Adiuventia
Explanation. Provided. Wegleitung. Gegeben.

Glossary of financial terms


Adiuventia is interested in sharing and explaining all professional and technical terminology to its clients.

This with the goal to converse precisely and in a common language, in majority drawn from the area of wealth management, whith her clientele, in order to define best possible appendages and strategies of possible mandates.

A

Accumulated fund
Funds which do not distribute income, but reinvest it, usually in the same fund.

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Affluent Banking
"Affluents" is the term given to bank customers with assets of CHF 100,000 to CHF 500,000. Such customers no longer belong in the "retail banking" category, but equally do not yet count as private banking clients. Different institutions draw the line between affluents and private banking clients at different levels. Many set CHF 250,000 as the baseline for standardized investment solutions; but today, it is a customer’s growth potential that is decisive.

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All-in-Fee
Instead of charging costs for individual services, fund managers charge an all-in fee. This covers costs relating to fund management and the sale, purchase and custody of securities. The investor knows in advance what annual charges to expect. Stamp duties and fees, as well as any foreign brokerage, fees and duties, are often excluded from the all-in fee.

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Alpha factor
The alpha factor is used in the basic indicator approach to determine the capital to be held for operational risk. It gives the percentage of total gross income that is to be held as equity.

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Alternative investments
This term refers to investment opportunities not covered by the traditional categories of equities, bonds and money market investments. They include commodities, private equity and hedge funds. Diversification is cited as one of the most important reasons for engaging in alternative investments. Investors work on the assumption that correlation with traditional investment categories is low, a characteristic that is also attributed to real estate. The proportion of alternative investments and real estate in a portfolio is usually less than 10%.

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Art banking
For many wealthy investors, art is an important investment category. Its great advantage is that it has a low correlation with the financial markets and is therefore an asset category with a strong diversification effect. Many banks now offer their customers (mostly as intermediary) art banking services, ranging from art research, via evaluation of market and insurance values, to recommendation of competent restoration experts or the necessary know-how for the creation of art collections.

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Asset-liability management
In boom times, risks are often neglected or systematically blended out of the picture. As a result, asset managers increasingly make asset-liability checks integral to the structuring of their investment classes, rather than focussing exclusively on returns. The result is optimization of returns as well as of the risks that are an unavoidable counterpart of returns in the portfolio.

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Asset management mandates
In the classic asset management mandate, the customer leaves all asset-related decisions to the bank. It is therefore essential in a personal consultation to determine exactly which investment strategy the advisor will pursue. For the banks, these mandates are the most lucrative. In addition, there are so-called advisory or discretionary mandates: investment strategy remains in the customers’ hands, but they receive active support from the advisor in investment decisions and can call on the bank’s research services or experts’ advice. In terms of fee structures, the difference between asset management mandates and portfolio management undertaken by the customers themselves is in the region of 0.2 to 0.5 percent of the total investment sum per annum, depending on the complexity of the investment strategy.

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Assets under management
Total assets under management is a key figure in private banking. Because the bank’s earnings derive to a significant degree from value-dependent commissions, the total of assets under management is crucial for future commission income. Analysts closely monitor whether banks are attracting new assets or whether assets under management are stagnating. Strong growth in assets under management is an indicator for the success of a bank’s acquisition policy.

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B

Banking law
The aim of Swiss banking law (Swiss Federal Law on Banks and Savings Banks) is to protect creditors and strengthen Switzerland as a financial centre. It regulates licensing requirements for commencement of banking operations, for the conduct of business and for accounting principles. It also stipulates that statutory audits must be conducted by private auditing firms and that the Swiss Federal Banking Commission is responsible for supervision of the banks.

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Banking risks
Risks relating to the conduct of banking business. As understood today, these include credit, market and operational risks; to cover these, equity must be held in reserve. No equity reserves are necessary for "other risks" such as strategic or reputation risks.

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Behavioural finance
The latest financial thinking includes psychological effects in the analysis of financial markets. For example, the fact that investors are reluctant to separate themselves from their losses. This leads to distortions in investment behaviour; in such a case, the "theory of the rational investor", who is in possession of all available market information simply does not work.

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Beta factors
Eight factors which are used in the so-called standardized or business-line approach to determine the capital reserve requirements to operational risks. The factor determines the percentage of gross income from a business line that is to be retained as equity for the operational risks of the respective business line.

