See International Accounting Standard 19.
The change in present value of an asset or liability for a 1 basis point change in the implied inflation curve used to value the asset or liability.
See UK Society of Investment Professionals.
Investment that cannot be quickly converted into cash at a predictable price — for example, real estate and thinly traded securities.
See investment management agreement.
See Investment Management Certificate.
Matching of assets and liabilities so that each is affected equally by changes in the external environment. For example, a pension plan may be at least partly protected from any change in the cost of buying an annuity by purchasing a long dated bond. While a fall in interest rates will increase the price of an annuity, this will be offset by a corresponding increase in the value of the bond.
Combined service offered by consultants, whereby trustee clients delegate a range of fiduciary functions to the consultants to implement on behalf of the trust.
Quantitative measure of the cost of the transition, which includes both direct and indirect costs. It compares the actual value of the portfolio at the end of the transition process with the value that would have resulted had the transition been implemented instantaneously and at no cost at the outset.
Volatility as calculated by determining the variable in the relevant option pricing formula (e.g. Black-Scholes) based on market option prices. (See also historic volatility.)
Investment Management Regulatory Organisation.
Direct transfer of a basket of stocks from one manager’s portfolio to another without disinvesting and reinvesting.
Indicates whether a traded option has positive intrinsic value. If current market prices make it beneficial to exercise an option, the option has value and is therefore in the money. With call options it is where the exercise price is below the current price of the underlying security. With put options it is the reverse. (See also intrinsic value.)
Bond that promises to pay interest only when earned by the issuer.
See high yield stock.
Written agreement between the issuer of a bond and bondholders that specifies maturity date, interest rate, convertibility and any other options.
a.Measure updated regularly that gives a representation of the movement
in value of a particular market or a specified group of securities.
b.List of prices or other characteristics representing a particular group of goods or services which gives an indication of movements over time — for example, the Retail Prices Index, the Average Earnings Index and the Retail Sales Index.
c.To invest in line with the index weightings.
See index-tracking fund.
a.Use of index funds. (See also passive management.)
b.Adjustment of payments or values in line with movements in a particular index of prices or earnings.
UK government stock with the interest payments and the final redemption proceeds linked to the Retail Prices Index. Such stocks provide protection against inflation whereas conventional gilts do not.
Investment fund which aims to match the returns on a particular market index. The fund may hold all the stocks in the particular index (known as replication) or, more commonly, use a mathematical model to select a sample that will perform as closely as possible to the index (known as sampling). Also known as an index fund.
Companies listed on stock exchanges are usually categorised according to their principal area of activity, for example, banks, building materials, electronics, food producers, health care, leisure, oils, pharmaceuticals and retailers.
Measure of the rate of increase in prices, for example, the movement over time in the Retail Prices Index. (See also index.)
Inflation hedge ratio
The inflation PV01 of assets divided by the inflation PV01 of liabilities.
Exchange of two cash flows, one based on an agreed inflation rate for a period and the other based on the actual inflation rate for that period. Typically, the inflation basis will be LPI or RPI.
Ratio of excess return to risk taken (as measured by tracking error). Hence, a measure of risk-adjusted return.
Returnable collateral that must be deposited by a futures market participant when initiating an open position. It is also required of writers of options.
Initial public offering (IPO)
First public sale of a company’s equity resulting in a quoted stock price on a securities exchange.
Initial yield (real estate)
Annual rent divided by the value of the property.
Price-sensitive information that is not publicly available — information which only employees or management of a company are likely to know.
Illegally trading in shares when in possession of price-sensitive information that is not known to the market.
Institute for Investment Management and Research (IIMR)
See UK Society of Investment Professionals.
Assets managed on an organisation rather than individual level. Types include pension plans, insurance funds, corporate funds, charities and banks.
Investment managers managing money on behalf of institutional and other third-party funds.
Rate at which banks bid for or offer funds to each other in a particular market.
Return earned on funds which have been loaned or invested (i.e. the amount a borrower pays to a lender for the use of his/her money).
Interest hedge ratio
The interest rate PV01 of assets divided by the interest rate PV01 of liabilities.
Interest rate collar
Simultaneous purchase and sale of a cap and a floor with the aim of maintaining interest rates within a defined range for a borrower or lender. The premium income from the sale of the floor reduces or offsets the cost of buying the cap.
Interest rate swap
Exchange of two sets of cash flows, usually one based on a fixed interest rate and the other on a floating interest rate.
Internal rate of return (IRR)
Constant rate of return that makes the present value of all future cash flows from an investment equal to its purchase price. This is the calculation method usually used for assessing returns from private equity.
International Accounting Standard 19 (IAS19)
Accounting standard (of the International Accounting Standards Board) which sets out the accounting treatment of retirement benefits such as pensions. Currently adopted as standard in Europe.
International Swaps and Derivatives Association (ISDA)
Trade organisation of participants in the market for over-the-counter derivatives. Responsible for creating the standardised ISDA Master Agreement.
Intrinsic value (of an option)
Difference between the strike price of a traded option and the market value of the underlying security. (See also at-the- money, in-the-money, time value.)
Asset acquired for the purpose of producing income and/or capital gains for its owner.
Advice about investment issues given formally by a suitably qualified person (as defined by the 1995 Pensions Act). The scope of advice might incorporate asset allocation strategy, appointment of investment managers and performance measurement.
See investment consultant.
