Newsletter - May 2010
- Director’s Comments
- Exam Updates
- The Journal of Alternative Investments
- Alternative Viewpoints
- Chapter Events
- CAIA Out Front
- CAIA Conversation Pieces
- Podcast & Videos
Director’s Comments
Ethics: a new hot topic
If being the brunt of late-night television humor is any indicator, then bankers seem to have overtaken lawyers as the most reviled of all professionals.
Unconscionable acts of greed and avarice have outraged, even disgusted, the public at large. While Joe and Jane Main Street lose their jobs, their homes, and their life savings, financial leeches continue to exploit the system and the public’s trust for their own personal gain.
Public indignation has led many elite academic institutions around the world to question whether they have somehow contributed to this immorality. A May 6 article in The Wall Street Journal, highlighted Harvard Business School Dean Nitin Nohria’s proposal to have business school students commit to an MBA oath similar to that of doctors. A subsequent article in the May 20 issue of Bloomberg Businessweek describes the seven principles that comprise the current form of the Nohria-inspired oath. They include the following: to obey the letter and spirit of the law, refrain from corruption, oppose discrimination and exploitation, and protect the right of future generations to enjoy a healthy planet. In addition, the oath states that "I recognize that my behavior must set an example of integrity, eliciting trust and esteem from those I serve" and "I will remain accountable to my peers and to society for my actions and for upholding these standards." Other global MBA programs have developed their own oath or pledge but regardless of form, what is clear is that ethics and social responsibility, which in the past have been noticeably underrepresented in most programs, are now seen as essential building blocks for any MBA program.
At the CAIA Association, in addition to knowledge and understanding, we have always considered professional ethics to be a guiding tenet of our Association. It is precisely for this reason that we chose to incorporate the CFA Standards of Professional Conduct into the CAIA program from the very beginning. Why recreate the wheel when one already has a well-conceived, globally-recognized and respected standard in place. Moreover, if you share Dean Nohria’s belief as I do, that the work we do as professionals carries no less responsibility to the betterment of society than does that of doctors, then committing to such a code of standards should go without saying, and the sooner the better. We must ingrain professionalism into tomorrow’s investment leaders today. With this in mind, we recently launched the CAIA Academic Partnership Program. The goal of the program is to encourage academic institutions to incorporate alternative investment education into their mainstream curriculum and to do so by putting significant emphasis on understanding in practice what does and does not constitute professional conduct.
Governments may be able to regulate many aspects of the investment world but they cannot regulate ethics. Individuals must decide how they want to conduct themselves personally and professionally, but academic institutions and professional associations such as the CAIA Association, can play an important role in delineating appropriate professional conduct and, in our case, insisting that all members abide by these standards.
E. Craig Asche
Executive Director
Exam Updates
September 2010 Exam Registration Now Open
- Register for an exam.
- Exam Dates:
- Level I Exam Session: September 13 - 24, 2010.
- Level II Exam Session: September 20 - October 1, 2010.
- Exam registration closes August 2, 2010.
Testing Centers Now Open for Exam Appointments
CAIA Candidates who have registered for the September exams must also schedule exam appointments at Pearson VUE testing centers worldwide. Instructions on how to schedule appointments will be sent via email to registered exam candidates by May 31. Registered candidates can also view complete instructions by logging on to their account on the CAIA Association website.
Candidates who do not receive instructions by May 31 should send an email to candidate@caia.org. For information about the testing centers, visit Exam Locations.
The Journal of Alternative Investments
Spring 2010 Issue
Stock Market and Agricultural Futures Diversification: An International Perspective
By: K. Smimou
Academic and practitioner research has presented strong evidence in support of the addition of commodity futures contracts to a diversified stock portfolio to enhance the risk-return characteristics of the portfolio. Moreover, it is well documented that diversification among risky assets in a particular country leads to risk reduction, but the potential gains are limited due to high correlations within an economy. Therefore, international portfolio diversification, primarily in stocks and bonds, has been advocated as a way of enhancing average returns while reducing portfolio risk for an investor who may consider holding foreign securities. This article expands on this initial conjecture by adding foreign agricultural futures contracts to the international dimension. The findings lend support to the arguments in favor of international diversification of agricultural commodities and present results on the long-term, historical risks and returns of agri-commodity futures and their relationship to the risks of other equity assets. Furthermore, since correlation stability is crucial to the size of the potential benefits from such diversification, additional insights into the inter-temporal stability of international return correlations are discussed.