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Brokerage
The commission charged by banks for handling the purchase and sale of securities. It varies from bank to bank, depending on the type of product and to some extent also on the volume of trading orders. Brokerage fees have fallen significantly in recent years with the rise of online brokers.

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C

Compliance
Set of voluntary, banking supervisory and legally prescribed measures designed to ensure that the business activities of financial institutions and the personal transactions undertaken by their employees comply with the prevailing laws, regulations and practices. Compliance serves to preserve the good reputation of financial institutions.

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Call option
The purchaser of a call option acquires the right (but not the obligation) to buy an underlying investment at a specified price, known as the strike price. The buyer pays a premium to the seller, who relinquishes his rights over the underlying instrument. The advantage for the buyer is to delay tying up funds in an immediate purchase. If the price rises, the buyer can purchase at the lower strike price; if the price fails to rise or falls, the option can be allowed to expire.

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Capital protection
Derivative financial instruments can be structured in such a way that the invested capital is either partially or fully protected. In return, the investor participates only partially in the increase in value of the stock or cedes the dividend payments.

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Cash value
The cash value is the purchasing power of the money and expresses the quantity of goods that can be bought by a monetary unit. A distinction is made between the internal and external value of the money (i.e. at home and abroad). The internal value corresponds to the reciprocal value of the price level. When the price level rises, the quantity of goods that can be purchased by the monetary unit falls, and vice versa. As a result, prices and the purchasing power of money always develop in inverse proportion to one another. The external value of the money is the quantity of foreign currency that can be acquired with a domestic monetary unit. The external value is equivalent to the exchange rate of the bulk fixing.

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Clearing
Before a sum of money is transferred through the payment system, the sending bank transmits a transaction report to the receiving bank via a central counterparty. In a process known as clearing, transactions are identified, matched, submitted, confirmed and, where appropriate, offset to determine the final position.

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Closed-end fund
The means to start such funds are raised by the sale of a pre-set number of securities. Once the planned fund volume is reached, the fund is closed. The price of a share is determined by the free price formation and by the actual value of the fund assets. Depending on supply and demand, the fund is traded with an agio or a disagio against the inventory value.

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Corporate governance
The rules and principles of organization, conduct and transparency with which a company is managed and supervised. Companies have an obligation towards their investors, customers and employees to ensure good corporate governance. As a rule, its presentation follows the Corporate Governance Guidelines of the SWX Swiss Exchange, which came into force on 1 July 2002, the “notes on application of the Corporate Governance Guidelines” of the Swiss Federal Banking Commission, as well as the recommendations of the “Swiss Code of Best Practice for Corporate Governance” of the Swiss Employers’ Association (economiesuisse) of 2 March 2002.

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Cost-averaging effect
If an investor pays a regular, fixed amount into a fund, that same amount buys fewer or more securities depending on whether the price rises or falls. The positive effect of cost-averaging (higher average price when fund prices fluctuate) is most valuable in the case of equity funds.

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Creditworthiness
Also called credit rating or credit profile, this term refers to the financial power and trustworthiness of a state, a company or a bank customer. It summarizes the characteristics that make a corporate entity, institution or individual a trustworthy recipient of a loan.
Creditworthiness is a key criterion determining the conditions under which credit is made available. Internal credit rating by banks usually follows the methods and standards of external rating agencies.

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Currency risk
The risk that the value of currencies will change. It is significant for investors who hold investments in one currency which they wish to convert into another.

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D

Due Diligence
The process that companies, or more particularly their lawyers and accountants, carry out when one is about to acquire another. Basically, due diligence involves checking as much as possible about a company's financial performance and its liabilities before a deal is done, so that there are no nasty surprises afterwards. If, despite due diligence, there are some unforeseen surprises, the lawyers and accountants can expect heavy criticism from their client and possibly a lawsuit for negligence.

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Derivatives
Derivative financial instruments are products whose market value is derived from the classic underlying instruments, for example, equities, bonds or gold. Derivatives include tradable financial products such as futures, options, certificates, warrants as well as standardized financial products such as forwards and swaps.
There has been a growth in trading with derivative financial instruments in the last few years. Initially linked to relatively straightforward market risks such as equities and commodity prices and proving successful, the concept was extended to interest-rate and currency risks. Today, credit and weather risk, for example, are hedged by derivative financial instruments.

