CAIA Viewpoints offer a summary-level look at industry trends and models that continue to shape alternative investment strategies. Each Viewpoint links to the full text of the paper as it appeared in CAIA journals.

February 14, 2019
Is it Time to Take the Toll Road?

How will investments in toll roads and other infrastructure projects fare during the upcoming period of rising interest rates? Historically, listed infrastructure has provided a positive return during periods of rising interest rates (10.1%), but this is lower than its average return (11.5%). During rising real interest rates, some infrastructure subsectors perform significantly worse than usual. This is in sharp contrast with equities that have had above average performance during periods of rising real interest rates in the recent past (10.4% versus an average of 8.52%). Read the full summary below.

February 14, 2019
An Alternative Retirement

Can alternative investments improve target date funds (TDFs) and provide a better retirement? Target date funds are a type of defined contribution (DC) plan that automatically shifts allocation from risky assets to safer assets as the employee nears retirement. For many employees this automated asset allocation management increases expected annual income at retirement. Yet defined contribution plans were originally designed to only supplement retirement income and these DC plans, including target date funds, provide a risk-return profile that is usually inferior to that of defined benefit plans with allocations to alternative investments. Read the full summary below.

January 22, 2019
Man AND Machine

Artificial intelligence has recently experienced a remarkable increase in attention, following staggering achievements in applications such as image, text and speech recognition, self-driving cars or chess and Go tournaments. It is therefore not surprising that the financial industry is ever more heavily trying to improve investment decisions by incorporating self-learning algorithms into the investment process. For that matter, the application of quantitative tools and algorithms in order to define systematic trading strategies already has a strong history in the hedge fund industry. Against this backdrop, quantitative hedge funds may provide fertile soil for the application of new machine learning techniques. Read the full summary below.

January 18, 2019
Know What You Own

Huge losses suffered by investors in alternative assets during the financial crisis have pushed to the forefront a previously opaque part of the investment universe: the valuation of complex and illiquid assets held by hedge funds. Investors are demanding increased transparency and stricter controls around the valuation process as mispricing assets can lead to a miscalculation of fees and flawed performance expectations. In addition, inaccuracies in pricing impact redemptions, which are calculated using the net asset values of the investments, to the possible detriment of both redeeming and remaining investors. This intensifying scrutiny has fueled the use of third-party valuation specialists by managers striving to create a robust framework of controls to review and assess the worth of the illiquid assets their funds hold. Read the full summary below.

October 24, 2018
More Illiquidity Please

It is common practice for investors and consultants to establish return, volatility and covariance assumptions for all their asset classes, and to use these to produce a raft of portfolio return and risk statistics. A key assumption underpinning this kind of analysis is that portfolios can be rebalanced to target, even after large market drawdowns. One of the key benefits of diversification comes from the idea that we can rebalance from assets that have performed well into those that have not, and then reap the benefits as they mean revert to their long-run returns. However, that assumption is out the window if no one’s buying. Read the full summary below.

October 23, 2018
The Mean Reverting Fear Factor

The complacency that investors experienced most of the year is starting to be a thing of the past. As we witnessed an uptick in volatility in October 2018, it behooves us to revisit some of the volatility products to investors specifically short volatility products. In "In Free Fall and Yet Attractive? Short Volatility in ETFs" by Claus Huber, he poses the question: "How can an ETF, which is accessible to retail investors, suffer an almost total loss in such a short time?" Read the full summary below.

September 24, 2018
Hello Darkness, My Old Friend

“This time it’ll be different” has been the proverbial go-to phrase for recent media outlets in trying to explain why we should all be concerned about the looming crisis given our 10-year anniversary. Earlier in 2018 we published a whitepaper titled “Endgame” by Michael Ning and Michael DePalma, which highlights why history may not repeat itself, but it sure may rhyme. No market cycle has lasted forever, and the current cycle is likely to be no different. The market turmoil experienced in early February may be a warning of what’s to come.

September 17, 2018
A Better Managed Future

The hypothesis and aim of “Managed Futures and the AC-DC Effect or Highway to Prosperity” by Urs
Schubiger, Egon Ruetsche and Fabian Dori is to demonstrate that the unambiguous answer is yes! The risk
premia of - as well as correlations between - asset classes are time varying, and strategies that dynamically
adjust to changing attractiveness and co-movements can harvest positive returns in various market

September 17, 2018
Know Your Risk

As most media outlets and finance professionals take an introspective look 10 years after the global financial
crisis, we thought it would be apropos to revisit a paper by Andrew Rozanov, CAIA titled “Volatility, NonRandomness
or Non-Linearity: What Drives Portfolio Returns in Times of Stress and Dislocation?” This paper
considers what underlying exposures drive portfolio returns in periods of extreme market stress and dislocation.

September 17, 2018
A Simple Approach to the Management of Endowments

Endowments and foundations are tax exempt and charitable organizations that rely on
permanent pools of capital to fund their activities. Institutions such as colleges, universities,
hospitals, museums, scientific organizations, charitable entities, and religious institutions own
these pools of capital. When well-funded and well managed, an endowment can provide a
permanent annual income to the organization, while maintaining the real value of its assets in