Newsletter - November 2011
CAIA Comments
Shedding Light on the CAIA Exam
By Dr. Nelson Lacey, Director of Exams
As Director of Examinations for the CAIA Association, it's a pleasure to write to you this month and share some views about our exams. We at the CAIA Association are well aware of how important the exams are to our candidates and members. Survey data indicates the tremendous number of hours candidates spend in exam preparation, and exam feedback reinforces the gravity of the exam event. Indeed, for many, your most important days with the CAIA Association will be when you sit for the exams. Some of you will recall with great precision the day, time, and year you entered a Pearson Testing Center, and will be able to quote specific details from your score reports years later. For these and other reasons, the CAIA Exams Team devotes great time and effort to make the exam experience the best it can be.
I chose for the title the metaphor "shedding light" on CAIA exams as my own reminder that, from the candidate's point of view, the exam can appear as a "black box." Running through your mind as your appointment draws near will include questions such as, "Will this particular topic be covered?", "Will I be expected to know this?", and "How will this type of material be tested?" And so I'd like to dedicate this column to illustrate two facets of the CAIA exams:
- The production of an exam question
- The concept of an ideal exam question
The Production of an Exam Question
A CAIA exam question – and I'm speaking now about a question that will appear on an actual exam form – travels through a production process that includes many hands and minds. The raw material for all our exams is the content of the CAIA curriculum, and the learning objectives found in the CAIA study guides define what is eligible. When developing CAIA exam questions, our team considers all parts of the curriculum, covering as much of the Level I and Level II program as possible so that each topic is appropriately represented. And so it's the curriculum, organized into learning objectives, that serves as the basis for first drafts of exam questions, akin to the shell of a car as it rolls out of the first section of the production line.
Next stop along the production line is perhaps the most crucial step. A group of trained CAIA Association staff performs an integrity check to ensure that (1) the question is important (it measures something that CAIA candidates need to know), (2) the question is clear (the candidate can understand what is being asked), (3) the question is concise (each word is necessary), and (4) the question is unambiguous (the key is clearly the best answer of the choices given). During this stage any flaw will render the draft unusable, sending it out of the production line and, in many cases, back to the factory. Surviving questions will then be edited to CAIA Association specifications so that it has the same look and feel as all others.
At the end of the production line the near-ready question is checked again for content accuracy, goes through a psychometric review, and is then reviewed by a professional copy editor. It's at this point that the question is polished and loaded into the bank of exam questions, awaiting delivery in the global field.
What Makes An Ideal CAIA Exam Question?
This interesting question sparks debate among education professionals. When I've asked this question of students, they will sometimes answer that "the ideal exam question is one that I (the student) can answer correctly." If this is true from candidate to candidate, then the logical conclusion is that the ideal question is one that everyone gets correct. The downside, of course, is that the exam would no longer differentiate between candidates who know the curriculum and those who don't. This would result in a loss of exam integrity and credibility of the CAIA designation.
A different answer, and one to which we subscribe at the CAIA Association, is that the ideal question is one that is increasingly easy to answer correctly as the candidate's understanding of the curriculum improves. Note that this description of the ideal question moves us away from a focus on the lower end of the candidate distribution (determining which candidates know the least) as well as the upper end of the candidate distribution (determining which candidates know the most). And so we move away from questions that are designed to be either very easy or very hard, and instead gear the exam to questions that should be able to be answered with high probability by what I'll refer to as a "minimally qualified" candidate. The flip side is that our questions are designed so that those who fail to meet the "minimally qualified" criterion will not get the question correct.
One risk I take when describing the development of an ideal question is making it sound simple and straightforward. It is not. But by incorporating the concept of a "minimally qualified" candidate at the beginning of the production process (into our training materials for question writers) all the way through to the end of the process (into our statistical analysis) we continually move toward our goal of developing exams that help us accurately identify those who have met the required standard and those who do not. This, in turn, assures the public that those who have the CAIA designation have met a minimum standard of knowledge required to work in the field of alternative investments.
CAIA News
Video: CEO Florence Lombard on the Value the CAIA Designation Brings to Clients
7 Billion and Growing: Discussion About Investing in Sustainable Farming at the World Agriculture Investment Conference
By Keith Black
Associate Director of Curriculum
Thursday, November 3, 2011
The World Agriculture Investment Conference, Europe, took place in London on October 4th and 5th. Global demographics are driving the farmland investor story, while owners of farmland are increasingly employing high technology to increase crop yields and bring previously fallow land into production. Despite the recent volatility in financial markets, farmland values continue to escalate in many areas of the world.