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D&O insurance
Directors’ and officers’ liability insurance protects the private assets of high-ranking executives, directors, trustees, employees of the audit firm and other executive organs in the event of claims for which they are personally liable.

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Direct debit
A system for electronic payment, without receipt, of payment orders initiated by the invoicer (debit transfer). Prerequisites are a direct debit authorization from the account holder and the fulfilment of contractual obligations on the part of the payee.

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Discount certificate
Certificates or structured products consist of direct investments in an underlying instrument accompanied by simultaneous sale of a call option on the same underlying. The discount is financed with the proceeds from the option premium and retained dividend payments. The return has an upper limit (cap); price losses are absorbed by the discount received.

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E

Early-stage finance
This is the realm of the venture capital - as opposed to the private equity - firm. A venture capitalist will normally invest in a company when it is in an early stage of development. This means that the company has only recently been established, or is still in the process of being established - it needs capital to develop and to become profitable. Early-stage finance is risky because it's often unclear how the market will respond to a new company's concept. However, if the venture is successful, the venture capitalist's return is correspondingly high.

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Exchange-traded funds (ETFs)
Funds whose composition is linked to the weighting of a specific index and which are traded like equities on the stock exchange. Investors can choose from a wide diversity of indices such as SMI, DAX, Euro Stoxx 5o, Dow Jones Industrial, S&P 500 or Nasdaq 100. Investors have the certainty that the value of their investment will develop in step with the corresponding index. Very few active fund managers succeed in outperforming their benchmark index over a period of several years. As a result, there is growing interest in relatively cheap ETFs.

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Executor
In order to ensure that their last wishes will be carried out, many people specify an executor in their testament. This is advisable in the case of very complicated family circumstances (more than one marriage with offspring, adopted children, complex financial circumstances etc.). In many cases, the appointed executor is a notary, attorney, tax consultant, trustee/fiduciary or asset manager.

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Expected return
The weighted average of expected returns from an individual financial instrument or portfolio. As a rule, "standard deviation" and "variance" are the measures of risk for possible deviations from this expected or average return.

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F

Family office
A family office manages financial services and legal affairs for wealthy customers, covering the whole range of the family’s assets. Traditionally, these are single family offices – asset management companies owned by the family in question and dealing solely with that family’s wealth. Nowadays, many family offices also handle assets for individuals close to the family and for selected third parties. Many investment banks, big banks and private banks operate family office services, offering high-net-worth customers individual and impartial advice on financial products and services.

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Fees
In private banking, an essential distinction is made between asset-related management fees and transaction-related fees. The former are usually calculated as a percentage of the client’s assets under management, but can vary greatly depending on the complexity of the portfolio management mandate. Transaction fees are mainly composed of brokerage or commission on security transactions and dependent on the type of product. Private banking also involves consultancy fees. Inheritance, succession and pension issues are often dealt with by specialists working for an hourly fee. Nowadays, banks have transparent fee structures.

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Financial planning
Optimization of private wealth, retirement provisions, taxation, property and succession rights, and income and expenditure budgets for the realization of personal financial goals (early retirement, acquisition of residential property, emigration) and for the management of financially critical phases of life (retirement, divorce, invalidity), solutions being completely impartial with regard to particular products or providers.

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Foreign banks
Switzerland is a highly dynamic financial centre. It attracts many foreign banks to open branches and representative offices. In 2004, a total of 150 foreign banks were established in Switzerland. The number is stable, as new arrivals offset departures. But there is a great deal of movement behind this appearance of stability: only 70 of the foreign banks active in Switzerland today were in the country in 1990. And since 1990, the number of staff working for them has risen by 60%.

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Fundamental analysis
Fundamental analysis allows comparison of companies (limited companies/stock corporations) by means of a so-called share performance index. The principal goal of fundamental analysis is to understand the company and its market. Basic analysis has three essential components:

1. Industrial analysis
To evaluate a company’s earnings potential, it is necessary to perform an in-depth analysis of the industry it operates in: “How strong is the market as a whole?”, “What are the specific characteristics of the industry?” and “What particular influences shape the market?”.

2. Strategic analysis
Also relevant is the way companies position themselves in the market. It is not enough simply to be present in a lucrative market if competitors are pursuing a more promising strategy. The past careers of members of management should be studied in some detail to establish how successful they have been in previous roles. The broad outlines of a business plan can often be examined on the company’s website to evaluate how realistic and plausible it is.

