CAIA Level II key terms

An investment approach holding a large share of illiquid alternatives, governed by a spending rule, that seeks diversification beyond stocks and bonds as practiced by university endowments.

Managing a portfolio so its cash flows and sensitivity to interest rates track future liability payments, usually with duration-matched bonds and derivatives, to stabilize funded status.

The value of plan assets divided by the present value of its liabilities; below 100% indicates a deficit the sponsor must fund.

The long-term target weights across asset classes, with permitted ranges, that express risk tolerance and anchor rebalancing and performance evaluation.

Building a portfolio so each asset class contributes similar risk, often by leveraging lower-volatility assets like bonds to balance equity risk.

A written statement of objectives, constraints, eligible assets, risk limits, and governance responsibilities that guides investment decisions and manager oversight.

The total amount an investor pledges to a private fund, which the manager may call over the investment period; it differs from cash actually invested.

A request for limited partners to fund part of their commitment, typically issued shortly before the fund closes an investment.

Committed but uncalled capital available for future deals, watched as a signal of buying capacity and of competition for transactions.

The tendency for early private fund returns to be negative from fees and startup costs, then rise as holdings mature and are sold.

The general partner's share of fund profits, commonly 20%, paid after limited partners recover capital and any preferred return.

A provision requiring the general partner to return previously received carry when later losses mean total profits were lower than assumed.

The year a private fund makes its first investments, used to compare performance across funds facing similar market conditions.

A purchase or sale of an existing limited partner interest, giving the seller liquidity and the buyer a seasoned portfolio.

Value realized plus remaining holdings divided by capital invested; a cash multiple that ignores how long the money was outstanding.

A property's net operating income divided by its price or value, indicating the income yield and, roughly, expected return.

Stable, well-leased real estate in strong markets with modest leverage, held mainly for income rather than repositioning or development.

The degree to which an asset's cash flows, such as rents or regulated tolls, rise with inflation and preserve purchasing power.

The decline of a natural resource reserve as it is extracted, shortening the asset's remaining life and affecting its value.

A long-lived essential system such as a toll road, utility, or airport, typically producing stable cash flows under regulation or long-term contracts.

A strategy taking positions in currencies, rates, equities, and commodities based on views about growth, inflation, and policy.

Systematic trading of futures and forwards by commodity trading advisors, often following trends, across interest rates, currencies, equity indexes, and commodities.

Buying the shares of an announced target, and sometimes shorting the acquirer, to capture the spread if the deal completes.

Buying a convertible bond while shorting the underlying stock to isolate mispricing, profiting from volatility and cheapness rather than market direction.

The peak value used to calculate incentive fees, so a manager earns performance fees only on gains above the prior peak.

A separately tracked holding of illiquid positions within a hedge fund, often exempt from fees until realized and subject to delayed redemption.

A slice of a securitization with its own priority for cash flows and losses; senior slices are paid first and absorb losses last.

The junior layers beneath a tranche that absorb losses first, protecting senior holders and providing the credit enhancement that supports their rating.

A securitization backed mainly by leveraged corporate loans, issued in rated tranches and managed by a collateral manager who trades the pool.

A contract where a protection buyer pays premiums and receives compensation if a referenced borrower defaults or another specified credit event occurs.

A promise in a loan agreement, such as maintaining a maximum leverage ratio, whose breach can trigger penalties, waivers, or acceleration.

A single facility blending senior and subordinated debt at one blended rate, often used by middle-market borrowers for simpler documentation and faster execution.

The obligation to act in a client's best interest, requiring loyalty, care, and disclosure of conflicts ahead of the adviser's own interests.

Significant information about an issuer that is not public and that a reasonable investor would deem important; trading on it may be fraud.

Global Investment Performance Standards: ethical rules for calculating and presenting performance so that results are comparable and fairly disclosed across firms.

Recording ownership of an asset, such as a fund interest or building, as digital tokens on a blockchain, enabling fractional ownership and faster transfer.

A tradable unit representing one metric ton of carbon dioxide avoided, reduced, or removed, used to offset emissions or held as an environmental asset.

Using public or philanthropic money to take first losses or give guarantees, drawing private capital into projects considered too risky on their own.

Including environmental, social, and governance factors in research and portfolio construction as inputs to estimates of risk and return.