market opportunities.

Compound Interest

The process where interest on an investment earns interest over time, increasing returns. Fairtree’s investment strategies are designed to benefit from compound interest where applicable.

Compounding

The process where earnings on an investment generate additional earnings over time. Compounding accelerates growth, as returns build on both the original investment and previous gains.

Controlled Foreign Corporation (CFC)

A foreign company controlled by residents of a home country, subject to specific tax rules. Offshore investors must be aware of CFC regulations to avoid unexpected tax obligations.

Convertible Arbitrage

A hedge fund strategy that involves buying convertible securities, such as bonds or preferred shares, and hedging against price fluctuations to lock in profit. This approach seeks to capitalise on price inefficiencies.

Corporate Bonds

Debt securities issued by corporations to raise capital. Fairtree includes corporate bonds in its fixed-income investments, aiming for steady returns with lower risk than equities.

Credit Investment

Investing in debt securities or loans, with a focus on earning interest income and potential capital growth. Fairtree’s credit strategies are designed to optimise returns while managing risk.

Currency Diversification

Investing in assets denominated in different currencies to reduce currency risk. Offshore investments often provide currency diversification, helping investors manage the impact of currency fluctuations.

Derivatives

Distressed Securities

Investments in the debt or equity of companies experiencing financial difficulty or bankruptcy. Hedge funds use distressed securities strategies to acquire undervalued assets, potentially reaping rewards if the company recovers.

Diversification

Dividend

A portion of a company’s earnings distributed to shareholders, usually on a quarterly basis. Dividends provide a steady income stream and are often paid by established, profitable companies.

Dividend Reinvestment Plan (DRIP)

A program that allows shareholders to automatically reinvest their cash dividends to buy more shares of the stock, rather than receiving the dividends in cash. This helps investors compound their returns over time without incurring extra trading fees.

Dividend Yield

A stock’s annual dividend payments divided by its price, expressed as a percentage. Fairtree evaluates dividend yield to identify income-generating stocks for its clients.

Dollar-Cost Averaging

A strategy where an investor consistently buys a fixed dollar amount of an asset at regular intervals, regardless of its price. This reduces the impact of market volatility by averaging out the purchase price over time.

Double Taxation Treaty (DTT)

Agreements between countries to prevent double taxation on the same income. Offshore investors leverage DTTs to reduce tax liabilities when investing across borders.

Drawdown

A measure of the peak-to-trough decline in an investment’s value over a specific period, often expressed as a percentage. Hedge funds monitor drawdowns to manage risk and protect against significant losses.

Duration

A measure of a bond’s sensitivity to interest rate changes, often used to manage interest rate risk.

Earnings per Share (EPS)

A company’s net income divided by the number of outstanding shares, indicating the profitability of each share. EPS helps investors assess a company’s financial performance and profitability.

Emerging Markets

Economies experiencing rapid growth and industrialisation, often associated with higher investment risk and return potential. Fairtree identifies opportunities in emerging markets for diversified portfolio growth.

Enhanced Indexing

A strategy to outperform a benchmark index while closely tracking it, usually through slight modifications.

Environmental, Social, and Governance (ESG)

Equity

The ownership interest in an asset, such as stocks representing ownership in a company. Equity investments provide potential for capital appreciation and dividends, though they can be more volatile than debt investments.

Equity Investment

Event-Driven Strategy

A hedge fund approach focusing on investment opportunities arising from specific corporate events, such as mergers, acquisitions, or restructurings. Event-driven strategies aim to profit from changes in a company’s valuation.

Exchange Controls

Regulations governing the flow of foreign currency in and out of a country. Offshore investments are often structured to navigate exchange controls and facilitate cross-border asset transfers.

Exchange-Traded Fund (ETF)

Expatriate Tax

Taxes imposed on individuals residing outside their country of origin. Offshore investments can be part of tax planning strategies for expatriates to optimise their financial situation.

Expense Ratio

Fixed Income

Investments providing regular income, such as bonds or treasury bills. Fairtree offers fixed income solutions to meet investor income needs while preserving capital.

Foreign Account Tax Compliance Act (FATCA)

A U.S. regulation requiring foreign financial institutions to report on U.S. account holders. Offshore investors in the U.S. or with U.S. clients must comply with FATCA to avoid penalties.

Foreign Direct Investment (FDI)

Investment by a company or individual in one country into business interests in another. Offshore investment in FDI can provide exposure to growth opportunities in emerging markets.

Foreign Exchange (Forex)

The global market for trading currencies. Fairtree participates in forex markets to manage currency risk in its global investments.

Fund Lock-Up Period

A period after an initial investment during which investors cannot withdraw funds. Hedge funds may impose a lock-up period to ensure liquidity for executing long-term strategies.

Fund Management

Fund of Funds

Fund of Hedge Funds (FoHF)

A pooled investment vehicle that invests in multiple hedge funds, diversifying across various strategies and managers to reduce risk. This structure provides investors with exposure to different hedge fund styles.

Gate Provision

Global Asset Classes

Global Macro Strategy

A hedge fund strategy that bases investment decisions on global economic trends, such as interest rates, currency movements, and geopolitical events. Global macro funds seek to profit from large-scale shifts in the global economy.

