• Director's Comments
  • The Alternative Investment Industry in 2010
• Exam Updates
  • Registration Now Open
• Alternative Viewpoints
  • Due to funds' lack of persistence, the Sharpe ratio has no validity as an investment decision tool
• Chapter Notes
  • Germany Chapter to Launch
• CAIA Out Front
  • Steve Wallace Panelist at ALFI Conference
• Grading Jamboree
  • Thank You to Volunteer Graders

Director's Comments:

The Alternative Investment Industry in 2010

During my tenure as a currency trader at Salomon Brothers, I generally took a long-term thematic view of the market. What are the major trends? How will these play out across countries and regions? Where can relative value be found?

I still enjoy these debates, which is why I felt privileged to moderate a panel discussion on "The Alternative Investment Industry in 2010 – A Global Perspective" at the CAIA Hong Kong chapter launch last week.  Beyond the appeal of the broad topic matter was the expertise of the panelists – each having a unique perspective on current events and their likely impact on our industry over the coming year.

Offering the Asian perspective was Peter Douglas, founder of GFIA, Pte Ltd., Asia's oldest hedge fund consulting firm.

Florence Lombard, former CEO of AIMA, provided the European perspective, having traveled extensively throughout Europe advocating with politicians and regulators on behalf of the industry.

Our third panelist, Todd Groome, brought a global appreciation and understanding for the issues facing both the industry and the regulators alike. He formerly served as an advisor in the Monetary and Capital Markets department of the International Monetary Fund.

Here are but a few of the questions and responses from the panel:

1. What themes do you expect will dominate our industry in 2010?
   • Public sector regulation certainly will continue to dominate conversation around the globe
   • Market discipline will enjoy a resurgence, which is always the case after the type of market turbulence we've seen over the last two years
   • Demand for Asian-based strategies will only increase. While this demand will likely outstrip supply in near term, ultimately, it will be met by "home-grown" talent as more locals develop the skill-sets/expertise to branch-off on their own
2. What changes do you anticipate resulting from events of the last 18 months?
   • Greater alignment of interests between manager and investor. This realignment will address the issues that came to light regarding liquidity, transparency and segregation of client assets.
   • Continued fall-out from the demise of Lehman Brothers. This  will likely lead to increased use of managed accounts in near-term, and closer scrutiny of Prime Broker documentation as it pertains to security lending
   • The return of average fund size to more optimal levels. Many firms now realize that there are tradeoffs to consider when determining the ideal fund size. Too big and the effort required to communicate well with investors can take away from time spent managing the fund.  Too small, and the firm may suffer from lack of operational resources.  With the dust now settling, firms will be more focused on hitting their optimal AUM rather than engaging in the type of growing frenzy we saw before the crisis hit.
3. What can be done to address fraud in the industry?
   • Given the size of the industry, the number of cases of fraud has been quite small in reality. However, this issue is potentially the most damaging to the overall health of our industry.
   • We will see regulators focus on their three core mandates:
   • Protect Investors: This is the easiest to address through clearly written, transparent offering documentation highlighting the risks, fees, and redemption terms associated with the specific strategy. In addition, distributors of product must be qualified (e.g. CAIA) and held accountable for marketing funds to their clientele with full risk disclosure and taking into account suitability, especially in the case of retail investors.
   • Guard against Systemic Risk: This is tougher because it requires regulators to share information across geographic regions. But it is achievable, moreover essential, in a market that is global and where capital is free-flowing.
   • Prevent Fraud: This is nearly impossible for regulators, in part because fraud, by definition, cannot be regulated or legislated. Rules will never prevent fraud from occurring.

I agree that fraud has the potential to be the most serious issue that we face. I also believe that education, not regulation, will play a vital role in spotting and stopping it. This is why organizations like the CAIA Association are so important to the industry. Through education, practitioners will learn what to look for and how to ask the tough questions to recognize fraud in advance.

As industry participants, we must be vigilant in unearthing potential fraud and vocal in bringing it to the attention of regulators. After all, putting the investors' best interests before all else is part of the value proposition that comes with the CAIA designation.

Craig Asche
Executive Director

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Exam Updates

March 2010 Registration Now Open

• Register for an exam here.
• Exam dates: March 04 - 19, 2010.
• Exam registration closes January 26, 2010.

Scheduling an examination appointment: Pearson VUE has opened its testing centers to scheduling for the March 2010 CAIA exam period. Registered candidates will receive an email from the CAIA Association with instructions on how to schedule examination appointment with them. If you have not received your scheduling instructions by November 30th, please contact candidate@caia.org. For more information about the testing centers, please visit the Exam Locations.

September 2009 Exams Results Available
September 2009 exam results are now available for both levels. For complete grade release details, visit Exam Results. For more information about the grading process, review Grading FAQs.

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Alternative Viewpoints... powered by CAIA

Due to funds' lack of persistence, the Sharpe ratio has no validity as an investment decision tool
Special to AllAboutAlpha.com by: Siew Ling Lay, CAIA, Senior Analyst, GFIA

There have been many studies on hedge fund manager return "persistence".  Persistence, after all, is a necessary precondition for the existence of alpha. Like alpha itself, you might expect that the persistence of a good Sharpe ratio may be possible in less mature (more informationally inefficient) markets. However, a new study by Siew Ling Lay, CAIA, finds that this intuition might be wrong.