This week, the world experienced the birth of its seven billionth citizen. By the year 2050, the world population is expected to rise to 9.2 billion people. This is a dramatic population increase from the level of six billion ten years ago and just two billion people in 1930. While Europe and the Americas currently comprise approximately one-quarter of the world's population, this is expected to decline to less than 20% by 2050, as population grows swiftly in Africa and Asia. In fact, Africa and Asia are likely to add three billion more people to the planet by 2050, while the rest of the world adds only an additional 300 million to the population. In addition to this population growth, Asian consumers are gentrifying, which means an increase in meat consumption relative to grains, which creates even greater demand for water and grain used in animal feed. To meet the needs of a growing, gentrifying population, the world's agricultural output may need to double in the next 40 years.
Given these scenarios of continued demand for, and dwindling supply of, farmland, investors are increasingly becoming interested in adding farmland to their portfolio. In fact, some investors consider farmland the ultimate flight-to-quality asset, as an increasing share of farmland is being purchased to secure future food supplies rather than in the pursuit of investment returns.
Farmland around the world varies in price and productivity. The main drivers of farmland values are the climate and land productivity, governmental regulations on the use and ownership of land, the potential to convert farmland into residential or industrial uses, and the availability of infrastructure, including irrigation, roads, ports, railways, and storage and processing facilities.
Similar to other areas of real estate, investors can participate in farmland investment through direct investments, investment funds, or the purchase of stock in companies operating in the agribusiness sector. Farmland can earn significant cash flow yields from operating or leasing the land, with long-term returns similar to equity markets or other real estate investments.
Investors with a lower risk profile will choose currently productive land in areas such as the US, Canada, Western Europe, Australia or New Zealand. More adventurous investors will venture into Africa and other emerging markets. There can be significant profits in converting fallow lands to productive lands, but this conversion process is only for the most experienced and politically skilled operators. These skilled operators are the key to enhancing global agricultural production in the long run, as many areas of the world lack access to capital or the latest farm technology.
Investors can also profit from increases in farmland values by developing and operating their own infrastructure, such as building railways and grain storage facilities. Building private equity funded businesses that connect farmers with global buyers and arranging logistics can improve profits, productivity, and open new areas of farming that were previously unfeasible due to a lack of infrastructure. Providing capital and the latest in farm technology and inputs can improve crop yields in previously less productive areas. Similar to the operations of global agribusiness firms, profitability can increase by providing the capital necessary to purchase inputs and transportation at seasonally low prices, rather than at the high prices that prevail at the time of harvest and planting when cash-constrained farmers typically make these purchases.
Risk factors for farmland investing include water scarcity, soil degradation, transportation difficulties, changes in political regimes, and climate change. Relationships with local and global buyers, as well as local farm operators/lessees are further keys to success in farmland operations.
Alternatives Reign at Schwab Impact
By Bert Cliche
Director of Business Development - Americas
Last week, two of my fellow Global Business Development team members and I attended the Schwab Impact 2011 conference at the Moscone Center in beautiful San Francisco. Over 4000 delegates attended the four day event, which filled the conference hall with more than 300 exhibitors. The list of keynote speakers included such high profilers as Charles R. Schwab, Bill Gross, Liz Ann Sonders, and Tony Blair. Perhaps most noteworthy was the large number of panels devoted to discussion and strategy in alternative investments.
Florence Lombard, CEO of the CAIA Association, moderated one such panel on the morning of Thursday, November 3. Scores of people attended "Alternative Investment Research and Due Diligence," leaving the space with standing room only. Attendees heard from Chris Addy (Castle Hall), James McKee (Callan Associates) and Scott Welch (Fortigent, LLC) about how to approach more volatile alternative investments.
CAIA Association also had a presence through an exhibit booth. Manned by myself and my colleagues, Managing Director of Global Business Development Caroline Bault and Account Manager Heather Kane, we spoke with hundreds of people ranging from alternatives-minded portfolio managers to representatives from other educational associations about the value of the CAIA designation. Given the focus on alternatives at Schwab IMPACT 2011, it was a perfect time for the CAIA Association's debut as an exhibitor at this key event.
AllAboutAlpha.com
Alpha Hunter: Using Twitter to Predict the Markets
Our understanding of financial markets in the last few decades has shifted. Professor Johan Bollen (Indiana University School of Informatics and Computing) states, "..I think behavioral economics has now become an accepted part of the thinking on markets- it's generally accepted that people's decision making is heavily influenced by emotional state and various other behavioral biases in comparison to previous models that assumed rational decision making in the markets. The markets and individual investors are driven by what you could call 'irrational considerations' and emotions play an important role in that." Read more
Exam News
March 2012 Exam Registration Now Open
Register for an exam here.
