Glossary of Institutional Fund Infrastructure

Under the Alternative Investment Fund Managers Directive (AIFMD), an AIF is defined as any collective investment undertaking - including investment compartments thereof - which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and which is not authorised as a UCITS. This broad definition encompasses hedge funds, private equity funds, real estate funds, infrastructure funds, and other non-UCITS vehicles.

The legal person whose regular business is managing one or more Alternative Investment Funds (AIFs). The AIFMD establishes harmonised rules governing the authorisation, operation, transparency, and supervision of AIFMs within the European Union. An authorised AIFM benefits from the EU marketing passport, enabling cross-border distribution of AIFs to professional investors across all EU member states.

Anti-Money Laundering refers to the set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. The FATF (Financial Action Task Force) Recommendations form the international standard for AML/CFT measures, requiring financial institutions to implement customer due diligence, transaction monitoring, suspicious activity reporting, and record-keeping obligations. AML compliance is a non-negotiable requirement for all regulated fund structures.

A Central Bank Digital Currency is a digital form of central bank money - a direct liability of the central bank - that could be used for retail or wholesale payments. Per the BIS: 'a purely digital banknote.' Unlike commercial bank deposits, CBDCs carry no credit risk as they are backed directly by the central bank. As of 2025, over 130 countries representing 98% of global GDP are exploring CBDCs, with several in pilot or production phases.

A Credit Linked Note is a structured financial instrument that combines a traditional bond with embedded credit risk exposure. The issuer transfers credit risk of a reference entity, portfolio, or index to the investor. CLNs are typically issued by banks or special purpose vehicles (SPVs) and offer enhanced yield in exchange for assuming credit risk. In Switzerland, CLNs can be issued with a Swiss ISIN as a tradable, custody-ready security - making them particularly useful for private credit originators who want to securitise loan portfolios without establishing a full fund structure.

DeFi (Decentralised Finance) refers to financial services built on distributed ledger technology that operate without traditional intermediaries. DeFi protocols enable lending, borrowing, trading, and asset management through smart contracts on public blockchains. While DeFi offers transparency, composability, and 24/7 operation, institutional adoption requires bridging the gap between DeFi's technical capabilities and TradFi's regulatory and governance standards.

Distributed Ledger Technology refers to the technological infrastructure and protocols that allow simultaneous access, validation, and record updating across a network spread over multiple entities or locations. Unlike traditional centralised databases, DLT does not require a central authority or intermediary to process, validate, or authenticate transactions. Blockchain is the most widely known form of DLT, but the term encompasses a broader range of distributed database architectures.

The Ethereum Virtual Machine is the runtime environment for smart contracts on the Ethereum blockchain and EVM-compatible networks. It provides a standardised execution layer where smart contracts (self-executing programs) run identically across all nodes in the network. EVM compatibility has become the de facto standard for enterprise blockchain deployments, enabling interoperability across multiple chains including Ethereum, Polygon, Avalanche, and Arbitrum.

Know Your Customer is the process of verifying the identity of clients and assessing their risk profile as part of anti-money laundering (AML) and counter-terrorist financing (CFT) obligations. KYC procedures include collecting and verifying identity documents, understanding the nature of the client's business, assessing the source of funds, and conducting ongoing monitoring. Required by financial institutions under FATF standards and local regulations in every jurisdiction where HCP operates.

The Markets in Crypto-Assets Regulation is the EU's comprehensive regulatory framework for crypto-assets, adopted in 2023 and entering full application in December 2024. MiCA establishes uniform rules for the issuance, offering, and trading of crypto-assets across all EU member states, including stablecoins (asset-referenced tokens and e-money tokens). It introduces licensing requirements for crypto-asset service providers (CASPs) and sets prudential, conduct, and transparency standards.

Net Asset Value is the value of a fund's total assets minus its total liabilities, divided by the number of outstanding units or shares. Per the CSSF: 'the net asset value as calculated regularly in accordance with the rules set out in the law, the constitutive documents and/or the prospectus.' NAV is the primary metric for pricing fund units and is typically calculated daily, weekly, or monthly depending on the fund type and liquidity profile.

Operational Alpha refers to measurable efficiency gains and cost reductions achieved through optimised fund operations infrastructure. Unlike investment alpha - which is competed away in efficient markets - operational alpha is systematic and sustainable. It is captured by eliminating manual processes, consolidating fragmented systems, and deploying deterministic controls. Hummingbird Capital Partners (HCP) pioneered this concept to describe the value created when infrastructure itself becomes a source of competitive advantage.

A security token is a digital representation of a security (equity, debt, or other financial instrument) recorded on a distributed ledger. Security tokens are subject to securities regulation in the jurisdiction of issuance and must comply with applicable securities laws including registration, disclosure, and investor protection requirements. They combine the programmability of blockchain with the legal protections of regulated securities.

Settlement finality is the legal guarantee that once a transfer order enters a designated payment or securities settlement system, it cannot be unwound - even in the event of a participant's insolvency. Established by the EU Settlement Finality Directive (98/26/EC) adopted in May 1998, this principle reduces systemic risk in payment and securities settlement systems by ensuring that completed transactions are irrevocable and legally binding.

A Luxembourg Special Limited Partnership governed by the Law of 12 July 2013, modelled on Anglo-Saxon limited partnerships. The SLP has no legal personality, is tax-transparent, and consists of one or more general partners (with unlimited and joint liability) and limited partners (whose liability is limited to their contributions). It is established through a limited partnership agreement (LPA) and does not require notarial intervention. The SLP is the preferred vehicle for international fund managers due to its contractual flexibility, tax transparency, and alignment with Anglo-Saxon limited partnership conventions.

A stablecoin is a type of digital asset designed to maintain a stable value relative to a reference asset, typically a fiat currency such as USD or EUR. Stablecoins serve as a bridge between traditional and digital financial systems, enabling settlement, payments, and treasury management in digital asset markets. Major stablecoins include USDC, USDT, and EURC. As of 2025, the total stablecoin market capitalisation exceeds $150 billion.

Tokenization is the process of creating a digital representation of a tangible or intangible asset using distributed ledger technology (DLT). Per IOSCO: 'the process of digitally representing an asset, or ownership of an asset.' Per the SEC (January 2026): 'the process of creating a digital representation of a tangible or intangible asset using DLT.' Tokenization enables fractional ownership, 24/7 transferability, programmable compliance, and automated settlement of financial instruments.

TradFi (Traditional Finance) refers to the established financial system including banks, broker-dealers, asset managers, custodians, clearing houses, and regulated exchanges that have operated under existing regulatory frameworks for decades. In the context of institutional fund infrastructure, TradFi encompasses conventional fund administration, manual NAV calculation, paper-based subscription processes, and legacy settlement systems (typically T+2 or T+3).