Individual who specialises in the analysis of companies and their performance. An analyst normally gathers information by studying the information contained in company annual reports, researching the product markets in which a particular company operates, visiting manufacturing sites and meeting with key company personnel. Analysts may also analyse markets and economies.
Bank that offers a range of financial services, usually including fund management and advisory work, such as takeover and merger assistance, as well as corporate finance, including the placing of new share and bond issues, arrangement of loan or credit facilities, and stockbroking services.
Appointed subgroup of a plan’s trustee board responsible for various aspects of the plan’s investments.
Person or firm that is suitably qualified to give investment advice (as defined by the 1995 Pensions Act) to trustees or other responsible bodies.
Bond rating of equal or greater than BBB (with S&P) or Baa3 (with Moody’s), indicating low uncertainty as to the issuer’s ability to meet the obligations undertaken in the bond. (See also low grade.)
Investment management agreement (IMA)
Important legal document that defines the relationship between an investor and the investment manager. It usually incorporates guidelines and objectives.
Investment Management Certificate (IMC)
UK benchmark examination for individuals engaged in discretionary or advisory management of investments, overseen by SIP.
Organisation that invests assets on behalf of third parties for a fee. Can also refer to the individual responsible for day-to-day management of the assets, although this individual is more often referred to as a fund manager or portfolio manager.
Investment manager guidelines
Statements contained in an investment management agreement that restrict, permit or prohibit a manager from certain investments when managing a specific mandate.
Results desired by an investor or fund. They may be expressed as a specific performance target or a general statement of intent.
Total return earned on a portfolio of assets over a particular period. Investment performance measurement Calculation and analysis of investment performance usually including a review of sector strategy and stock selection. Returns may be compared with a benchmark fund or index or with the actual returns achieved by other managers or portfolios. (See also WM Performance Services.)
Set of principles or systems used by investors to govern the way they manage portfolios.
a.Risk that an asset will not deliver the expected returns (or meet the objectives) for which it is held.
b.Chance that a permanent loss will be sustained on an investment through company failure, default on loans, fraud or other factors.
c.Volatility in the value of a security or market, usually measured as the standard deviation of returns over a given period.
Investor’s long-term distribution of assets among various asset classes, taking into consideration, for example, goals of the trustee group, attitude to risk and timescale, etc.
Way in which fund managers are employed to invest assets, in particular the type of investment managers employed (specialists, multi-asset, active or passive) and the number of managers employed. Also called investment manager structure.
Group of individuals in an investment management organisation who are responsible for the construction of portfolios and the performance of funds under management. The team may include some or all of the following: a strategy specialist, economists, fund managers, investment analysts, equity and bond dealers, currency specialists, derivative specialists, property specialists and money dealers.
Closed-end fund quoted on a stock exchange that holds/manages shares and investments in other companies. The closed-end nature means that the price of the fund fluctuates in line with supply and demand as well as in line with the value of the underlying investments. Thus, investment trusts may trade at a premium or discount (usually the latter) to the value of the underlying investments.
Investment policy implementation document (IPID)
Document which serves as an adjunct to the SIP, setting out greater detail on, for example, the funds in which a scheme is invested, its strategic benchmark allocations and tolerance ranges for rebalancing around the central benchmark.
See initial public offering.
See internal rate of return.
Internal Revenue Service. It is a branch of the US Department of Treasury and is the country’s tax collection agency.
See International Swaps and Derivatives Association.
ISDA Master Agreement
Bilateral derivative trading agreement containing general terms and conditions (such as provisions relating to payment netting, basic covenants, events of default and termination). The Master Agreement does not, by itself, include details of any specific derivatives transactions the parties may enter into. These will be covered in an adjoining Schedule and in the Credit Support Deed/Annex. (See also Credit Support Deed.)
International Securities Identification Numbering system advocated by the G30. The ISIN code is a unique 12-digit code given to a security and is used worldwide.
Issued share capital
Portion of a company’s authorised share capital that has been issued by the company (i.e. is publicly held).
Financial institutions, often merchant banks, that act as intermediaries between companies seeking capital and the investors prepared to supply it.
A market that doesn’t have much volume. Can be moved disproportionately by a small amount of business and often result in wide bid/offer spreads.
See Original Margin.
An official and secure electronic trading network employed for large transactions in financial instruments (for example minimum transaction size of $1,000,000 for forex dealings) between banks, large dealers and other member counterparties with requisite financial creditworthiness.
The purchase of a given delivery month of one futures market and the simultaneous sale of the same delivery month of a different, but related, futures market.
The purchase of one delivery month of a given futures contract and simultaneous sale of another delivery month of the same commodity on the same exchange. Also referred to as an intramarket or calendar spread.
The sale of a given delivery month of a futures contract on one exchange and the simultaneous purchase of the same delivery month and futures contract on another exchange.
An option having intrinsic value. A call option is in-the-money if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract. See Intrinsic Value.
See Interdelivery Spread.
The amount by which an option is in-the-money. See In-the-Money Option.
Introducing Broker (IB)
A person or organization that solicits or accepts orders to buy or sell futures contracts or commodity options but does not accept money or other assets from customers to support such orders.
A futures market in which the relationship between two delivery months of the same commodity is abnormal.
Uncounted stocks of a commodity in the hands of wholesalers, manufacturers, and producers that cannot be identified accurately; stocks outside commercial channels but theoretically available to the market.
An Immediate-Or-Cancel (IOC) order is an order to buy or sell a stock that must be executed immediately.