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Getting Schooled in Alternatives

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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.

Although not as grueling as the Chartered Financial Analyst (CFA) designation, exam preparation requires a serious commitment on the part of CAIA candidates. CAIA promotional materials suggest that candidates commit a minimum of 100 hours of preparation prior to each level. In the past, CAIA representatives have touted the comprehensive nature of their study materials and noted that the exams do not ask candidates questions on subjects that have not been explicitly covered in their study materials.

The next test will be in February 2005; registration and exam fees total $1,200 per level. More information about the CAIA designation is available at–Jeff Joseph

Jeff Joseph is managing director of Rydex Capital Partners and serves on the advisory board of HedgeWorld (, a global provider of hedge fund information and investment products.

Have a hedge fund question? Contact Jeff Joseph at [email protected].

For further inquiries about HedgeWorld, e-mail [email protected]