Earning Credibility as an Alternative Investment Specialist

Five CAIA members share their views of the investment industry's fastest growing designation.

Despite their rise in popularity over the past decade, alternative investments-particularly hedge funds-remain the least understood of asset classes, and not just among investors, but even among investment professionals themselves. Even with all the career opportunities that have become available to investment professionals in response to alternatives' emergence into mainstream investment strategy, two barriers often stand between these individuals and the positions they seek.

• First, how do you acquire a baseline, working knowledge of alternative investments?
  

• Second, equipped with such knowledge, how do you earn recognition for this expertise with employers and clients?

More than 5000 investment professionals around the world have found a single answer to these two questions in the Chartered Alternative Investment Analyst (CAIA) program.

Unlike other professional designations, which have been around for decades, the CAIA designation is a relative newcomer, launched in 2002 to fill an identified need for a high-level, concentrated educational program on alternative investments.

Five years later, the CAIA program is the fastest growing educational program in the alternative investment industry. The CAIA designation now is firmly established as the global mark of distinction that immediately sets our members apart by decision makers throughout the investment sphere.  The CAIA curriculum's focus on analysis, practical application, and professional standards of practice, creates the benchmark that institutions, investors and regulators recognize and welcome globally.  And the list of firms that have sent their personnel through the program reads like a Who's Who of the alternatives arena.

In this article, five members of the CAIA Association, each of whom holds the designation, share their perspectives on the value they received from the program and the reasons why anyone wishing to be labeled as a "serious alternatives specialist" owes it to themselves to take a hard look at the CAIA program.

"The CAIA designation provides a distinct advantage," said Kris De Souter, CAIA, head of multi-management at Dexia Asset Management in Luxembourg. "With over 10 000 hedge funds out there around the world, it is increasingly important to distinguish good ones from bad ones, to distinguish beta from alpha, to assess if it is worth paying a manager 2 and 20 to assess operational risk. The CAIA program can help tremendously in this task by offering a platform to acquire a good comprehensive skill set with the different alternative strategies."

The platform to which De Souter refers is a two-level, self-study program that examines the core concepts of alternative investing. In Level I, candidates learn basic analytical tools and fundamentals of alternative investment vehicles. These include fee structures, absolute and risk-adjusted return calculations, how traditional asset allocation and risk management concepts are impacted by the inclusion of alternative investments vehicles, as well as historical risk-return profiles of basic strategies within alternative asset classes and the basic regulatory implications of alternative fund structures.

In Level II, candidates learn to apply the skills and knowledge acquired at Level I across the spectrum of alternative vehicles: hedge funds, managed futures, commodities, real estate, and private equity. The Level II curriculum covers asset allocation, portfolio oversight, style analysis, risk management, alternative asset securitization, secondary market creation, performance and style attribution, indexation and benchmarking, current regulatory issues and other current issues within the global alternative investment space.

"I would say that the first benefit of the CAIA Program was to make me conscious of the relative breadth and depth of the alternatives world in terms of strategies and investment vehicles," said Deoraz Hans Itburrun, CAIA, a portfolio manager at ING Bank in Switzerland who says the number one challenge facing alternative specialists is keeping pace with ongoing innovation of investment strategies and financial tools. "The program makes it clear that this business is bound to always reinvent itself."

Steve Wallace, CAIA, a marketing associate for GEM Global Equities Management, Ltd. of the U.K. points to establishing a baseline level of credibility among employers and clients as a key benefit of earning the CAIA designation. "I think the main challenge facing alternative investment specialists is that of credibility," he said. "Although the alternatives business has been around for such a long time, some people still have a negative perception of those that work for the alternatives business. I think that the CAIA program helps counter this by having a professional designation dedicated to alternatives with standards of practice and a code to abide by."

Credibility, by its nature, is an elusive trait to measure, but it is nonetheless afforded to CAIA members.  By earning the CAIA charter, they demonstrate their mastery of a curriculum that is the deepest and broadest available in alternatives. This background trains investment professionals to ask the right questions, which is vital according to Scott M. Freund, CAIA, who runs the multi-family office Family Office Research in Bethesda, Maryland, USA. "On the investment side, it is my duty to gauge the risk tolerance of the clients, use mean variance optimization to develop the target asset allocation, and then implement the strategy. Alternative investments can play an important role in the investment portfolio if the client understands them and the diversification benefit they bring to the allocation."

