Newsletter - June 2011

CAIA Comments

CAIA Curriculum: Keeping Abreast of Current Issues

Hossein Kazemi, Ph.D.
CAIA Program Director

As the CAIA Association approaches its 10th anniversary, it's instructive to look back at the evolution of our curriculum. Over the first six years, we relied almost entirely on materials not produced by the Association. Since alternative investments were not widely used or known by the larger investment community, our curriculum had the relatively easy task of introducing our candidates to alternative investments and providing them with a basic understanding of risk-return characteristics of these products as well as their place in institutional quality portfolios. At this time there was little in terms of academic and practitioner research in many areas of alternative investments.

In addition to using materials produced outside of the Association, our earliest Level I curriculum also devoted about one-third of its space to traditional asset classes. As we surveyed the industry, it became clear that the time had come to redesign the CAIA program. First, the traditional materials were moved out of Level I and occupied what was known as the pre-requisite program. Second, a portion of what was then Level II material was redesigned to fit into the Level I program. Third, we used part of the Level II of our program to drill down into one or two specific strategies (e.g., convertible arbitrage) in order to better understand how to implement and manage a strategy with changing economic conditions. Fourth, we created a new portion of Level II—called Current and Integrated Topics—to bring the latest developments of the field into CAIA front and center.

That was then and this is now. The growth of our association and the dynamism of the alternative investment industry led us to the logical next step—CAIA producing its own materials. It became clear that our curriculum must keep up with rapid changes in the industry and use a consistent framework for a fundamental understanding of alternative investments, thus enabling our members to evaluate and use these new products.

This fundamental understanding of alternative investments has now become a focal point of the CAIA curriculum. As an example, a decade ago, pure manager skill was thought to be the primary source of excess return to alternative investments and subsequently many actively managed products were thought to produce absolute return to their investors. Today, the concept of alpha has become more complex and therefore we've developed a whole set of new concepts and terminologies to describe the risks and returns associated with alternative investments—the so-called "alternative betas." We now have a vast amount of research that shows most alternative investments earn excess returns for taking on risks that many traditional investors are not willing or able to take, or for providing liquidity, hedging and similar benefits to other market participants. Such a fundamental understanding of alternative investments will equip our members with the practical knowledge needed to understand and manage the complex and rapidly changing world of alternative investments.

We now know, for instance, that equity market neutral hedge fund strategies are not entirely skill-based investment products and, contrary to what is implied by their name, are not free of all systematic sources risk. Recent research has shown that many equity market neutral strategies tend to be mean-reversion and therefore have significant exposure to market liquidity conditions. Given this understanding, a CAIA member would therefore be able to anticipate how an equity market neutral strategy would behave during a period when the liquidity needs of the market change drastically. In addition, we have known for years that investments in private equity or real assets allow investors to earn an illiquidity premium not offered by liquid listed securities. However, we are just now learning about the impact of illiquidity on a portfolio's performance and ways to manage this risk. The list of new insights provided by recent academic and practitioner research on the fundamental characteristics of alternative investments is long. It is up to us to incorporate these findings into an accessible curriculum so that our candidates and members are able to anticipate how various investment products are likely to behave under changing economic and financial conditions.

The curriculum team of the CAIA Association, along with groups of volunteers who include CAIA members and non-members have been working for the past two years on a major revision of our study materials. This revision, which will be released next year, will represent another major step in the evolution of our curriculum that will meet the goals described above. It will present a set of principles that will help our members to continue to educate themselves long after they have been awarded their CAIA designation. The tools and the knowledge provided by our curriculum will enable our candidates and members to look at new investment opportunities in the alternative investment industry with a critical eye, and to differentiate between sustainable sources of return and diversification benefits from those that are likely to disappear at the first signs of market dislocation.

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CAIA News

CAIA Association Reaches 5,000 Members Worldwide

Hans Valer, associate within the Global Client Group at BlackRock (NYSE: BLK), is the CAIA Association's 5,000th member, having passed the CAIA Level II exam during the March 2011 exam cycle.

Florence Lombard, CEO of the CAIA Association, said: "The CAIA Association was created in 2002 to set the global standard for alternative investment education. Reaching the 5,000 member mark is a statement of the importance of the CAIA designation to the alternative investment industry."

Chris Leonard, Head of EMEA Human Resources at BlackRock, said: "BlackRock is proud to be an employer of choice for the best and brightest in our industry. To help our talent build a successful and rewarding career with our firm, we place strong emphasis on continuing employee development opportunities such as the CAIA program."

View Florence Lombard's video message on reaching this milestone. Read the press release.

