September 2008
- Director's Comments - the Upside to a Down Market
- Alternative Viewpoints: "Higher Moments in Beta"
- Field Notes: Australia
- London
- New York
- Boston
- Iberia
- San Francisco
- Scandinavia
- Luxembourg, Munich, Madrid
- San Francisco
- Zurich, London & Dublin
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Director's Comments - The Upside to a Down Market
This September marks the 13th month since the onset of the
current market meltdown. In little more than a year,
we’ve witnessed seismic shifts in our
industry, from the FSA's unprecedented intervention into Northern Rock
to the absorption of Bear Stearns and dissolution of Lehman, to the
nationalization of Freddie Mac and Fannie Mae.
And with such enormous and previously unimaginable market changes,
we’ve also heard from a myriad of industry experts seeking to
explain why things have gone so terribly awry.
One such expert, Barton Biggs, recently noted in Barron’s
that when an industry grows to represent more than 20% of the overall
economy, as financials did in the US, watch out!
As intermediaries between those with capital and those seeking capital,
financial institutions play an important but ultimately limited
role. Unfortunately, as we’ve seen, it was
inevitable that the markets would revert back to the mean.
While no one knows exactly when the markets will return to normal,
conventional wisdom suggests we should expect to see deleveraging
continue. In fact, some predict that we are only one-half to two-thirds
of the way through this process.
This will continue the pressure on financial institutions to shed
assets in an effort to shore up their balance sheets, which in turn
will depress revenues and, by default, compensation.
The impact on high-profile banks, insurance firms, mortgage lenders,
and credit rating agencies has hardly gone unnoticed by regulators and
will inevitably lead to new oversight in regulatory jurisdictions
around the world.
Guarding against systemic risk will remain their top priority, and we
can expect to see a specific focus on the policing of risk management
processes, including the proliferation of off-balance sheet structures,
the growth in derivatives and counterparty risk.
But one of the strengths of the alternatives industry is our ability to
recognize and capitalize on new opportunities even during
times as challenging as these.
As financial institutions shrink the scope of their operations, new
niche opportunities will open for the nimble and quick. No industry is
as well equipped to fill these voids as the AI industry. The
proliferation of distressed funds is but one example. Facilitating the
transfer of these assets from weak to strong hands is a very positive
development and will ultimately, I believe, lead to the resumption of
two-way trading markets.
In addition, as access to public financing contracts, significant
opportunities exist for privately financed infrastructure projects.
Even in the real estate sector, falling asset prices in the US, UK and
across Europe will ultimately attract bargain hunters.
While performance on average across the AI industry has been
disappointing this year, it has nonetheless outpaced the traditional
indices and will continue to fuel the institutional demand for
non-correlated assets. Recent surveys reflect this, with a majority of
pensions and endowments reportedly planning to increase their
allocations to alternatives over the next two years.
As mentioned above, regulatory change is inevitable. As an
industry, it is in our best interests to proactively participate in
this process by embracing and advancing the efforts of the Hedge Fund
Working Group in the UK, the President’s Working Group on
Hedge Funds in the US, as well as those proffered by industry
associations such as our founder, AIMA.
Finally, I am very pleased to report that throughout my travels I have
yet to meet a single institution that is planning to cut back on
educational initiatives. In fact, the vast majority recognize a
heightened need to advance their professional development programs in
order to keep pace with rapid industry developments and client demands.
If there is a silver lining to this cloud, it may be this new-found
recognition of the importance of having a well-educated staff that
thoroughly understands the fundamentals of any investment vehicle with
which they work.
Kind regards,
Craig Asche
Executive Director
September 2008 Exam Updates
September 2008
Exams In Session
The September exams are now underway. We wish the best of luck to the
over 3600 individuals who have registered for this exam cycle.
Grade Release
Information
Grading will commence AFTER the examination window closes on September
19th. Please do not contact the Association for grades at this time. An
announcement will appear on the homepage when grades are available.
Examinees will also be notified via email.