3. Analysis of company and share data
A vital part of any fundamental analysis, this is where the current price of the share is related to the key figures of the business (profit, revenues), producing the so-called share indices. Comparison of the values produces indicators for the current stock-market valuation of the company and an assessment of whether the share can be rated as under- or overvalued. However, investors should note that the analyses are always based on historical values or on unconfirmed forecasts.

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G

No terms

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H

Hedge funds
Investment vehicles not hitherto subject to detailed regulations with regard to their strategy and the financial instruments deployed. Success is largely dependent on the skills of fund managers. Basic idea: to generate returns independently of the overall market trend and thereby to hedge, i.e. protect, the capital.

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Hedge-fund strategy
In long/short stock strategies, fund managers buy shares which they expect to rise and take short positions in securities which they think will decline in value. Event-driven strategies are based on making investments where significant events (e.g. mergers, takeovers) offer opportunities for high price gains. CTAs (commodity-trading advisors) invest in commodity, currency and other financial term contracts.

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High-net-worth individual (HNWI)
HNWIs are very wealthy private customers. The level of assets needed to qualify is defined internally by the bank (for example, Merrill Lynch regards a customer with a disposable wealth – without real estate – of 1 million dollars as an HNWI). Even wealthier clients are known accordingly as ultra-high-net-worth individuals (UHNWI), with a threshold of around 10 million dollars. Most private banking institutes also serve customers with smaller assets. Customers with assets of CHF 500,000 and over are classified as private banking customers.

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I

Integral Marketing-Strategie
The set of objectives which an organisation allocates to its marketing function in order to support the overall corporate strategy, together with the broad methods chosen to achieve these objectives.

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Illegal earnings
With the exception of precious metals, almost all investments yield a payout that is subject to Swiss withholding tax or foreign taxation at source. If it is not possible to reclaim this because of a failure to declare it to the tax authorities, the net performance suffers. Anyone believing that they can boost investment returns by tax evasion should be aware of this fact. Greedy investors readily fall victim to fraud when they invest their illegal earnings in risky and sometimes dubious undertakings. Connivance lays people open to blackmail, for instance in the event of marital breakdown, when the partner knows about the illicit account.

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Index
An index (e.g. a share index) is a measure of the price trend in a financial market (e.g. the stock market) or a section of the market. It is based on a defined portfolio of instruments (e.g. shares) from the respective market. The price of those instruments multiplied by certain weighting factors constitute the index.

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Indicator
Parameter or measured value used to determine an existing risk.

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Intrinsic value
The option price is made up of the current value and the intrinsic value. In the case of a call option, the latter is calculated from the difference between the share price and the exercise or strike price.

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Investment amount
This is the amount to be invested and taken into account in financial planning. Along with the savings amount, it serves to finance the planned expenditure.

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Investment horizon
The investment horizon is the period of time over which investors make their financial plan or wish to invest their assets.

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Investment restriction
Regulation for a specific investment category stipulating limits within which the investment amount of the portfolio must lie (e.g. no less than 20% and no more than 70% in the investment category "Swiss equities").

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Investment strategy
Investment strategies are frequently classified according to the portion of equities and bonds in their composition. For example: a bond strategy with 100% bonds/liquidity; a high-yield strategy comprising roughly 80% bonds/liquidity to 20% equities; balanced strategies with 50% to 60% bonds/liquidity and 40% to 50% equities; a growth strategy with about 40% bonds/liquidity and 60% equities; and the capital gain strategy with 100% equities/liquidity.

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Islamic banking
Private banking for customers who wish to invest their money in accordance with the principles of the Koran. That includes a ban on interest and on investments in the alcohol or tobacco sectors.

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Issue commission
Commission which the offerer charges the buyer on sale of participation certificates.

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J

No terms

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K

Key figures
Key figures are a concise expression of measurable characteristics, e.g. of financial instruments or portfolios. They are calculated using specific criteria. Essential characteristics in analyses and calculations can be reduced to simple figures. For example: the key figure for earnings is usually given as the projected earnings, and variance is a typical key figure which provides information about risk.

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Knock-out-/knock-in options
An exotic form of option, in which the option right expires (knock-out) or is activated when the underlying value reaches a certain threshold level or barrier (knock-in).