Green Bonds

Bonds designated to finance environmentally sustainable projects.

Growth Investing

An investment strategy focused on buying stocks of companies expected to grow at an above-average rate compared to other companies. Growth investors prioritize future potential over current income, aiming for capital appreciation through rising stock prices.

Growth Stock

Haircut

The difference between the market value of an asset and the amount that can be used as collateral for a loan.

Hedge

An investment strategy intended to offset potential losses in another investment, often by taking an opposite position. Hedging reduces risk but may limit potential gains.

Hedge Fund

Hedge Fund Fees (2 and 20)

A common fee structure where the hedge fund charges a 2% management fee and a 20% performance fee on profits. This model incentivises fund managers to achieve high returns.

High Net Worth Individuals (HNWIs)

Holding Company

An entity created to own shares of other companies, often used in offshore structures to centralise management and streamline taxation. Offshore holding companies are common in international tax planning.

Hurdle Rate

The minimum rate of return an investment must achieve before generating profits for fund managers. Fairtree employs hurdle rates to ensure performance aligns with client expectations.

IPO (Initial Public Offering)

The process through which a private company sells shares to the public for the first time to raise capital. IPOs allow retail investors to invest early in growing companies, though they may involve significant risk.

Index Fund

A fund designed to replicate the performance of a specific market index, such as the FTSE 100. Fairtree may use index funds for passive exposure to broad market performance.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power. Investments that outpace inflation are essential for maintaining the real value of money over time.

Infrastructure Debt

Initial Investment

The first amount of money put into an investment, representing the starting principal from which an investor hopes to grow wealth. This initial contribution can impact overall growth, especially with the compounding effect over time.

Initial Public Offering (IPO)

The first sale of a company’s stock to the public, often used to raise capital. Fairtree monitors IPOs to evaluate new investment opportunities.

Institutional Clients

Interest Rate Risk

Interest Rate Swap

A derivative contract where two parties exchange fixed and floating interest rate payments.

International Business Company (IBC)

A corporate entity established in an offshore jurisdiction, often benefiting from tax exemptions and minimal reporting requirements. IBCs are commonly used for global business operations and investments.

Investment Horizon

The period over which an investor expects to hold an investment before taking out the funds.

Investment Philosophy

Investment Residency

Programmes allowing investors to obtain residency or citizenship in exchange for significant investment in a country. Offshore investors may use investment residency to gain tax benefits and freedom of movement.

JSE (Johannesburg Stock Exchange)

Jurisdictional Risk

The risk of investing in a particular country due to political, economic, or legal uncertainties. Offshore investing often involves evaluating jurisdictional risk to ensure a stable investment environment.

Leverage

The use of borrowed capital to increase potential returns on investment. Hedge funds frequently use leverage to amplify gains, though it also increases risk exposure.

Limit Order

A type of order placed with a brokerage to buy or sell a stock at a specific price or better. Unlike market orders, limit orders give investors control over the price at which they transact, which can help manage costs or maximize sales proceeds.

Liquidity

The ease and speed with which an asset can be converted into cash without significantly affecting its market price. Liquid assets, like stocks in major companies, can be sold quickly, while illiquid assets, like real estate, may take time to sell.

Long/Short Equity

A common hedge fund strategy involving taking long positions in undervalued stocks and short positions in overvalued ones. Long/short equity strategies aim to reduce market risk while profiting from stock selection.

Macroeconomic Risk

The risk of loss due to changes in the overall economy, such as inflation, recession, or currency changes.

Market Capitalisation

Market order

An order to buy or sell an asset immediately at the current market price. Market orders prioritise speed over price control and are commonly used when swift execution is preferred.

Market-Neutral Strategy

A hedge fund approach designed to limit market risk by balancing long and short positions. Market-neutral funds seek to profit from stock price movements independent of market direction.

Merger Arbitrage

A strategy where hedge funds invest in companies involved in mergers or acquisitions, buying shares of the target company and sometimes shorting the acquirer’s stock to profit from price changes.

Multi-Asset Strategy

Mutual Fund

A pooled investment vehicle where multiple investors’ money is combined to invest in a diversified portfolio of stocks, bonds, or other securities, managed by a professional. Mutual funds allow for diversification and access to various markets with lower individual effort.

Net Asset Value (NAV)

The total value of a hedge fund’s assets minus its liabilities, often calculated on a monthly basis. NAV provides a measure of the fund’s value and performance.

Offshore Banking

Holding financial accounts in a bank located outside the investor’s country of residence. Offshore banking provides asset protection, currency diversification, and access to international markets.

Offshore Bond

An investment in bonds issued by a foreign entity or held in an offshore location, often offering tax advantages. Offshore bonds are popular among investors seeking income and capital preservation.

Offshore Fund

An investment fund domiciled outside the investor’s home country, often in a low-tax jurisdiction. Offshore funds offer access to global investments with potential tax efficiencies.

Over-the-Counter (OTC)

Trading done directly between parties rather than through an exchange, common in derivatives markets.