That is precisely what Freund took away from the CAIA program. "It provides a basis of knowledge that allowed me to learn more about the inner workings of different alternative investments," he said, "some I knew pretty well and others I had only cursory knowledge of.  I am now confident that I can better determine which asset classes belong in different client accounts and which specific investments in particular."

Similarly, Konstantin Danilov, CAIA, of Cantella & Co., Inc. in Wakefield, Mass., USA, suggests that the depth and practical nature of the CAIA program is what sets it apart. "The program exposed me to a wide spectrum of information that I would not have been exposed to otherwise," he said. "This has helped me stand out as a professional and a job candidate when applying for positions. The CAIA curriculum is more practical than some of the other graduate level self-study programs available, such as the CFA (I am currently studying for level 2). The tests and reading are more focused on the information and how it applies to the real world and not on frivolous formulas and mindless problem solving."

"Also," Danilov offered, "the CAIA curriculum is far more interesting."

De Souter likewise suggests that it is the depth and breadth of the CAIA program that make the CAIA designation a must for those who work in alternatives. "It provides a strong theoretical background with regard to fundamentals behind the different alternative strategies," he said. "The program touches on a large set of investment tools, asset classes, and strategies and touches on the issues the industry has been facing. Programs like CAIA or CFA help young investment professional to acquire a thorough knowledge of a large set of investment tools and strategies in a short period of time."

This statement emphasizes two important principles of the CAIA program that make it attractive to busy professionals looking for focused, practical learning that can take place in parallel with their full-time jobs. First, as a self-study, two-level program with examinations offered twice each year, the CAIA program can be completed within a single year. Second, because investing in general and alternative investment strategies in particular are ever-evolving, the CAIA curriculum is constantly updated to keep pace with the changing dynamics of the industry.

In practice, what this means for CAIA candidates is that they take part in a concentrated, time efficient program that will demonstrate the role of alternatives and clearly explain their intricacies. CAIA members will tell you that these are tactics they can immediately apply to their work. "The main challenge facing AI specialists and traditional investments professionals is that newly created instruments and strategies are very complex and opaque," he said. "This creates a problem for money managers and, in turn, investors when it comes to calculating the risks of an investment. I feel that the CAIA program addresses this challenge by covering a broad range of investments and strategies in its curriculum."

This is a notion that Freund believes has led to the fast growth of the CAIA program. "It is my belief that within five years the CAIA designation will be as highly regarded as the CFA and CIMA designations," he said. "More important than the employers, I believe the clients perceive it as a differentiator when shopping for an advisor or firm. Whether the client eventually chooses to have alternatives in their portfolio or not, they are reading articles about them and require their advisors to understand them."

Perhaps the most significant aspect of an investment professionals' decision to enter the CAIA program, however, is the statement the designation makes to employers and clients the designation holder takes alternative investments seriously. This commitment means more than subjecting themselves to the formidable rigors of the CAIA curriculum and exams. It also means agreeing to abide by the lifelong professional standards that are a condition of holding the designation.

"The value of the CAIA program is in the setting of an industry wide educational benchmark in alternatives," said Wallace. "With most other organizations and educational programs, once you have sat the exam there is little further contact with the organization and/or the type of communication is not really directed at your interests. They are too broad. The CAIA program is the only educational program that is dedicated purely to alternatives. Other associations, while they may have excellent programs, don't necessarily have the focus that the CAIA Association does."

Wallace therefore suggested that a benefit of the CAIA program is that it allows him to be a member of a group and a network whose long-range goal is to define and uphold high professional standards. "At the end of the day," he said, "I don't believe that there is any other designation or association that covers what I would call the three most important areas in the alternatives space-a professional designation, ongoing professional education, and a strong network for members to utilize."

While the process of earning the CAIA designation can take as little as a year, the investment continues to pay dividends at every stage of your career. For CAIA members, it's not just that the CAIA program provides the deepest, most thorough education in alternative investments. It's also not simply that the CAIA program bestows those who successfully complete the process with the universal symbol of recognition for expertise in alternatives. The ultimate benefit of the CAIA program, members explain, is that it makes you part of an exclusive group of alternative investment specialists who are dedicated to ongoing career development, upholding professional standards, and establishing a network of like-minded individuals with whom to share ideas and advice.

For those eager to be part of this group-those ready to establish themselves as serious alternative investment specialists-the next step is to enroll in the CAIA program.