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K&R insurance
It is possible to take out insurance against the risk of company representatives or wealthy individuals being kidnapped or held to ransom.

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L

Liquidity
The term for assets readily available in liquid form, usually credit balances on bank accounts. To calculate the investment amount that is available for financial planning, it is important to deduct the required liquidity for the initial investment (liquidity reserve).

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Liquidity reserve
The part of the initial investment that is available as liquidity to cover the immediate budgeted expenditure and which is therefore deducted from the investment amount for the purpose of financial planning.

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M

Management fee
This is the fee deducted by the fund manager for the administration of the fund assets. The level is determined individually for each fund and indicated in the sales prospectus. As a rule, it ranges from 0.5 percent to over 2 percent per annum. The basis for calculating the management fee is the fund asset, from which it is deducted at regular intervals, e.g. daily or monthly.

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Market risk
The risk that existing assets lose value owing to a downward market trend (interest rates, share prices, exchange rates, gold and commodity prices, so that the risk taker suffers a loss (compared with the buying price on investment).

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Money market
The money market is for the investment of short-term monies. Investments with a running time up to one year are classified as “short-term”. In addition to the central bank and commercial banks which make central-bank funds available on a reciprocal basis, the public and private non-banking institutions also play an active role in the money market.

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Money-market funds
Money-market funds are investment funds comprising largely money-market securities with short maturity periods, typically up to a maximum of two months, and mostly invested in a single currency.

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N

Non-profit organization
An incorporated organization which exists for educational or charitable reasons, and from which its shareholders or trustees do not benefit financially. Any money earned must be retained by the organization, and used for its own expenses, operations, and programs. Many non-profit organizations also seek tax exempt status, and may also be exempt from local taxes including sales taxes or property taxes. Well-known non-profit organizations include Habitat for Humanity, the Red Cross, and United Way. also called not-for-profit organization.

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Net asset value (NAV)
The NAV is obtained by subtracting the liabilities from the market value of the fund asset. Dividing it by the number of outstanding shares gives the NAV per share.

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No-load funds
Funds sold without issue commission, but usually attracting a higher management fee. They are more suited to shorter-term investment horizons and are therefore known as trading funds.

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O

Offshore private banking
International financial centres with particularly attractive local conditions offer offshore private banking. International capital flows are often managed in such offshore centres, Switzerland is the global market leader as an offshore financial centre for asset management.

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Onshore private banking
A growing number of customers want their wealth managed in their countries of residence. That means fund managers must establish representation where their customers are. That is referred to as onshore private banking, as opposed to offshore, which involves an outflow of customer monies from those countries.

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P

Philanthropy Management
Provides a complete portfolio of services for high wealth individuals, beginning with exploration of philanthropic funding alternatives, and carried out through implementation, evaluation and transition to the next generation.

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Private-Equity
Privately negotiated transactions in public or private companies with a view to increasing their value in order to exit from the investment at the desired point in time. Private equity firms can invest in companies at various stages of their development, from financing startups (venture capital), through providing capital to rapidly growing businesses (growth capital) to leveraged buyouts of mature businesses (buyouts).

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Performance
An indicator which shows the progress within an organization with regard to important objectives or critical success factors.

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Portfolio
A portfolio is a group of investments of a particular kind. Used figuratively, it can also refer to a set of methods, processes or trading options.

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Premiums
Insurance charges to be paid monthly, quarterly, half-yearly or yearly. The premium usually contains: a risk element, the part that is paid for insurance cover during the term of the insurance; a cost element, which the insurer requires to cover its administrative costs; and a savings element, which builds a fund payable on retirement.

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Private bankers
A protected title used by the owners or partners in the minority of banks which are still in the hands of sole proprietors or partners. These individuals assume unlimited liability for the bank’s obligations with their own assets. According to its representatives, this kind of private banking guarantees a special form of independence and meticulous handling of customer assets. The private bankers of Geneva enjoy particular renown. In Switzerland today, genuine banques privées employ around 900 people.

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Private banking
Private banking is concerned with advisory services and asset management. Advisory consists in providing clients with the basis to make their own investment decisions.
In the case of asset management, clients give the bank the order to manage their assets in accordance with defined principles, e.g. classification of risks. They do not directly influence individual investment decisions.
For a long time, private banking was the preserve of private bankers. Nowadays, banking institutions of all kinds are involved in this sector. The wealth threshold above which clients are offered private banking services varies from bank to bank. It is usually between CHF 150,000 and CHF 1 million in liquid assets. A special category of private banking is that of the family office, which concerns exclusively very large and diversified asset portfolios.

