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The new Current and Integrated Topics book will be available on October 3, the opening day of registration for the March 2012 CAIA exams.
Senior Associate Director of Exams
Since the end of the 19th century, humanity has experienced an unprecedented period of exponential population growth and fossil fuels have been a major force sustaining this growth. Oil, in particular, has played a crucial role by serving as a key energy source, by driving the agricultural revolution (oil is a critical ingredient for fertilizer and the pesticide industry), and by serving as a key ingredient in organic chemistry. However, due to unsustainability of the current consumption levels of fossil fuels in the long term, the availability of cheap energy might be fast coming to an end as evidenced by increasing global energy supply and demand imbalance. On top of that, the very use of fossil fuels and their derivatives may have contributed to current climate change and broad-scale environmental deterioration.
In today's world, investors, corporations, and consumers alike are seeing green investing in a new light. According to EDHEC-Risk Institute, more than US$22 trillion of assets under management have endorsed the "Principles for Responsible Investments" drafted by the United Nations Environment Programme Finance Initiative (UNEP FI). Meanwhile, G20 nations have recently supported climate initiatives by committing a combined US$400 billion of economic stimulus allocation to clean technologies. On the industry side, many multinational corporations have been integrating green into their overall business strategy. In 2009, ExxonMobil announced a US$600 million investment into algae based biofuel development and other petrochemical companies have followed suit.
Given the growing importance and size of green investing, the CAIA program will incorporate this investment strategy as a separate topic in our Current and Integrated Topics section starting with the March 2012 Level II CAIA exam. The reading will cover the current landscape, opportunities, driving factors, investment vehicles, and main risks of green investments. What follows is a short synopsis of this addition to the CAIA program.
Green investing landscape
The term "green investing" has traditionally been associated with renewable energy such as wind-power, solar power, and bio-energy. Over the last decade, green investing has transformed from a socially responsible investment strategy into a broad sector strategy. While development of sustainable energy technology remains one of the main focus areas for green investing, the strategy has expanded to encompass such sectors as energy efficiency, energy storage, infrastructure development, environmental services, and resource management.
The traditional way for investors to access green investments has been private equity funds. However, the universe of vehicles has expanded considerably and now includes venture capital funds concentrating on the incubation stage, growth-equity funds specializing in the maturation stage, buyout funds, and public equity and top-rated bond markets such as the triple-A rated World Bank green bonds focused on financing high quality climate solutions. Public trading platforms that have expanded into the green investment area include London's Alternative Investment Market (AIM), and the Frankfurt Stock Exchange. In a sense, it has become much easier to "be green."
While climate and environmental change is of global concern, they also present a multitude of opportunities for investors and entrepreneurs alike. One of the main green investment growth drivers is the global need for energy sufficiency aided by developments in technology that have allowed green technology to become more cost competitive compared to existing energy sources.
Traditionally, energy sufficiency has been associated with the development of alternative energy sources. However, energy savings solutions is another fast growing sector, potentially allowing for faster efficiency gains. Another fast growing green investment sector is infrastructure development driven by the need for upgrading the existing, environmentally unfriendly structures in developed markets and new development in emerging markets.
One of the principal driving forces of green investment arises from global governmental involvement, generating stimulus, loan guarantees, and tax incentives. Examples include South Korea's "go green" initiative, the recent green investment and technology development cooperation agreements between Germany and China, and carbon budgets such as the one adopted by the United Kingdom. As a result of the governmental stimuli, such successful green investment innovations as carbon trading have appeared.
For investors, green investing presents both opportunities and challenges that complicate the evaluation of assets. Two of the principal risks in green investments are the market and execution risks, particularly as they relate to uncertainty regarding acceptance of competing technologies. Financing is also of concern as most new technologies are highly capital intensive. This concern is particularly constraining in the current financial market environment where credit is relatively scarce. The tight credit markets have led to a reduced number of green deals in the US and Europe and have allowed China to become the largest investor in sustainable energy technologies.
