Tell us about your career and why you decided to take on the leadership of the CAIA Association.
My post-college work experience spans 32 years. With the exception of a short stint at PwC where I earned my CPA, I have spent the entirety of my career in financial services, with the last 25 years dedicated exclusively to asset management. I have worked for small, medium, and large firms within both partnership and corporate structures where I have dealt with U.S.- and non-U.S.-based shareholders. More recently I served as an independent board member on funds and advisors in the asset management space. I also had the opportunity to be one of seven founding partners at a start-up asset management firm where I was also an entrepreneur. It is that latter title that I enjoyed the most, and I feel is most closely aligned to my skills, defined as a very collaborative and practical business builder.
While CAIA is well past the start-up phase, and I walk in the well-worn shoes of its founders, it is still a very entrepreneurial organization standing at a point of merge between mission and market opportunity. It is the identification and execution of these very best opportunities, with my talented and like-minded partners at the CAIA Association, that get me excited about a very bright future.
How has the course of alternative investments changed over the past 15 years?
The landscape has changed dramatically. CAIA was founded in 2002 at a time when AI was starting to become more organized, and the related products began to take on a more definable, institutional quality, look, and feel. Underlying AI products took on more specific and repeatable investment processes, and the underlying concepts, tools, and practices formed the discipline around the core of the CAIA Charter. At our founding, AI assets were about $2 trillion. Today these assets have experienced more than a six-fold increase. The CAIA curriculum has grown in a similar fashion and has expanded to include many new areas since our first few exam cycles.
Can you discuss the evolution of risk management and portfolio construction as it relates to these changes in the alternative investments space?
Historically and very simplistically, the asset allocation of our parents’ generation keyed off the basic 60/40 model, where the secret sauce might have centered on style bias (value or growth), market capitalization, geography (U.S., international, global, emerging markets, etc.), or duration on the fixed income side of the portfolio. Indexing and/or active management played a role too, serving as early precursors to the separation of alpha and beta we see today and raising the question of what an investor should pay for either. Not a lot of universal thought was given to risk budgeting or the introduction of uncorrelated risk into the asset allocation decision process until more recently. The endowment funds were certainly early adopters of this new(er) type of model and the products and tools to replicate this kind of investment approach are now available to the average retail investor through liquid alternatives. In a market cycle where drawdowns remain as one of the single largest investor concerns, a portfolio construction model that takes uncorrelated risks into consideration simply should not be dismissed or ignored.
How can investors, consultants, and fund managers continue to properly educate themselves, and what role does CAIA play in that process?
It is vitally important that all investors, intermediaries, advisors, regulators, and even the media undertake a renewed focus on what this all means to the end investor. Very sophisticated solutions are replacing more traditional products and the bar for knowledge and education continues to go up.
At CAIA we start with a very simple and elegant message: the product we sell is education. We all need to get smart and stay smart in a very dynamic and growing area of portfolio management. For the most sophisticated players in this chain, the bar is even higher; the portfolio managers, analysts, some of the intermediaries, and also the regulators need to know what is going on under the hood at a fairly detailed level. Concepts like structures, valuation, market efficiency, liquidity, and valuation (just to cite a few) need to be built on a knowledge base that is linked to a deeper dive. That level of sophistication and understanding needs to be demonstrated and remain up to date.
Our CAIA Level I and II curriculum solves this, and achieving CAIA Charter Holder status truly underscores a commitment to become a lifelong learner in a very dynamic part of the investment universe. On the other end of the spectrum is the more retail-oriented intermediary, their end client, and perhaps the media as well. Here too, there should be no excused absence from the AI education class, but perhaps the CAIA Charter program is not the right tool for everyone in these groups. It is with this thought in mind that we rolled out our Fundamentals of Alternative Investments Certificate Program (FAI) earlier this year. This is, in essence, a more approachable executive summary of our more rigorous curriculum and is written and produced by the same team. It is meant to provide a common vocabulary, a solid base of understanding, and perhaps the beginnings of a meaningful dialogue as to how these AI solutions best fit into today’s portfolio.
What do you see for the future of alternative investments?
The growth in AI over the last decade has shown tremendous expansion in global assets and various solutions now managed in this space. While the pace of that growth is not sustainable, most would agree that we will continue to see significant growth in this area well into the future.
In some respects, the term “Alternative Investment” has some baggage. The average investor might conjure up thoughts of high fees, lack of transparency, lack of liquidity, etc. By name, it also implies that it is an “alternative” to something else. The mindset needs to shift to the totality of the tools available across all asset classes and investment types. The underlying objectives of the end investor must be clearly articulated and understood, and it is only then that the proper portfolio construction can begin, utilizing all the tools that are available. The need for principal preservation needs to be balanced against a call for current income and a firm understanding that higher levels of volatility can result in very damaging drawdowns at the most inopportune times. There are no certainties or guarantees, but a diversification plan that starts with a clear understanding of correlated and uncorrelated risks has a much better chance of navigating the investor safely through most market cycles.
What is your vision for CAIA, and how can members and candidates help you achieve that goal?
A friend of mine who is a lawyer taught me to not automatically accept the premise of a question, which certainly can be applied here. The vision and goals of CAIA have to be the vision and goals of our members for whom we work. We have a powerful brand and legacy to support a very simple mission: excellence in alternative investment education. We need to get that brand and message out to the marketplace through our Chapters, our Academic and Association Partnerships, existing institutional relationships, global regulators, and the media.
We have quietly gone about our business over the last 12 years, and our record around geographic expansion speaks for itself. The hand we are now holding is an excellent one and we need to play it effectively and in concert with these core constituencies, which is where I plan on spending the majority of my time in the period ahead.