Passive Foreign Investment Company (PFIC)

A U.S. tax designation for foreign corporations with predominantly passive income or assets. Offshore investors need to be aware of PFIC rules to manage tax implications on offshore investments.

Portfolio

The complete collection of an investor’s financial assets, including stocks, bonds, real estate, and other investments. A portfolio is constructed to balance an investor’s risk tolerance, financial goals, and time horizon.

Portfolio Investment

Investments in foreign financial assets, such as stocks and bonds, without gaining control of the entity. Offshore portfolio investments provide diversification across international markets.

Portfolio Management

Price-to-Earnings Ratio (P/E Ratio)

A valuation metric that compares a company’s share price to its earnings per share (EPS). The P/E ratio helps investors understand how much they’re paying for a company’s earnings, with higher ratios often indicating growth expectations.

Prime Brokerage

Specialised services offered by investment banks to hedge funds, including trade execution, custody, lending, and financing. Prime brokers facilitate the trading and operational needs of hedge funds.

Principal-Protected Offshore Investments

Offshore investments designed to protect the initial capital, often involving a combination of debt and equity. These products appeal to investors looking for offshore exposure with lower risk.

Private Equity

Private Offshore Trust

A trust established in an offshore jurisdiction for asset protection, estate planning, or tax benefits. Offshore trusts provide a legal framework for protecting assets from creditors or high taxation.

Quantitative Easing

Central bank strategy of increasing money supply by purchasing government or other securities to stimulate the economy.

Quantitative Hedge Fund

A hedge fund that relies on mathematical models, algorithms, and data analysis to drive trading decisions. Quantitative funds, or “quants,” seek to capitalise on market inefficiencies using systematic strategies.

Real Estate Investment

Rebalancing

The act of adjusting the proportions of assets in a portfolio to maintain a desired allocation. Rebalancing helps investors stay aligned with their risk tolerance and financial goals, particularly as market conditions change over time.

Redemption Notice Period

The amount of advance notice an investor must give before withdrawing funds from a hedge fund. Hedge funds set redemption notice periods to ensure liquidity and orderly asset management.

Redomiciliation

The process of transferring a company’s domicile from one jurisdiction to another. Offshore investors may redomicile companies to access favourable tax or regulatory environments.

Relative Value Arbitrage

A strategy that involves taking advantage of price differences between related securities. Hedge funds using relative value arbitrage seek to profit by exploiting mispricings in the market.

Repatriation of Funds

Bringing funds back into the investor’s home country from an offshore jurisdiction. Offshore investors must consider repatriation rules, which may include taxes or fees on returned capital.

Return on Investment (ROI)

A measure of an investment’s profitability, calculated by dividing the investment’s net profit by its initial cost. ROI provides insight into how efficiently money is being used to generate profits, helping compare different investment options.

Risk Appetite

The level of risk an investor or institution is willing to accept to achieve desired returns.

Risk Management

Robo-Advisor

An online, automated investment platform that uses algorithms to provide financial planning and investment management services. Robo-advisors often require lower fees and are accessible to retail investors, making them popular for straightforward investment needs.

Round-Tripping

An investment strategy where funds leave a country only to return in the form of foreign investment, sometimes used for tax optimisation. Offshore structures occasionally facilitate round-tripping to capitalise on incentives.

Short Squeeze

A situation in which a heavily shorted stock rises in price, forcing short sellers to cover their positions, which drives the price up further. Hedge funds that short stocks manage risk to avoid getting caught in a short squeeze.

Smart Beta

yield An investment strategy that uses alternative weighting schemes to traditional index tracking, often emphasizing factors like volatility or dividend.

Statistical Arbitrage

A quantitative approach involving high-frequency trading of numerous assets to exploit statistical patterns. Hedge funds employing statistical arbitrage aim to profit from short-term price fluctuations based on historical trends.

Straddle

An options strategy involving the simultaneous purchase of a call and put option with the same strike price and expiration date.

Substance Requirements

Regulations requiring that offshore entities have a physical presence and genuine economic activity in their domicile country. Offshore jurisdictions often impose substance requirements to combat tax evasion.

Tail Risk

The risk of rare, extreme events that occur in the tails of a normal distribution curve, such as market crashes.

Tailored Solutions

Tax Haven

A country or jurisdiction with low or no taxes, often offering confidentiality for investors. Offshore investments in tax havens attract investors seeking to minimise their tax liabilities legally.

Time Horizon

The expected length of time an investor plans to hold an investment before needing the funds. Investors with longer time horizons can often take on more risk for potentially higher returns, while shorter horizons may require safer, more liquid investments.

Top-Down Analysis

Tracking Error

The divergence between the performance of an investment portfolio and its benchmark index.

Treasury Inflation-Protected Securities (TIPS)

U.S. government bonds that provide protection against inflation.

Volatility

A measure of how much the price of an asset fluctuates over time, often used to gauge risk. High volatility means greater price swings, which can lead to larger potential gains or losses, whereas low volatility indicates more stable price movements.

Yield Curve

Zero-Coupon Bond

A bond that does not pay periodic interest and is issued at a discount to its face value.