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Private equity
This is the term for unlisted capital that is invested in a company. Companies financed with private equity are usually young enterprises with a relatively thin equity position. Private equity investments are therefore associated with both a high level of risk and – if the venture is successful – high returns. Private equity is classified with the alternative investments.

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Put option
The purchaser of a put option acquires the right (but not the obligation) to buy an underlying investment at a specified price. The buyer pays a premium to the seller of the put option, who relinquishes his rights over the underlying instrument and becomes a grantor.

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Q

No terms

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R

Real Estate
Refers to land and improvements and the rights to own or use them. "A leasehold, as well as any other interest or estate in land, whether corporeal, incorporeal, freehold, or non-freehold, and whether the real estate is situated in this state or elsewhere."
In popular usage, Real Estate is used interchangeably with real property and realty.

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Reference currency
This is the currency in which most of a bank customer’s expenditure is likely to be conducted. It is determined when the banking relationship is first entered into. The choice of reference currency influences the composition of the optimal portfolio. It is also used for the presentation of the portfolio evaluation.

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Retail certificates
Also known as "certificates": securitized derivative financial instruments. i.e. structured investment products. The most common forms of retail certificate are baskets, discount certificates or reverse convertibles.

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Reverse convertible
Certificate or structured product, comprising a fixed-interest component and sale of a put option. Also known as the share certificate because of the coupon payment. In the standard form, the yield is limited; price falls are cushioned by the coupons received.

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Return
The return or yield is the total income from an individual investment, e.g. a security or a portfolio, over a specific period, including all expenses such as dividends or interest. It is normally given in percent per annum.

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Risk
The most common etymology traces its origins to a Greek seafaring term rhizikon, from rhiza, meaning "root, stone, cut of the land", which came, via Homer’s Odyssey, to be used as a metaphor for "a difficulty to avoid at sea". It passed into Latin as resicum, a word for cliff, then into modern European languages, in time becoming a term for general dangers to be avoided, as well as exposure to losses in business dealings of uncertain outcome.
In the modern financial sense, it denotes the threat or danger (i.e. the probability of occurrence) of a loss (market and credit risk) or the intrinsic (operational) risk components of a transaction. In both cases, a real danger only arises from risks unknowingly entered into and/or badly managed (see "Risk management").

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Risk appetite
Risk appetite denotes the level of financial risk customers are willing to assume and therefore gauges their personal judgement of the compromise between risk and anticipated income. The stronger the risk aversion, the lower the risk appetite. Risk appetite is not an absolute value, but must always be seen in the light of the specific circumstances.

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Risk aversion
This describes the magnitude of the loss of value for a person when it has to assume a loss. A risk-averse person is prepared to a pay a premium to transfer risk to someone else (e.g. an insurer); and a risk-tolerant person would actually pay in order to participate in a risky project. In economic theory, the usual assumption is that individuals are risk-averse.

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Risk management
A continuous process for maintaining transparency in relation to risk exposure and ensuring responsible handling of all categories of risk (market risks, credit risks, operation risks).

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Risk mitigation
In credit risk, the term refers to methods used by banks to protect themselves in the event of a borrower’s inability to pay back a loan, e.g. by taking up guarantees or securities, or acquiring hedging instruments. In relation to operational risks, which can only be "minimized", never entirely eliminated, the term refers to the transfer of risks to third parties for a consideration, e.g. to insurers or outsourcing providers. The main concern of the supervisory authorities is to see that an existing risk is effectively transferred and does not just appear to be transferred, so that, in the event of a loss, the insurer will settle the claim with due speed; or that contracts with non-bank parties are correctly drafted.

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Risk profile
This describes a customer’s risk appetite and risk tolerance (see above), derived from his or her individual requirements, goals and circumstances. A risk profile can also be created for a banking institution. This shows the risks to which the bank is exposed, or put another way, the focal points of the bank’s business activities.

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Risk tolerance
Risk tolerance expresses the level of financial risk a customer is objectively capable of assuming. It depends on a number of factors: financial situation, age and family circumstances. Risk tolerance is not an absolute value; it is always relative to the specific issues under consideration.