Level I grades are expected to be released approximately three weeks
from the last examination day. Level II, which includes essays, takes
more time and these grades are generally available between five and six
weeks after the last examination day.
For more information about the grading process, please visit the Grading
FAQs.
March 2009 Exam
Registration
Registration for the next exam period (March 09 - 20, 2009) opens October 1, 2008.
Alternative Viewpoints... powered by CAIA
"Higher Moment Betas", posted August 26 on AllAboutAlpha.com
Mikael
Haglund, CAIA, Founder, Altevo Research
Most investors are familiar with the concept of beta. Beta gives us an idea of how the returns of a security are likely to act in the long run given the returns of the broader market (or the returns of a narrow slice of that market). But that definition assumes that both the security in question and the market in general have bell-shaped normal returns. Hedge funds tend not to fit neatly into this model. Instead, they are positively or negatively skewed and tend to have "fat tails". So now researchers have come up with new betas that measure how one asset's variance, skewness and kurtosis (tail-sizes) react to the variance, skewness and kurtosis of other asset classes. In our monthly spot featuring the thoughts of a CAIA Association member, Mikael Haglund of Altevo Research tells us about how to use these "higher moment betas".
Traditionally, the CAPM and the mean-variance asset allocation approach have been the standard ways of constructing portfolios. But implementing a similar approach is problematic when hedge funds are included. Numerous studies have shown that the returns for different hedge fund indexes display non-normal return distributions when longer time frames are studied. Therefore, working with a framework that assumes asset returns are normally distributed can over- or under-estimate downside risks and lead to suboptimal portfolio allocations.
The standard deviation used as a measure of risk in
traditional
asset allocation techniques only measures deviations from the mean and
puts equal weight to positive and negative deviations from that mean.
However, usually preferences are asymmetrical. The utility
derived
from a positive result is often less than that derived from a negative
result of equal magnitude. One way of accounting for this preference
structure and for the non-normal distributions of hedge funds is to use
"higher moment betas" in the portfolio construction process.
Click here to continue
Member Profiles
Noelene
Noone, CAIA, CFA, BSc (Hons) Computer Science
Business
Analyst
State
Street
A
business analyst for State Street South
Africa, Ms. Noone leads "a team of business analysts and
system super-users
that focuses on modelling the client's back-office and
middle-office administration
needs into services
When
questioned as to the reason why Ms.
Noone undertook to obtain
a deep
understanding of alternatives, she commented; "It became
clear to me that once
speed and accuracy in the traditional asset classes is nailed down, the
competitive advantage in outsource administration services will be in
the
ability to deliver services on the non-traditional asset
classes," she said. "I
read about the CAIA program and believed that it would give me the
introduction
into alternative asset classes that will become mainstream in the next
10
years."
Dr.
Amarendra"Bob" Swarup,
CAIA
Partner
Pension Corporation
London, United Kingdom
In the
cutting-edge environment in which Dr. Amarendra Swarup finds himself,
there is a fine line between opportunity and calamity if
you're not keenly in touch with market dynamics, including
alternative investments. A partner at Pension Corporation in London,
Dr. Swarup and his colleagues have spent the past two years pioneering
the acquisition of pension funds through buyouts as an investment
strategy - a discipline that, among other things, requires a 360-degree
understanding of the alternative investment space.
"The hardest and most rewarding aspect is the sheer breadth
of what we do," said Dr. Swarup. "Looking at
investing a fund of funds is a simple exercise in risk and return.
Throw in pension liabilities as well as the need to hold economic
capital against a 1 in 200 year event, and the complications are much
worse! Suddenly, there are all sorts of exposures like longevity,
interest rates, and inflation that could be catastrophic for your
financial position. We also invest across all asset classes and believe
very much in real-time management, which means you really have to
understand what you're investing in and be aware of
everything that could go wrong."
