An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash.
Anti-Money Laundering (AML) specifically refers to all policies and regulation that force financial institutions to proactively monitor their clients in order to prevent money laundering and corruption. These laws also require both that financial institutions report any financial crimes they find and that they do what is possible to stop them. At Cadence, the KYC process is one of the key components to the company AML program.
An asset class is a group of securities that exhibits similar characteristics, behaves similarly in the marketplace, and is subject to the same laws and regulations. In the public markets there are three main asset classes: equities (stocks), bonds, and money market instruments. In alternative investing, asset classes can include real estate, commodities, cryptocurrencies, etc.
A blockchain is a time-stamped series of immutable record of data that is managed by cluster of computers not owned by any single entity. Each of these blocks of data are secured and bound to each other using cryptographic principles.
Collateral is an asset pledged to a financing provider as a guarantee for repayment of a loan. It is to be forfeited to the financing provider in the event of a default.
Compound interest is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest.
Counterparty risk is the risk associated with the other party to a financial contract not meeting its obligations. It is the likelihood or probability that one of those involved in a transaction might default on its contractual obligation.
A debt security is a financial instrument issued by an entity and sold to an investor. The security has a loan as its underlying asset and it represents an obligation for the investor to be paid back the face value plus interest income as the instrument matures. The most common type of debt security are bonds such as corporate bonds or government bonds.
A failure to make scheduled loan payments when they come due is considered a default. The consequences of a loan default depend on whether the debt is secured or unsecured. A secured loan is debt that’s related to specific asset. If you default on a secured loan, the financing provider might respond by reclaiming the underlying asset.
A disbursement is a payment from an investment. For example, in an amortizing investment, disbursements of principal and interest are made periodically in accordance with the amortization schedule. In non-amortizing deals, disbursement is made in a lump sum upon deal maturity.
Distributed ledger technology is a consensus of share, and synchronized data dispersed across multiple nodes or sites. There is no central administrator of data, but rather a peer-to-peer network, where each replicates and saves an identical copy of the ledger and updates itself independently. The lack of authority allows for a source of truth that is immutable.
Due diligence is an investigation or audit of a potential investment opportunity or product to confirm facts and/or uncover risks. Due diligence refers to the research done before entering into an agreement or a financial transaction with another party. For example, when purchasing a business the investor may want to review financial records or visit the business in person. Cadence has a stringent due diligence process as a part of the company risk framework.
IRR is the rate of return that equates the present value of an investment’s expected gains with the present value of its costs. It’s the discount rate for which the net present value of an investment is zero. In other words, it is the ROI discounted for future cash flows.
NPV= net present value
T= number of time periods
Ct= total net cash flow during period t
C0= total initial investment costs
r= discount rate
*This formula is best solved by using a financial calculator or Excel
Read about whether this returns calculation is the optimal one for your portfolio in Cadence’s blog article.
Invoice Factoring is a financial transaction and a type of debtor finance. In an invoice factoring, a business sells its accounts receivable (e.g. invoice) to a third party (called a factor) at a discount. A company will sometimes factor its receivable assets to meet its present and immediate cash needs. It might also factor their invoices to mitigate credit risk.
Know Your Customer (KYC) is a regulatory bank customer identity verification practices to assess and monitor customer risk and a legal requirement to comply that are intended to prevent banks from being used for money laundering activities. KYC is one of the several identity verification processes used by Cadence.