- Exam Dates:
- Level I Exam Session: March 8 – 21, 2012
- Level II Exam Session: March 1 – 14, 2012
- Exam registration closes January 31, 2012 at 11:59 PM EST
Scheduling an examination appointment: Pearson VUE testing centers are open to scheduling for the March 2012 CAIA exam period. Your personalized scheduling instructions are available by logging into your CAIA account and clicking on Scheduling Instructions beneath Quick Links on the CAIA.org homepage. All exams are scheduled directly through Pearson VUE, our global testing provider. We strongly recommend booking your exam appointment as soon as possible to ensure a seat at your preferred testing center. For more information about the testing centers, please visit Exam Locations.
CAIA Out Front
ALFI European Alternative Investment Funds Conference
November 22, 2011, Luxembourg
Caroline Bault, Managing Director of Global Business Development, will be in attendance. Two days of presentations and panel discussions on the latest news and trends in the alternative investment industry. Specialized workshops on Hedge Funds, Real Estate, and Private Equity.
Chapter Events
CAIA London Congratulations and Commiserations Event
November 23, 2011, Mayfair Exchange
CAIA Korea Chapter Launch and Educational Event
Thursday, November 24, 2011, Seoul City Club
CAIA Singapore and SVCA Joint Educational Event
November 29, 2011, Singapore Cricket Club
CAIA Canada Holiday Prognostications Event in Toronto
Monday, December 5, 2011, Cambridge Club
CAIA New York Holiday Social
Friday, December 16, 2011, Inside Park
Smart Moves
Nolan Bean, CAIA, has been named "2011 Nonprofit Consultant of the Year" by Institutional Investor's Foundation & Endowment Money Management. The award honors individuals who demonstrate a thorough understanding of the industry, have a substantial presence in the nonprofit world, and whose clients have achieved favorable returns.
Nolan is a managing principal at Fund Evaluation Group, LLC (FEG). As a consultant and member of FEG's Investment Policy Committee, his responsibilities include investment philosophy, portfolio construction, investment manager selection, and Endowment/Foundation management.
Nolan writes, "Earning the CAIA designation allowed me to develop a deep understanding of the alternative investment landscape, which is a prerequisite in the Foundation and Endowment market. Even after completing the exams, the continuing education and ability to list the designation on my resume continue to add value for my career."
Prior to joining FEG, Nolan worked for Waddell & Reed Financial Services and participated in the Ewing Marion Kauffman Entrepreneur Internship program. He is also on the advisory board of the Georgetown College PGA First Tee Scholars Program.
In addition to the CAIA designation which Nolan earned in April 2009, he is a CFA charterholder. He received his M.B.A. in Quantitative Analysis and Finance from the University of Cincinnati and earned a B.S.B.A. in Finance from Georgetown College.
David Lees, CAIA, is the Senior Partner and a founding member of myCIO Wealth Partners, LLC, which was recently ranked #13 on "The Top 100 Independent Financial Advisors" list by Barron's Magazine, positioning the company as the highest ranked firm in Pennsylvania, New Jersey and Delaware.
myCIO provides financial consulting services to over $5.8 billion of investment assets of individuals, families, endowments, defined contribution, defined benefit plans and trusts. myCIO also provides financial counseling services to former and current chairmen, CEOs, and presidents of Standard & Poor's Fortune 500 companies.
A member of the CAIA Class of February 2004, David explains the value of his CAIA designation: "Given the uncertain economic environment and potential value of adding/increasing an allocation to the Alternative Asset class, we consider attaining the CAIA designation to be excellent preparation for thorough due diligence."
Prior to myCIO, David was a Partner and Chairman of Ernst & Young's National Investment Advisory Council; responsible for overseeing the research and due diligence of Ernst & Young's Investment Advisory Practice. He also served as Ernst & Young's National Director of the Wealth Advisory Services. David serves as a member of the Board of Directors of Bryn Mawr Bank Corporation and its wholly-owned subsidiary, The Bryn Mawr Trust Company, symbol (BMTC). He is the chair of the Wealth Committee and serves on the Executive Compensation & Audit Committee.
In addition to holding the CAIA designation, David is a CFA charterholder and a member of the Association of Investment Management and Research (AIMR) and the Financial Analysts of Philadelphia. He received a BBS in Accounting & Economics from James Madison University and a MBA in Finance and Capital Markets from the Fuqua School of Business at Duke University.