When distinguishing market opportunities while avoiding crippling
losses over a 50 to 70 year horizon is your business, you better know
what you're doing. It's probably not a surprise,
then, that Dr. Swarup turned to the CAIA program to fill in the gaps of
his alternative investment knowledge. "The CAIA Program
helped a lot with this," he said. "The breadth of
the course is hard for some, but ultimately rewarding. I am a great
believer in having a general knowledge of other areas beyond the ones
you happen to work directly in - it makes for better
practitioners all around. Moreover, the cutting-edge elements in Level
II, particularly the research papers, are good preparation when you
jump into the deep end and start exploring a whole new way of managing
assets and liabilities."
Like many, Dr. Swarup sees the CAIA designation "becoming the
de facto standard qualification for people now coming into the
alternatives space. It still lags the CFA in terms of
recognition, but this should improve over the next few years,
especially as it offers something quite different."
Field Notes: Australia
We at the CAIA
Association are
often asked what we're hearing as we travel around the globe meeting
with members of the AI community. To this end, we are
introducing
a new Newsletter feature - Field Notes. We hope this will
provide
a glimpse into the work we're doing and what we're hearing from our
contacts on the ground.
Although I'm based in London and responsible for the EMEA region, I recently traveled to Australia with Craig Asche on his second foray into the country. It was a pleasant return to my roots, having spent early years of my career in the Australian finance community.
Our meeting with regulators, banks, asset managers and various
institutions were all very positive and productive. Thus far,
we
have had significant interest from firms in Australia who see value in
the CAIA programme and designation. As this was only the second trip
made by CAIAA, we are still in the early growth stages but
have
been encouraged by the interest.
As with most areas around the globe, we found that the domestic players
and regulators in Australia are grappling with short selling and
its impact upon companies’ share prices. Also there have
been some high profile concerns regarding infrastructure funds locally.
Nevertheless there is a great deal of interest in this area
as it
matures from the infrastructure industry in existence from the
90’s.
While it is often overlooked, Australia has sizeable flows
based on
the 9% superannuation guarantee ensuring a constant flow of capital
that needs to be deployed. As such there are some firms who are quite
advanced in structuring solutions to meet the ever growing need for
sophisticated portfolios.
Based on the interest from firms and individuals in starting local
chapters we are hopeful that emerging chapters will commence in Sydney
and Melbourne.
- Steve Wallace, Associate Director of Industry Relations, EMEA
Member Roster Now Publicly Available
The CAIA Association is very pleased to announce that the CAIA membership list is now publicly available online.
Updated daily, the Member Roster lists all CAIA members who have opted to participate, over 75% of the total membership. We are proud to publicly recognize our members, a body comprised of approximately 2,000 individuals from over 53 countries around the globe.
Click here for the Member Roster.
Chapter Events
The following chapters are hosting events and welcoming September 2008 CAIA candidates to attend:
LONDON:
CAIA London will be holding their monthly social on Wednesday, 17 September at 6:30 pm at the Counting House on Cornhill, Bank. Please click here to register for this event.
NEW YORK:
Members and
candidates in New York are invited to an educational event on Thursday,
September 18 at 5:00 pm at the Penn Club of New
York. Joe Wade, President
and CIO of Centennial Partners in Memphis, Tennessee,
will give a talk entitled "A Hedge Fund Practitioner's Look
at Global Macro and Commodities Investing Today."
Please click here
to register for this event.
IBERIA:
We are very pleased to
announce
the official launch of the CAIA Iberia
chapter! On Friday, 3 October 2008 at 6 pm
we begin with a keynote presentation by Gabriel
Fernández de Bobadilla of
Omega Asset Management, Jesús
Mardomingo of Cuatrecasas and
Sasha Evers of
Bank of NY Mellon.
The evening's festivities will include presentations by CAIA Association Executive
Director Craig Asche and CAIA Iberia co-chair Sergio
Miguez and will conclude with a special private event
for
candidates and members at Ramses. Members and candidates
are encouraged to attend. Please click here
to register for this event.
SAN FRANCISCO:
The official launch of the CAIA
San Francisco chapter will be held on Wednesday, October
15, at the Omni San Francisco. