Chronicles: Issue 2, March 2020

Dear Investment Professionals,

First, we hope that you and your families are healthy and safe. These are surreal times where the power of professions and communities will help us collectively overcome this unprecedented set of circumstances. CAIA Association stands with each of you and is committed to continue providing insightful and relevant content that anchors us to our long-term fiduciary principles. 

Welcome to the March edition of Chronicles of an Allocator. This monthly newsletter has been carefully curated to provide you with a selection of thought leadership pieces, designed to assist and inform the capital allocation process.

As COVID-19 cases continue to increase, volatility has found its way into people’s personal lives in addition to public markets. As we write this newsletter, global stock markets, proxied by the MSCI ACWI, are down over 28% year-to-date, and many investors appear to be selling just about everything they can to move to cash. For the long-term investor, proper diversification and strong portfolio construction is more important than ever, as portfolios are being tested for the first time in almost 12 years.

Whether it’s purposeful allocations to alternative investment asset classes (such as real assets, private equity, and private credit) or alternative investment strategies (such as hedge funds), investment professionals with diverse economic exposures and risk premia have an opportunity to dampen volatility, mitigate drawdown risk, and improve investment outcomes.

Not every investor has access to these investment opportunities, and as the relationship between private and public markets continues to shift, the theme of democratization continues to be at the forefront of regulators minds. This is especially true for private markets. In the United States, the Securities and Exchange Commission has opted to revisit the definition of an accredited investor, potentially lowering the income barriers to invest in these opaque investment structures and increasing the education requirements. This change could set a precedent for future regulatory changes in other jurisdictions. CAIA has been active in both writing and advocating for adaptation of the rule, but only with appropriate safeguards and protection for the underlying investors.

These pieces are brought to you as a “best of” compilation of what we believe is most relevant to you as allocators of capital. They fall under four themes: democratization of alternative investments, the current state of the industry, artificial intelligence and data science, and environmental, social and governance (ESG) issues.

Thank you, 

John L. Bowman, CFA, Senior Managing Director, Twitter, LinkedIn

Keith Black, PhD, CFA, CAIA, FDP, Managing Director Content Strategy, Twitter, LinkedIn

Aaron Filbeck, CFA, CAIA, CIPM, Associate Director, Content Development, Twitter, LinkedIn