Getting Schooled in Alternatives

As investor interest in absolute return investments grows, so does the business of educating financial advisors about alternative investments. To address this demand, the Alternative Investment Management Association (AIMA) and the Center for International Securities and Derivatives Markets (CISDM) co-founded the Chartered Alternative Investment Analyst Association to sponsor a new educational certification program focusing specifically on alternative investments.

Although not quite two years old, the Chartered Alternative Investment Analyst (CAIA) designation is rapidly gaining industry acknowledgement as the preferred curriculum for individuals who seek to increase (and demonstrate) their knowledge of alternative investments including hedge funds, managed futures, commodities, private equity, and real estate.

To date, over 1,000 registrants, representing 300 financial institutions, have signed up to take the CAIA exams. As of August, 112 individuals had successfully completed the required Levels I and II, and had received the CAIA designation, although that number should soon increase as the third round of Level II exams have yet to be graded. More enrollees are expected as well, as several firms are now encouraging their reps and advisors to sit for the CAIA, notably Citigroup, Morgan Stanley, UBS, Pacific Alternative Asset Management Co., and Tremont, among others.

The program was conceived by CISDM’s influential Thomas Schneeweis, and AIMA’s head, Florence Lombard, after the two noticed that unlike many other professions related to finance, the alternative investment industry lacked agreed-upon professional standards with respect to knowledge, ethics, and best practices–a deficiency that the SEC also cited in last fall’s staff report on the growth of the hedge fund industry.

The CAIA Curriculum and Examination Committee and Advisory Board comprises an impressive list of industry academics and practitioners, including Mark Anson, the chief investment officer of CalPERS, Josh Lerner of Harvard Business School, Harry Kat of City University in London, and Alexander Ineichen, global head of alternative investment strategies at UBS.

The CAIA examinations are offered twice yearly, a schedule that provides candidates with the opportunity to complete the program within a single year. The Level I exam takes about four hours, covers quantitative analysis, investment theory, performance measurement, and regulatory issues regarding both traditional and alternative investments. Level I candidates have posted a passing rate of approximately 75%. Level II focuses exclusively on risk management and portfolio optimization questions about alternative investments, and includes an essay.