Job Opening at CAIA for Director of Business Development - Americas

The CAIA Association is hiring a Director of Business Development - Americas, to promote the CAIA designation throughout the USA, Canada and South America. This position will build on CAIA's excellent reputation and success by executing CAIA's comprehensive business development strategy in the Americas and by promoting the Association's program to financial firms, industry associations, stakeholders, and regulatory bodies.

The ideal candidate possesses at least five years' experience in the finance industry (preferably in the alternative investment sector in business development or sales) and strong relationship management and communication and presentation skills. The position will likely be based in New York and will require extensive travel throughout the Americas.

CEO Florence Lombard Interviewed by Opalesque TV

In just under ten years, CAIA membership has grown to more than 5,000 members in 14 chapters globally. In this Opalesque TV video, CEO Florence Lombard explains the origins of the CAIA Association, its consistent growth, and its plans for expansion.

CAIA Association Releases Continuing Education Resource for Members

The CAIA Association has introduced a web-based assessment tool designed to help CAIA members stay current on alternative investments research and practices. Effective November 2011, the Association's 5,000 members worldwide will be required to complete the CAIA Self-Evaluation Tool (SET) once every three years to maintain use of the CAIA designation.

"The CAIA Self-Evaluation Tool (SET) is an important first step in providing formalized, ongoing educational opportunities to our members to ensure that they remain aware of important developments in industry research and practices," said Maia Porter, CAIA Association Director of Member Services. "As a credentialing association, it is our responsibility to maintain the integrity of the CAIA designation by helping our members identify areas in which they need to bring their knowledge up to date. And, as regulatory authorities introduce new requirements for professional designations, our focus on meeting industry standards for ongoing education is critical." Read the press release.

CAIA Association Forms Alliance with New York Hedge Fund Roundtable

The CAIA Association has formed an alliance with the New York Hedge Fund Roundtable. Through this alliance, CAIA has become the official designation of the Roundtable. Members of the Roundtable will now receive a 10 percent discount on standard exam registration fees for both levels of the CAIA exams.

"The Roundtable is excited to align itself with the CAIA Association, whose program is the gold standard for education in the alternative investment community and whose mission is consistent with our mission of being a thought leader for the industry," said Stephen D. Susano, Chief Operating Officer, New York Hedge Fund Roundtable. Read the press release.

CAIA Association Forms Partnership with Drexel University's LeBow College of Business

The CAIA Association announced an Academic Partnership with Drexel University's LeBow College of Business. The partnership supports the university's commitment to offer students courses in alternative investments, one of the fastest growing segments of asset management.

"As the industry continues to grow, so does the need for university graduates who are knowledgeable in the field," said Hossein Kazemi, Ph.D., CAIA Association Program Director. "LeBow College of Business is preparing its students for success in this area of growth and we are pleased to support the college by sharing with them the CAIA curriculum and offering a CAIA scholarship program for students and faculty."

Erik Benrud, Ph.D., CAIA, clinical professor of finance and an expert in alternative investments, championed the agreement between Drexel LeBow and the CAIA Association. "This partnership means LeBow students will now be able to leverage the CAIA curriculum and prepare for the CAIA designation, which is the only globally recognized professional designation in alternative investments," he said. Read the press release.

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Exam News

Registration for the 2011 September CAIA Exams is Now Open

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Smart Moves

Eelco Fiole, CAIA, has joined Credit Suisse Asset Management as Chief Operating Officer, Alternative Investments Switzerland in Zurich, Switzerland. In his new role, he is responsible for supporting the development and execution of the strategic objectives for distribution, management of the organizational infrastructure, and improving linkages across the firm.

Previously, Eelco managed a variety of projects, primarily in emerging markets as a consultant for financial institutions based in Zurich and Singapore. Prior to his consulting work, he was Group CFO of Millennium Global Investments in London and CFO and Head Corporate Development of Centrum Bank in Vaduz. He also held various financial management positions at UBS in Basel and Zurich. Fiole began his career in finance as a corporate and institutional banker with ABN AMRO in The Netherlands after a few years in process engineering.

An inaugural member of the CAIA exam council and a past senior grader, Eelco states, "My CAIA designation has provided me with an excellent foundation and up-to-date knowledge in an array of AI-topics, which was extremely useful in my previous roles and continues to be a valuable asset in my current position. Also, the global CAIA network has proven to be highly stimulating and valuable."

Eelco earned a Ph.D. in Economics from the University of Basel, a postgraduate certificate in Laws from the University of London, an MSc in Business Administration from RSM Erasmus University and a BSc in Mechanical Engineering from Rotterdam University. Having taught finance in the past, he currently holds a lectureship in finance ethics at the University of Lausanne.

Eelco has been a CAIA member since October 2006. He also holds the CFA, FRM, and CMA designations.