Notably, green investments are also highly susceptible to fluctuations in public markets in general and commodity markets in particular. For example, when oil prices climb green energy investments experience increased capital inflows. The opposite holds true for periods when oil prices fall. Another important consideration for green investors is the global political and regulatory environment. Some regulatory developments such as the Kyoto Protocol and Copenhagen Accord can be seen as opportunities, especially as they expand financing available to the sector. Meanwhile other political developments such as the Waxman-Markey climate bill being stalled in the US Senate represent political risks to the sector. Finally, a potential side-effect of sovereign involvement is that over-stimulation by governments can potentially lead to market distortions and inefficiencies.
The CAIA Association today announced the appointment of Robert De Rito, Head of Financial Risk Management at APG Asset Management US, to its board of directors.
Florence Lombard, CEO of the CAIA Association said: "We look forward to his contribution to the board, especially in ensuring that the CAIA Association continues to provide the type of education investors require to fulfill their fiduciary responsibilities in very challenging markets." Read more
Determining how many SEC employees have ever worked on a trading desk would be particularly illuminating for the new [SEC] Chair. Ditto for how many SEC employees are CAIA's, CIA's, CPA's, CFA's, CFE's, CFP's and FRM's. My bet is that the SEC staff is critically short of employees with credible industry experience.
Feb. 4, 2009
In a July 13 Truthout column, Dina Rasor revisited the Congressional testimony of Harry Markopolos, the Bernie Madoff whistle blower. As part of his testimony, Markopolos discussed the need for the SEC to hire industry savvy employees. In the excerpt below, he identified the CAIA as one of the designations prospective SEC employees should have.
In order to attract competent staff, a test of financial industry knowledge equivalent to the Chartered Financial Analysts Level I exam should be administered to each prospective employee to ensure that new employees have a thorough understanding of both sides of a balance sheet, an income statement, the capital markets, the instruments that are traded and the formulas incorporated within these instruments. Talented Certified Public Accountants (CPA's), Chartered Financial Analysts (CFA's), Certified Financial Planners (CFP's), Certified Fraud Examiners (CFE's), Certified Internal Auditors (CIA's), Chartered Alternative Investment Analysts (CAIA's), MBA's, finance Ph.D.'s and others with industry backgrounds need to be recruited to replace current staffers. One thing the incoming SEC Chair should do right away is order a skills inventory of the current SEC staff to measure the exact skills shortfalls with which she is now faced. My bet is that Ms. Shapiro will find that she has too many attorneys and too few professionals with any sort of relevant financial background.
Registration numbers for the September 2011 CAIA exams have surpassed those of many previous exam cycles, making it one of the association's top enrollment periods.
As more professionals seek information on the CAIA program, the "What is CAIA?" video provides a quick 4:49 minute introduction to the association and its designation.
Commodity Index Investing: Speculation or Diversification?
Hans R. Stoll and Robert E. Whaley
Journal of Alternative Investments. 2011.
Vol. 14, no. 1, pp. 50-60.
A number of seemingly unrelated commodities experienced simultaneous price spikes in 2007 and 2008. Congress investigated the increase in prices and concluded that the price increases were attributable not to supply and demand fundamentals but rather excessive speculation from commodity index investing. In this article, the authors evaluate whether commodity index investing is a disruptive force in commodity futures markets. Using the U.S. Commodity Futures Trading Commission's Commitments of Traders reports, the authors conclude that because of its passive, long-only nature, commodity index investing is not speculation. In addition, the authors conclude that commodity index flows, whether due to rolling over existing futures positions or establishing new ones, have little impact on futures prices.
The investment pool has been a lonely place since the advent of the financial crisis in late 2007. A few investors have supervised small children in the wading pool or nervously stood in the shallow end of the grown-ups' pool, but until now, only a few have ventured into the deep end since the crisis began.
The latest research from Chicago-based Family Office Exchange, FOX Wealth Trends™ 2011 Investment Survey, shows that the nervousness is abating and confidence is returning. Family offices are getting back into the water again and some are even willing to use the diving board, but perhaps not the high-dive just yet.
