See mergers and acquisitions.
Pooled fund that invests across a wide range of asset classes.
Management buy-in (MBI)
Purchase of a controlling interest of a company by an outside investor where either new management is implemented or existing management is retained.
Management buyout (MBO)
Repurchasing of all, or the majority of, a company’s outstanding shares by a firm’s own management.
Fees levied by investment managers, usually in the form of a percentage of assets under management (typically either on a fixed scale or on a sliding scale that decreases with fund size). The charge is based on the fund managers’ services and usually also includes fund administration costs. In addition, in the case of some pooled funds, a charge may be made on new contributions. (See also performance- related fee.)
Quantitative review of an investment manager’s performance against his or her benchmark and within any specified guidelines (e.g. risk control), and a qualitative review of the prospects for future performance from the manager.
Manager of managers
Single fund manager who appoints a series of underlying managers in each asset class. Often these underlying managers are specialists targeting higher outperformance. The managers’ styles should complement each other within each asset class to avoid style biases. The manager of managers is responsible for monitoring, hiring and firing the underlying managers.
Combination of investment managers to run a specified pool of assets (e.g. a pension plan’s assets). (See also core/ satellite, specialist management.)
Description of the fund management requirements that an investor demands from a manager — for example, high-risk global equity management. May include performance targets set by reference to a benchmark.
a.Procedure allowing investors to borrow against their existing holdings to buy more securities.
b.Collateral required as security against open positions in derivative markets.
Public place where buyers and sellers make transactions, directly or via intermediaries.
Proportion of the total market that is taking part in the market’s up or down move.
Total market value of securities issued by a company, industry, sector or market(s). It is calculated by multiplying the market price per share by the number of shares issued.
See economic cycle.
Technical measurements used by market analysts to forecast the market’s direction, such as the volume of trading or the direction of interest rates.
Condition in which current security prices do not reflect all the publicly available information about a security, such as when some investors receive information before others, or when some investors do not effectively analyse the available information.
Organisation that undertakes to buy and/ or sell certain securities whenever demand or supply exists at their quoted prices. Market makers quote firm buying and selling prices for the shares in which they wish to deal.
Long/short fund with no net bias to the underlying market.
Security’s last reported sale price (if on an exchange) or its current buying and selling prices (if over the counter) — that is, the price as determined dynamically by buyers and sellers in an open market. Also known as market value.
Risk, representing the probability of an adverse change in value, which is common to an entire class of assets or liabilities. It is the level of risk in the market that cannot be eliminated by diversification. Also known as systematic risk. (See also non-diversifiable risk.)
Investor who believes that he/she can predict the timing of changes in future market directions and invests based on this belief.
See market price.
When the allocations to securities in a portfolio are the same as the allocations to securities in a representative sample of the market.
Measure of the ease with which a security may be bought or sold. If there is an active marketplace for a security, it has good marketability. Marketability is similar to liquidity, except that liquidity implies that the value of the security is preserved, whereas marketability simply indicates that the security can be bought and sold easily. However, low marketability may lead to a widening of the spread between buying and selling processes.
Recording of the market price or value of a security, portfolio or account on a regular basis, to calculate profits and losses or to confirm that margin requirements are being met.
Specific rating within a three-part credit rating system which indicates whether a fixed income security should be bought (overweight), sold (underweight) or held (marketweight). (See also overweight, underweight.)
Date upon which the last payment is made under a fixed interest stock or bond.
Amount that will be received at the time a security is redeemed at its maturity.
See management buy-in.
See management buyout.
Average amount or value.
Mean reversion theory
Theory that assumes financial ratios and asset class returns have long-term equilibria (means), and that when there is a deviation from these equilibria, reversion to the equilibrium (mean) can be expected.
Value of the middle figure in a distribution of values that have been ranked according to size. For example, a median performance among a universe of five managers would be the third-ranked manager. A median return is not the same as the mean and may be above or below it depending on the distribution of returns.
Mellon Analytical Services
One of the main service providers in the UK that independently analyses the performance of pension funds and their investment managers. Owned by Mellon Financial Corporation. Formerly known as Russell/Mellon and Combined Actuarial Performance Services (CAPS).
Member profiling (defined contribution)
Analysis of the investment decisions made by members of a defined contribution pension scheme. Member
profiling enables trustees to determine the investment options that are being selected by various scheme members and how these options change with respect to factors like age, gender, appetite for risk and salary. Based on the results of the member profiling, trustees are able to improve the investment fund range available to the members of the scheme.
Mergers and acquisitions
Combining two companies to create one larger company that is expected to be more valuable than the individual companies on their own. In an acquisition, one company is a clear buyer aiming to completely take over a “target” company. The target company ceases to exist whilst the buyer company’s shares continue to
e traded. In a merger, two companies (usually of similar size) cease to exist as individual companies (with separate stock on the market) and agree to operate as a completely new company with new stock being issued.
mezzanine (private equity) Company whose flotation on a quoted market is imminent.
Hybrid between debt and equity. Often, for example, low-priority debt packaged together with an equity warrant.