Alternative Viewpoints... powered by CAIA
What NASCAR Can Teach Us About Return Persistence
Special to AllAboutAlpha.com by: Miran Ahmad, CAIA
The search for alpha would not be complete without the search for managers who consistently beat their peers year after year, despite the ubiquitous disclosures that "past performance does not guarantee future results." The groundbreaking and wildly popular AllAboutAlpha.com post "What US college basketball can teach us about survivorship bias" taught us two important lessons: first, Duke actually stopped choking long enough to win a tournament; and secondly, that "hidden survivorship bias" might be a better metric when looking at hedge fund database returns. So if basketball can teach us about survivorship bias, what can NASCAR and Formula One racing teach us about return persistence?
Chapter Events
BOSTON:
Tuesday, June 8: Educational Event
CAIA Boston is hosting a panel discussion on sovereign debt. View details and register.
CANADA:
Wednesday, June 9: Networking Event
Network with CAIA members, candidates and others in the alternative investment community and enjoy sampling whiskey. Presented by The Macallan educational experience: Marc Laverdiere, The Macallan Ambassador in Canada. See the CAIA Canada page for more details.
An educational event titled "Investing in Timber" was held in Toronto on Wednesday, May 5. The program focused on why institutions are investing in timber as a long-term asset class and how it affected their overall portfolio's risk and return metrics. The panel featured Tim Cayen, Hancock Timber Resource Group and Eva Gregor, GMO Renewable Resources, LLC. The presentation is available on the event page.
CHICAGO:
Thursday, May 27: Networking Event
CAIA Chicago is hosting a networking event at Poag Mahoney’s for members, candidates and other professionals interested in alternative investments. View details and register.
Save the date! The next CAIA Chicago networking event will take place on July 28.
GERMANY:
Tuesday, June 1: Networking Event in Munich
CAIA members, candidates, and those interested in the CAIA program are invited to gather at Park Café in Munich to socialize, welcome new members and celebrate with those who recently passed the CAIA exam. View details and register.
A networking event took place on Wednesday, April 28 at Café Hauptwache following the closing of the BAI Alternative Investors Conference. Steve Wallace, CAIA’s Director of Industry Relations – EMEA, was in attendance.
HONG KONG:
A CAIA social was held on Thursday, April 22 after the Fund Forum Asia conference. Chris Holt, CAIA’s Director of Industry Relations - Americas, was in attendance.
IBERIA:
Dr. Eckhard Freimann from Credit Suisse spoke on "Insurance-linked Strategies," at an educational event Wednesday, May 12 in Barcelona. This event was hosted by CAIA Iberia in collaboration with IEAF "Instituto Español de Analistas Financieros." Resources from this event are available on the event page.
CAIA Iberia hosted a very well attended social networking event on Thursday, April 15 for CAIA members and candidates at Madrid's Castellana DF restaurant.
LONDON:
Wednesday, June 23: Educational Event
Save the date! Mark Gilbert, Bureau Chief, Bloomberg News will present: “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.” CAIA members are invited to hear Mr. Gilbert discuss his new book and provide lessons on remedies to the next crisis. Registration details will be posted on the CAIA London page.
On Tuesday, May 18, CAIA London, in conjunction with The Global Absolute Return Congress, held a networking event at the Landmark Hotel.
NEW YORK:
Wednesday, May 26: Networking Happy Hour The May 26 event is booked. The next networking event will be held at the Papillon. Happy hour drinks specials will be available and light snacks will be provided. View details.
CAIA New York organized an educational event in April for members featuring Andrew Beer, Senior Advisor, Belenos Capital Management. He shared his views on the implications of hedge fund replication for hedge fund investors and liquidity management. The presentation from this event is available on the event page.
SAN FRANCISCO:
Wednesday June 9: Networking Event CAIA San Francisco chapter is hosting a networking event at the Bubble Lounge to welcome new members and celebrate with those who passed the recent CAIA exam. Members, candidates and interested AI professionals are invited. View details and register.
SINGAPORE:
Friday, May 21: Networking Event
CAIA Singapore invites all members and candidates to a networking event at Alcova. View details and register.
Chris Holt, CAIA’s Director of Industry Relations - Americas and Managing Editor of AllAboutAlpha.com gave a presentation titled "Hedge Funds Rise Again – The latest hot developments from the streets" at the Bloomberg Auditorium on Monday, April 19.
SWITZERLAND:
Thursday, June 3: Networking Happy Hour
A networking event will be held at ‘Lakeside' in Zurich. This event is currently fully booked.
Members gathered for a very well attended networking event at the Riverside Café in downtown Geneva on Thursday, April 29. Steve Wallace, CAIA’s Director of Industry Relations - EMEA, was in attendance.