Many investors use the Sharpe ratio conveniently to categorize the risk-adjusted return profile of a hedge fund.  Implicit in its use is the assumption that the fund's Sharpe ratio is somehow persistent over time – that a good fund manager will stay "good".  As a result, many investors look to the Sharpe ratio as an indication of how a manager might perform in the future.  If investors decide to include it in their assessments of a fund's attractiveness for investment, its persistence and reliability would clearly be important.

You might expect that good managers are able to persist in less efficient markets such as emerging markets.  To explore this, my GFIA colleagues and I tested whether in fact Sharpe ratios of Asian hedge funds persisted on a multi-year time frame.  What we discovered might come as a surprise.

To continue, please click here.

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Chapter Notes

SPECIAL ANNOUNCEMENT. We are proud to announce the launch of CAIA Germany, the association's 11th global chapter, on Tuesday, December 8, 2009. Click here to register.

BOSTON:
A Thursday, November 5 debate titled "Inflations vs. Deflations" was held at the Harvard Club. Gerard Gardner, North Asset Management, and Larry Heller, Helios Capital Management, led the debate.

CANADA:
Members in Toronto attended a highly successful Exam Congratulations and Social event on Thursday, October 29. Stay tuned for more events to be held in Canada before the end of the year.

On Tuesday, December 1, as part of the joint CAIA/CFA Vancouver Alternative Investments Outlook Forum, the CAIA Canada chapter in Vancouver is hosting a reception for CAIA members, candidates, and industry professionals interested in learning more about the CAIA Association. To register click here.

Members and candidates in Toronto are invited to attend a social networking event on Thursday, December 3. The event will start with short presentations by four industry experts who will share their outlook for the future. To view details and to register, click here.

FRANCE:
On Wednesday, December 9 Gilles Guérin, Deputy CEO of  HDF Finance, and Dunny P. Moonesawmy, Head of Fund Research - Western Europe and Middle East from Thomson Reuters will be the featured presenters at an educational event organized by the CAIA Association in Paris. CAIA staff, including Craig Asche, Executive Director, and Steve Wallace, Associate Director of Industry Relations – EMEA, will be there to give you the latest updates about the Association.  Please click here to view speaker details and to register.

GERMANY:
On Tuesday, December 8 CAIA Germany will celebrate its launch as the 11th global chapter with a panel discussion on "Alternative Investments after the Crisis."  The discussion will focus on climate investing, hedge funds, and private equity.  This event is open to the public. You can view event and speaker details and register by clicking here.

HONG KONG:
Welcome CAIA Hong Kong! The launch of CAIA Hong Kong on Friday, November 6 as the 10th global chapter was a milestone in CAIA Association's history. The launch program featured an outstanding panel of experts discussing "The Alternative Investment Industry in 2010: A Global Perspective". To view a blog posting and links to news articles covering the event click here.

IBERIA:
CAIA Iberia is holding end-of-year social networking events in Barcelona on Thursday, November 26 and in Madrid on Friday, November 27. These events will present great opportunities for everyone to meet CAIA members and candidates working in Spain, and to exchange the latest industry and association updates. Click on the links above to register for these events.

LONDON:
CAIA London held a social event on Wednesday, November 18 for members and candidates.

On Tuesday, October 27, its highly successful Annual Global Macro Panel took place at the Landsdowne Club and featured an exceptional panel of experts. Click here to view more details.

NEW YORK:
The Green Investing Symposium took place Wednesday, October 14 at the Bloomberg Building. The event was organized by CAIA New York, in conjunction with the New York Society of Security Analysts (NYSSA) and the Connecticut Hedge Fund Association. Event details can be found here.

Stay tuned for upcoming networking events in both NYC and in Greenwich, CT.

SINGAPORE:
On Tuesday, November 10, CAIA Singapore held an educational seminar titled "Private Equity Industry in Asia." Claudia Zeisberger, Affiliate Professor of Decision Sciences and Program Director of the Center for Decision Making and Risk Analysis, INSEAD, was the featured guest.

SOUTHERN CALIFORNIA:
Members in Los Angeles and the surrounding area attended a highly successful Exam Congratulations and Social event on Thursday, November 5. Chris Holt, CAIA Association's Associate Director of Industry Relations – EMEA, gave an update on the Association.

SWITZERLAND:
John Bollinger, creator of Bollinger Bands, was the featured speaker at CAIA Switzerland's educational dinner program on Wednesday, November 11. The program was on "A History of Volatility: Or why it is a mistake to put volatility in the divisor."

EVENTS AT NON-CHAPTER LOCATIONS:
This fall, many events will be held at non-chapter locations throughout the world. Click the locations for more information.

Shanghai – Monday, November 23
Copenhagen – Tuesday, November 24
Luxembourg – Tuesday, November 24
Vienna – Tuesday, December 1
Amsterdam – Thursday, December 3 (registration is closed)
Seattle – Wednesday, December 16

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CAIA Out Front

Steve Wallace, Associate Director of Industry - EMEA, will be a panelist for a hedge fund workshop during ALFI's European Alternative Investment Funds conference November 24-25, Luxembourg.

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Grading Jamboree

Twenty four CAIA members volunteered to participate in the October Grading Jamboree. The inaugural "jam session" at the new CAIA headquarters in Amherst, Massachusetts, was a great success. According to Nelson Lacey, director of exams, graders had more than 1,000 exams to review, making the October Jamboree one of the top three grading sessions based on the number of exams. Many thanks go out to the volunteers for taking time for this very important review:

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