Opalesque Exclusive: How to get an A.I. education?

By Benedicte Gravrand

Geneva, Switzerland: Are you or planning to be involved in the world of alternative investments as a fund manager, a risk manager, an investor, an analyst, an accountant, a lawyer, in marketing, in investor relations, in the back-office...? True, you can learn all about alternative investments on the ground. However, to get an edge and enter the A.I. world with good basic knowledge and knowledge on the latest developments, you can also study, pass exams and get a recognised certification. The CAIA was designed to do just that. Now, over 1100 people worldwide have the CAIA designation.

The Chartered Alternative Investment Analyst Association® is a non-profit, independent professional organization. The Chartered Alternative Investment Analyst designation, or CAIA, is the AI industry's first and only specialized educational standard. The first item on its mission statement states: provide members with a comprehensive knowledge of alternative investments. The association's daily operations are conducted by a staff of 10 located in Amherst, MA, New York, and Singapore.

Nelson LACEY (NL), professor of Finance at the University of Massachusetts and director of examination at CAIA, and CAIA director of marketing Mary Westervelt (MW) explained to Opalesque what the CAIA is all about:

Value of the CAIA designation and benefits
NL - The objective of CAIA was to fill the need in the market for education in alternative investments. We partnered with the best people in the practitioner world and the best people on the academic side. We forged those relationships back in 2002.

From our standpoint the value of the designation is in providing the education that is so needed in all areas of alternative investments. We don't just focus on hedge funds; we also focus real estate, private equity, venture capital, on commodities and on managed futures. We wanted to put a program together on all these areas that would answer questions such as: what do managers need to know? What are the most important issues facing managers today? From our side that is the value of the designation.

From the member's side, our members send a signal through their understanding of the market; they have been able to get through a difficult curriculum and pass two high-stakes exams (CAIA Level I and CAIA Level II). They gained confidence from having been able to go through that and can have the 'CAIA' designation on their business cards. They see that as a real value.

The ground-work was around the question: 'if I am managing a private equity portfolio, what are the most important things that will go into my decision making?' The course was designed with the working professional in mind. That also includes people on the administrative side, as well as accountants, lawyers who do not know anything about alternative investments. We try to give them that critical background.

Time of study and commitment: 120 hours for each level, or more
NL - Our study guide states that you should expect to study for 120 hours for Level I and again for Level II. But that will depend on the individual. For example, a candidate with great background in the area of derivatives who understands what a hedge ratio is about, who is able to design a typical plain vanilla swap... for this candidate, 120 hours is about right. For those who don't know anything about derivatives, 120 hours can be short. So there is a lot of variance around that number.

Examinations around the globe
NL - We offer exams twice a year, one in March, the other in September for both Level I and Level II. It is possible for someone to become a candidate in June, prepare for the September exam, pass the September exam, then prepare for the Level II exam and pass it in March. So both exams together can be prepared for and passed in under a year. The success ratio is between 65% and 70-72%. It differs each time and there is no pre-set number.

MW - our administrators have testing centers all over the globe. So during the exam cycle which is a two-week period, the candidates can sit at one of the testing centers. We organized it for the greatest facility for our candidates; they do not have to get to any particular centre in Europe or Asia, we have exam centers in every major financial center in the world. We have over 2400 registered candidates for the Sept 07 exams - up from 1800 in March 07.

Evolving curriculum
NL - If you open up a Level I program today and compare it to the one in February 03, you will see vast differences. The curriculum does evolve. We understand that although the field is rapidly changing we don't want to consider ourselves a program that changes every year by 180 degrees. There is core material that people need to know and we try to anchor the program around the core material. Having said that, there are changes every year. New study guides will have maybe 10 new research articles that look at new developments in the field. For example, collateralized commodity obligations have been around for a year or two. Now we have examples in ways the field is evolving. Some articles which are no longer relevant will be dropped off. We continually try to input the newest developments in the field.

CAIA's view of the AI industry: bullish
NL - We see the A.I. area as a high growth area in the financial market. We note the continued growth in the number of hedge funds. We note that private equity investments have taken off over the last couple of years. We see ourselves tracking an industry that not only has grown up very quickly but also continues in that growth pattern. We are very bullish on this industry; we see it as a long term important class of assets that will continue to hold that promise.

MW - We turn to our members quite a bit for this very question (our view on the AI industry) because they are the ones that have the on-the-ground perspective so the director of Curriculum (Kathy Wilkens) actually put together committees of members who work in specific areas like structured products, commodities, real estate to really get a perspective of what is going on in the industry. We have just finished a survey of our membership actually (The 2007 CAIA survey).

CAIA's developments
MW - the membership has grown so rapidly. We have 5 active chapters right now (and more on the way). Members have organised different activities, educational and networking opportunities for members and candidates. The curriculum continues to develop. We have the committees working to provide us with insight into future directions for the curriculum. Our candidate number continues to grow, we are traveling all over the world, we had interest from different companies to come and give internal presentations, we are working with different industry associations that are looking to collaborate on the educational side. Our core goal is really the educational field so, anything that folds into that mandate we consider an area of growth for us.

Candidates: half are on the buy-side
MW - We have a number of candidates that come to us because they hear about us through the grapevine. We find that a lot of companies are now encouraging and in some case mandating employees to study the CAIA. It is in the 50/50 range. We are still at a stage where people are still hearing about us from word of mouth.

We also found that over half of our members are actually on the buy-side which means that institutions are looking at us; we gave CALPERS a presentation for example. So we expect there will be more interest from the sell-side if their clients are more educated.

Testimonials: cutting-edge information, great network opportunities

J. Mark Wiltshire is a very active CAIA member who helped start organizing CAIA candidates and members in Germany and in the UK. He gave Opalesque his perspective: "I definitely believe the CAIA studies were worth. First of all, the studies helped me to make the transition from traditional securities trading (I was in the bond market for 10 years) to the alternatives world."

"Secondly, in terms of consistently increasing the knowledge base, it has been very helpful. CAIA is able to access, through its membership and through contacts in the industry, tools of intellectual capital that are sometimes difficult to get in touch with. It is possible as a member or even as a candidate to immediately start learning more as the industry evolves and get into contact with high-powered industry players. For example, we had Alexander Ineichen in London speaking about his latest book on asymmetric returns (Asymmetric Returns: The Future of Active Asset Management (Wiley Finance) Jan. 07) which was ground-breaking. Mark Anson is preparing several new papers for CAIA, he is the former of BT Hermes pension fund (Opalesque note: remember his sudden departure last month? See previous Opalesque coverage, click here). I am both a member and active in the organisation so it is wonderful to be able to get in touch with people who are willing to provide really cutting-edge information to you."

"Thirdly, one of the greatest benefits is after taking the exams: it is not just a place to pay your dues and from which you get a journal. It offers huge network opportunities. I was active in developing a chapter in Germany and a chapter in the U.K. over the past year and I went from knowing 2 or 3 people to knowing 70 or 80 people who are very active, very open to new ideas and open to talk about their business. It has been a very positive experience."

Eric R. Breval (website) would definitely recommend CAIA. "I really believe that the CAIA organisation has a bright future because, apart from the CFA designation, there is not other designation that offers such an in-depth set of courses on alternative investments. This sector is very poor in terms of continued education. I am enjoying the benefits." Corporate website: Source


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