This is FOX's fifth "deep dive" into family office investing habits since 2008 and the survey shows that confidence finally is returning. According to the report, approximately 85% of families reported that portfolio performance in 2010 either met or exceeded expectations. This strong performance is bolstering family office investor confidence and raising their expectations for future returns.
"As early as January of this year (2011) we observed that families' confidence in the economy and financial markets was improving and, as a result, they are more willing to make important decisions about their families, businesses and financial assets," says the report. Read more
CAIA candidates who have not yet scheduled an exam appointment are advised to do so as soon as possible as some centers are nearing capacity. Scheduling instructions are located on the CAIA website. Candidates must be logged in as a registered candidate to view the instructions. If you encounter scheduling difficulties, please contact Pearson VUE directly for assistance. Contact details are included with your scheduling instructions.
Next CAIA Exam Registration Period Opens October 3Exam dates are:
IMN's 9th Annual Alternative Investments Summit
September 19, 8:00 AM – September 20, 1:15 PM
Fountainebleau Miami Beach, Miami Beach, FL
IMN's 6th Annual Foundations and Endowments Summit
September 19, 8:00 AM – September 20, 1:15 PM
Fountainebleau Miami Beach , Miami Beach, FL
Keith Black, CAIA Association's Associate Director of Curriculum, is speaking
Profit and Loss Forex Network Chicago 2011
September 21, 8:00 AM – September 22 4:00 PM
Mid-America Club, Chicago, IL
Educational and Networking Opportunities
For a complete listing of CAIA chapter events, visit the events page on caia.org.
CAIA New York - "State of Credit Markets" Panel Discussion
Wednesday, August 17, Club 101
David Rich, Founder and CIO, Amida Capital Management; Chris Harrison, Director, Client Portfolio Manager, Symphony Asset Management; Steve Hornstein, Managing Member and CIO, Global Credit Advisers (GCA); Norman Milner, Managing Director and Co-Portfolio Manager, Ramius LLC
Moderator: Eli A. Cohen, Analyst, Alternative Investments, Strategic Investment Group
CAIA San Francisco - Benefit for Hedge Funds Care
Wednesday, August 24, Credo
CAIA Canada - "2nd Annual Hedge Fund Risk Management Panel"
Tuesday, September 20, Montreal Exchange - Auditorium
Presented in collaboration with PRMIA and AIMA Canada
Francois Magny, CAIA, Chief Executive Officer, RDA Capital; Guy Talarico, CEO and Founder, Alaric Compliance Services LLC; Ranjan Bhaduri, Ph.D, CFA, CAIA, MMath MBA, Chief Research Officer - Global Head of Research, AlphaMetrix Alternative Investment Advisors, LLC; Philippe Arnau, Managing Director, Risk Management, Innocap Investment Management; Fabio Savoldelli, Chief Investment Officer, Optima Fund Management
Carrie Lo, CAIA was selected to participate in the 50 Leading Women in Hedge Funds 2011 survey published by Hedge Fund Journal. In addition, she was named a 2011 Rising Star of Public Funds by Institutional Investor's Money Management Letter, recognized as one of the up-and coming professionals poised to be future leaders of the industry.
Carrie is a Portfolio Manager in the CalSTRS Innovation and Risk unit. This unit is tasked with identifying new investment strategies that will improve the efficiency of the pension plan. Her initial recommendations include global macro hedge funds and commodities, topics that "are covered in the CAIA curriculum." A CAIA member since May 2011, Carrie writes, "As CalSTRS continues to introduce alternative investments to its portfolio, the quantitative and qualitative analytical tools I acquired by earning the CAIA designation will assist me in selecting investment strategies, conducting manager due diligence and managing risk."
Carrie began her career as an investment banking analyst in Salomon Smith Barney's New York and San Francisco offices. She then gained broad experience in investment management as a research analyst for Parnassus Investments and as Portfolio Manager for Algert Coldiron Investors in San Francisco.
Carrie earned her Bachelor of Science in Business Administration from UC Berkeley and her Master in Finance from London Business School. In addition to her CAIA designation, she is a CFA charterholder.