See minimum funding requirement.
Mid cap stock
Stock with a middle-ranking market capitalisation within a market — for example, in the UK a mid cap stock is normally considered to be one placed in the FTSE Mid 250 index. In the US, it is defined as a stock with a market capitalisation of between US$1 billion and US$5 billion. (See also small cap stock, large cap stock.)
Average of the bid and offer price of
a security. (See also ask price, bid price, offer price.)
Markets in Financial Instruments Directive (November 2007). Aims to introduce a single market and regulatory regime for investment services across the 30 member states of the European Economic Area. Its three major objectives are: (1) creating a unified market in investment services for the EU; (2) responding to changes in EU security markets; and (3) protecting investors against fraud and anti- competitive behaviour.
Risk that a bond will be downgraded to a lower rating by one of the independent ratings agencies, reflecting its likelihood of default. As a bond migrates downward its price falls.
minimum funding requirement (MFR) Funding regime for UK-defined benefit pension schemes introduced in 1997 and phased out from September 2005.
Modern portfolio theory (MPT)
Blanket name for the quantitative analysis of assets and optimisation of their collective composition, based upon their expected return, expected risk (standard deviation) and correlations. According to MPT, investors should only invest in portfolios (constituting of the previously analysed assets) which generate the highest return at any given level of risk.
Level of price sensitivity resulting from small changes in the yield to maturity of a bond. It is measured as the percentage change in the bond’s price for a small change in the yield. (See also duration.)
See manager of managers.
Extent to which stock market values are supported by a strong level of trading activity and investor interest. Also refers to an investment style of purchasing stocks that have recently exhibited strong price growth.
Management of the economy by use of interest rates and money supply. Monetary policy can be used to reflate or deflate the economy. Interest rates used to be set in the UK by the Chancellor of the Exchequer. In June 1997, however, control over setting interest rates was passed to the Bank of England Monetary Policy Committee (MPC).
Money at call
Debt which must be paid upon demand.
Market for short-term loans and deposits.
See defined contribution.
Money-weighted rate of return
Calculation of the actual return achieved over a period, taking into account actual cash flow experienced by an investor. Since the calculation does not adjust for the timing of cash flows, it is not suitable for comparative analysis of investment manager’s performance, since external cash flows are usually beyond the manager’s control. Also called internal rate of return. (See also time-weighted rate
Independent rating agency which assesses the creditworthiness of companies and their debt. The highest rating awarded is AAA, and the lowest is D. Other well known agencies are Standard & Poor’s and Fitch Ratings.
Morgan Stanley Capital International (MSCI) indices
Family of indices covering most main stock markets and regions worldwide.
Mortgage-backed securities (MBS)
Investment instrument that represents ownership of an interest in a group of mortgages. Principal and interest from the individual mortgages are used to pay principal and interest on the MBS.
Indication of market trends obtained by averaging prices/indices over continuously moving periods, for example, over 30 or 90 days.
See Morgan Stanley Capital International indices.
Where an investment manager’s mandate covers a number of different asset classes — for example, UK equities, US equities, UK and overseas fixed income, and cash — and is measured against either a specific or
non-specific benchmark. (See also balanced management, specialist management.)
Usually a fund offered by a single investment manager investing in a range of in-house sources of both market risks (beta) and active management techniques. Generally targeted at absolute returns.
US name for an open-ended pooled fund operated by an investment manager.
A set minimum margin (per outstanding contract) that a customer must maintain in his margin account.
See Discretionary Account.
Represents an industry comprised of professional money managers known as commodity trading advisors who manage client assets on a discretionary basis, using global futures markets as an investment medium.
See Clearing Margin and Customer Margin.
A call from a clearinghouse to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a required minimum level.
Calculated by multiplying the number of shares issued in respect of the company by the current share price.
Formally licensed and regulated financial institutions that quote a two-way spread in relation to securities
An order to buy or sell a futures contract of a given delivery month to be filled at the best possible price and as soon as possible.
A person employed by the exchange and located in or near the trading pit who records prices as they occur during trading.
To debit or credit on a daily basis a margin account based on the close of that day’s trading session. In this way, buyers and sellers are protected against the possibility of contract default.
Minimum Price Fluctuation
The amount of money in the economy, consisting primarily of currency in circulation plus deposits in banks: M-1–U.S. money supply consisting of currency held by the public, traveler’s checks, checking account funds, NOW and super-NOW accounts, automatic transfer service accounts, and balances in credit unions. M-2–U.S. money supply consisting of M-1 plus savings and small time deposits (less than $100,000) at depository institutions, overnight repurchase agreements at commercial banks, and money market mutual fund accounts. M-3 –U.S. money supply consisting of M-2 plus large time deposits ($100,000 or more) at depository institutions, repurchase agreements with maturities longer than one day at commercial banks, and institutional money market accounts.
A statistical price analysis method of recognizing different price trends. A moving average is calculated by adding the prices for a predetermined number of days and then dividing by the number of days.
Debt securities issued by state and local governments, and special districts and counties.