EVENTS AT NON-CHAPTER LOCATIONS:
Tuesday, May 25: Educational Event in Houston
CAIA Association invites all members, candidates and interested AI professionals to attend an educational event at the St. Regis Houston. Sanjay Yodh, Managing Director, Alternative Strategies will present: "Accessing Alternatives Strategies: Practical Considerations in Implementing Risk Management and Asset Allocation Concepts." View details and register.
Tuesday, June 8: Educational Event in Paris
Members, CAIA candidates and interested professionals are invited to attend an educational event organized by CAIA members in France. The event will feature Vincent Levita, founder of OFI Infravia, speaking on "Infrastructure Investing: The New Eldorado?" View details and register.
Monday, May 24: Networking event in Dubai
Wednesday, May 26: Networking event in Abu Dhabi
Stay tuned for details on other events by visiting the new CAIA Events page.
CAIA Out Front
The CAIA® Designation: How a Focused Curriculum on Alternatives Can Complement Your CFA® Designation
Monday, June 7
Boston, MA
Interested in learning more about the Chartered Alternative Investment Analyst (CAIA) designation? Join Chris Holt, CAIA’s Director of Industry Relations - Americas, for an explanation of the designation and the program’s diverse curriculum. Also, panelists who have obtained both the CFA and CAIA designations will discuss the impact of both designations on their professional careers. The panelists are Peter Chiappinelli, CFA, CAIA, Portfolio Strategist, Grantham, Mayo, Van Otterloo & Co. and Victor Soto, CFA, CAIA Investment Specialist, MetLife Securities, Inc. Learn how these two designations share many common attributes but remain distinct and complementary. View registration details.
CAIA Conversation Pieces
New Edition of Current and Integrated Topics Available
In a field as young and dynamic as the alternative investment area, textbooks cannot be updated fast enough to keep up with developments in the industry. For this reason, the CAIA Association supplements its core curriculum books, which are updated every two to three years, with a collection of readings that reflect the most recent developments in industry practices and academic research. Together, the core books and the Current and Integrated Topics supplement provide CAIA designation candidates with a solid foundation of knowledge in alternative investments.
The new edition of the Current and Integrated Topics is now available. The publication reflects the recent challenges posed by the financial crisis and includes articles dealing with liquidity risk, financial regulation, and economics of structured products. Candidates studying for the September CAIA exams and those interested in a handy reference of articles on recent developments in the AI field can order the book.
- Coval, J., J. Jurek, and E. Stafford. "The Economics of Structured Finance." Journal of Economic Perspectives. Vol. 23, no. 1, Winter 2009, p. 3–25.
Discusses the role of structured products in the financial crisis of 2007-2008 and examines the underlying assumptions of pricing models of structured products.
- Brunnermeier, M., A. Crocket, C. Goodhart, A. Persaud, and H., Shin. "The Fundamental Principles of Financial Regulation." Geneva Reports on the World Economy, International Center for Monetary and Banking Studies. 2009. Chapters 2 and 3.
Examines the economic reasons for regulating financial institutions and proposes a new regulatory framework.
- Hill, J. "A Perspective on Liquidity Risk & Horizon Uncertainty." The Journal of Portfolio Management. Vol. 35, no. 4, Summer 2009, p. 60-68.
Discusses the role of forced selling in creating systemic risk in financial markets and examines the role of time horizon in dealing with liquidity risk.
- Healy, A. and A. Lo. "Jumping the Gates: Using Beta-Overlay Strategies to Hedge Liquidity Constraints." Journal of Investment Management. Vol. 7, no. 3, Third Quarter 2009, p. 11-30.
Presents a model where certain risks associated with hedge fund investing can be managed through investments in liquid public securities.
- Klier, D., M. Welge, and K. Harrigan. "The Changing Face of Private Equity: How Modern Private Equity Firms Manage Investment Portfolios." The Journal of Private Equity. Vol. 12, no. 2, Fall 2009, p. 7-13.
Examines the behavior of various types of private equity funds and makes the case that funds that can contribute to the management of the underlying assets tend to create more value for investors.
- Phalippou, L. "Beware of Venturing into Private Equity." Journal of Economic Perspectives. Vol. 23, no. 1, Winter 2009, p. 147–166.
Examines performance of private equity funds and shows that in the many cases the after fee returns realized by investors are not significantly better than those offered by publicly traded securities.
- Derwall, J., J. Huij, D. Brounen, and W. Marquering. "REIT Momentum and the Performance of Real Estate Mutual Funds." Financial Analysts Journal. Vol. 65, no. 5, 2009, p. 24-34.
Studies the presence of momentum in REITs and discusses how such a result should be taken into account when measuring the performance of REIT managers.
Podcast & Videos
The CAIA Association has added a new video interview to its website.
- Steve Diggle, Artradis Fund Management