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S

Stakeholder
Any individual, group or business with a vested interest (a stake) in the success of an organization is considered to be a stakeholder. A stakeholder is typically concerned with an organization delivering intended results and meeting its financial objectives. In general, a stakeholder can be one of two types: internal (from within an organization) or external (outside of an organization). Examples of a stakeholder are an owner, manager, shareholder, investor, employee, customer, partner and/or supplier, among others. A stakeholder may contribute directly or indirectly to an organization’s business activities. Other than traditional business, a stakeholder may also be concerned with the outcome of a specific project, effort or activity, such as a community development project or the delivery of local health services. A stakeholder usually stands to gain or lose depending on the decisions taken or policies implemented.

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Secondary market
Also known as OTC (over-the-counter) business. In Switzerland, many derivatives are not publicly listed, but traded directly by the issuer.

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Sharpe ratio
An index showing the extent to which the risk entered into is rewarded by the performance. To obtain the Sharpe ratio, the difference in performance between a fund and a risk-free investment is divided by the volatility of the fund. The bigger the number, the better.

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SICAV
Short for "sociéte d’investissement à capital variable". An investment fund which is constituted as an autonomous joint-stock company. The purpose of a SICAV is the investment of capital in securities. It is planned to introduce this legal form for investment funds to Switzerland.

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Speciality fund
These are investment funds which focus on a specialized theme, e.g. securities in potential growth markets (water, leisure) or in companies focusing on sustainable forms of business.

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Strategy fund
The basic idea behind strategy or portfolio funds is that certain types of investor can be grouped on the basis of personal factors such as risk tolerance or investment horizon. For such groups, the entire investment strategy can be implemented with a single fund, typically comprising shares as well as bonds and broadly diversified across different regions, countries, sectors and currencies.

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Strike price
The (pre-set) price at which certain equities can be bought or sold.

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Supervisory review process
The supervisory review process is the "second pillar" of the "Basel II" accord on banking supervision, the others being minimum capital requirements and enhanced disclosure (market transparency). It emphasizes the need for a qualitative dimension to banking supervision, requiring intensive contact between the supervisory body and the banks.

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T

Total expense ratio (TER)
An index comprising all current expenses arising in connection with a fund, as rendered in the annual financial statements. The management fee is the biggest portion of the total expense ratio. On top of this are the expenses for fund accounting, the custodian bank fee as well as auditing costs. Not included in the TER are transaction costs which are incurred by the fund (and therefore by the investor) for buying and selling securities.

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Track record
The record of a fund manager’s successes and past performance. The track record is seen as a key factor in judging whether a fund manager is likely to be successful in the future.

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Transaction costs
Costs associated with the execution of a stock market transaction, such as brokerage, clearing fees etc.

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U

No terms

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Underlying asset
Term for instruments on which the derivative is based. They can be individual securities, equity indices, currencies, commodities or even derivatives such as futures contracts.

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Unit-linked life insurance
The combination of traditional life insurance, which covers a risk, with investment in a fund. The savings component of the premium (the part not required to cover death risk) is invested in one or more funds.

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V

Venture Capital
Venture capital is a type of private Equity capital typically provided by professional, outside investors to new, High-potential-growth companies in the Interest of taking the company to an IPO.
Venture capital investments are generally made as Cash in Exchange for shares in the invested company. A person who makes such investments is called a Venture capitalist (VC). A venture capital fund is a pooled investment vehicle (often an LLC or LP) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.
Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that Pool such investments or partnerships. This form of raising capital is popular among new companies, or ventures, with limited operating history, who cannot raise funds through a Debt issue. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the Equity.

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Volatility
A distinction is made between historical (i.e. past) and implied (expected) volatility. The latter is used to determine the market price of the option contract: with rising volatility, the likelihood that the underlying value is either very high or very low rises also. In option calls, buyers have an interest in rising volatility: when the price is rising, they enter the market; when it falls, the loss is limited to the put price.

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W

Wealth management
Frequently used as a synonym for "private banking". Some banks now use the term "wealth-management units" for their private banking operations, conveying the fact that their purpose is not exclusively the optimal investment of assets, but to analyse the asset situation of a customer in various phases of life. Real estate and works of art are included in the portfolio of assets. Important concerns of wealth management are retirement provisions, succession and inheritance planning as well as corporate equity.

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X

No terms

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Y

No terms

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Z

No terms

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