Sushil Kedia, CAIA, has become the first Asian to be elected to the Board of Directors of the Market Technicians Association (MTA), a global association of technical analysts. During his three-year term, he will focus on helping to expand the growth and organization of technical analysis across Asia.

Sushil is an independent technical analyst and investment advisor based in Mumbai. He has produced quantitative strategy for a Pan-Asian long short hedge fund in the last few years. He has extensive experience of nearly two decades in trading, research, and investment management in primarily Indian markets and more recently in other Asian markets as well. He is regularly consulted for his market opinion by major business news networks as well as national financial publications in India. He also writes for a few U.S. based popular market blogs.

A member of the CAIA Class of September 2007, Sushil writes: "The CAIA designation provided me with structured learning into alternative investments in a comprehensive way. In the evermore rapidly evolving universe of investments, membership in the CAIA Association is a critical tool in keeping me at the leading edge."

In addition to his CAIA designation, Sushil holds the CMT and FRM designations. He is the Founder President of the Association of Technical Market Analysts, India.

Sushil holds graduate degrees in Accountancy & Business Economics and an MBA from XLRI Jamshedpur School of Business. He expects to complete his M.Sc. (Financial Engineering) degree from the National University of Singapore in the autumn of 2011.

Sam Martin, CAIA, joined State Street Corporation as a Vice President, Senior Hedge Fund Credit Risk Analyst. As part of the enterprise risk management division, he provides credit and risk rating recommendations based on analysis and due diligence on hedge funds, private equity funds, banks, and broker-dealers who have banking and trading relationships with State Street.

Prior to State Street, he worked at Boston Technologies, a leading provider of software, solutions, services and trading platforms to institutional and retail brokerage firms in the FX, CFD, commodities, futures, and options marketplace.

Sam previously worked for Indaba Global Research as Managing Director & Partner and focused on all areas of building the business including sales, research, and product development. Prior to Indaba, he spent three years as a hedge fund research consultant at NEPC where he was responsible for manager selection and portfolio construction for large institutional investors. Prior to NEPC, Sam worked in the Prime Brokerage division at Bear Stearns for over five years. He also worked as a quantitative analyst at Putnam Investments and as a research analyst at SSgA.

According to Sam, who has been a CAIA member since April 2010, "The CAIA designation has been instrumental in helping me develop my diligence and evaluation skills of sophisticated alternative investment strategies. I feel I am better equipped to understand the unique needs of hedge fund and private market institutions."

He received an MBA and MSF from Boston College, and a BA in Economics from Bates College.

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CAIA Out Front

17th Annual GAIM International 2011
June 20, 7:45 a.m. – June 23, 4 p.m.
The Grimaldi Forum, Monaco
Caroline Bault, CAIA Association Managing Director, Global Business Development, will be in attendance.

2nd Annual Innovative Alternative Strategies
June 21, 7:15 a.m. – June 22, 3:30 p.m.
The Palmer House Hilton Chicago
Christopher Holt, CAIA Association Director of Industry Relations – Americas, will be moderating. Lisa Rivera, CAIA Association Director of Industry Relations and Outreach, will be in attendance.

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Chapter Notes

Educational and Networking events

For a complete listing of CAIA chapter events, visit the events page on caia.org.

CAIA Chicago Educational Event
Thursday, June 30, CME Group Auditorium
"Commodities/Energy Risk Management"
Hilary F. Till, Research Associate, EDHEC-Risk Institute, Fellow, Arditti Center for Risk Management, DePaul University and Principal, Premia Capital Management; Jeff Mantel, Ph.D., CEO, MantelGroup; Nedia Miller, Founder of MILLER CTA, Member of CME GROUP
Jointly presented by CAIA Chicago, PRMIA Chicago and the DePaul University Arditti Center for Risk Management

CAIA Chicago Educational Event
Thursday, July 7, De Paul University
"How do Managed Futures Fit into an Institutional Portfolio?"
Thomas Lott, Principal, Potomac Portfolios LLC; Brian Walls, Global Head of Research, Newedge Prime Brokerage
Details TBA

CAIA Germany Networking Event in Munich
Wednesday, June 29, Salotto

CAIA New York Educational Event
Wednesday, July 13, Club 101
"Global Macro Panel"
Details TBA

CAIA San Francisco Educational Event
Thursday, June 23, Mandarin Oriental Hotel
"Investing in Quant Strategies: Thinking Outside the Black Box"
Jim Creighton, Massif Partners; Michael Kharitonov and Jon McAuliffe, Voleon Capital Management; and Catherine Hsiao, Senior Research Analyst, Fiduciary Research and Consulting

CAIA Switzerland Networking Event in Geneva
Thursday, June 30, Riverside Café

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