Emily Porter-Lynch, CAIA, who was also named as one of the 50 Leading Women in Hedge Funds 2011, is an Alternatives Portfolio Manager at Universities Superannuation Scheme (USS), the second largest UK pension fund.
Emily began her career at ABN Amro under Gary Vaughan-Smith (founding partner of SilverStreet Capital) and also worked for Aurum fund of funds veteran Kevin Gundle, Mike Azlen, CAIA, (founder of Frontier Investment Management) at Asset Alliance as well as Chris Jones of Key Asset Management. This breadth of experience informs an investment process that combines historical statistical analysis with a whole raft of qualitative selection criteria.
As a law graduate, Emily is a stickler for corporate governance, insisting on independent and committed fund directors. She also belongs to the team that asked Man Group to build a dedicated managed account platform, to tailor service providers and risk reporting to USS requirements.
A member of the CAIA Class of February 2006, Emily writes, "I have encouraged colleagues and contacts to pursue the CAIA designation as I think its tailored approach to alternative investments is useful to those in the industry."
Frank Burke, CAIA, has joined Hatteras Funds as an Associate – Public Investments in the hedge funds portfolio management team. His primary responsibilities include portfolio management of public investments, hedge fund due diligence and working closely with investment advisory relationships.
Prior to joining Hatteras, Frank managed portfolios and conducted traditional and alternative manager due diligence at GenSpring Family Offices and Wells Fargo Family Wealth (formerly Calibre Investment Consulting). He has also served as a financial planner for high-net-worth individuals at Asset Management Group and performed competitive analysis and research on the mutual fund industry for Fidelity Investments in Boston.
Frank, a member of the CAIA Class of March 2011, says that "pursuing the CAIA designation helped me obtain a much broader and deeper comprehension of all alternative strategies. The knowledge that I have acquired through my CAIA studies and the networking opportunities available through the CAIA Association have proven to be invaluable additions to my professional development."
Frank received his Bachelor of Science degree from Villanova University and his Master of Business Administration degree from the Fuqua School at Duke University. He is also a CFA charterholder.
Marco Meli, CAIA, has joined Signet as a Senior Investment Specialist, participating in portfolio management and business development activities. He will give advice on Signet's funds of funds, create and manage customized investment products and contribute to analysis and research efforts. Marco will also be a part of the Sales and Marketing Team specializing in customized products and providing input and support.
With over a decade of experience in the finance industry, Marco has spent eight of those years in hedge funds. Prior to joining Signet, he was a Portfolio Manager at EIM, Nyon and managed Fund-of-Hedge Fund portfolios for institutional investors and developed tailor-made products.
"Earning the CAIA designation has been an enriching experience in many ways," writes Marco, a member since April 2009. "The program is very complementary given its specialized focus on different alternative investments. Being active in the Hedge Fund space, I have particularly appreciated developing more in-depth knowledge in real estate and private equity. Further, the CAIA designation has certainly been an asset allowing me to take the next step in my career and join Signet."
Marco holds a Bachelor's Degree in Financial and Monetary Economics from the University of Geneva and is also a CFA Level III candidate.
Jason O'Connell, CAIA, was recently appointed to Director of Equity Research at Boston Private Bank & Trust Company where he also serves as Vice President and Portfolio Manager. In his new role, he oversees the Bank's analyst staff, coordinates in-house primary research, and manages the relationships with and budget allocations to external research, brokerage and investment technology providers. Jason's portfolio management responsibilities include portfolio construction, fundamental equity research, and economic analysis.
According to Jason, "One of the key values of the CAIA designation is a strengthened foundation for understanding a rapidly growing subset of the asset management industry and its influence on both the broader capital markets as well as individual investment opportunities."
Previously, Jason held research positions at John Hancock Financial Services and Jefferies & Company.
Jason earned his CAIA designation in April 2010, and is a member of the CAIA Boston Chapter. He is also a CFA charter holder and a member of the Boston Security Analysts Society.