Glossary - Absolute Return
Absolute return is a type of investment strategy that aims to generate a positive return on investments over a specified period of time, regardless of the overall market conditions. This strategy differs from traditional investment strategies that compare returns to a benchmark or index. Absolute return strategies focus on generating returns from a wide variety of investment methods, including but not limited to, leveraging, arbitrage, short selling, and derivatives.
Also known as
- Total Return
Use cases examples
- Hedge Fund Offering Memorandum: The Fund seeks to achieve an absolute return on investments through a diversified portfolio of securities, using strategies that are designed to perform under various market conditions.
- Investment Advisory Agreement: Advisor shall manage the assets of the Client's portfolio aiming for an absolute return, employing strategies that may include long and short equity positions, fixed income securities, and alternative investments.
Considerations for investors
- Investors should perform diligent research to understand the target absolute return and the strategies used to achieve it, as well as the risk profile of these strategies.
- It is important for investors to consider their own risk tolerance and investment timeframe when investing in vehicles aiming for absolute returns, as these may employ high-risk strategies.
Considerations for founders
- Understanding the methods used to achieve absolute returns is crucial, as the associated risks can vary widely depending on the investment strategy.
- Founders should evaluate if their company's portfolio or corporate investments align with the absolute return strategy, especially if looking to hedge against market volatility.
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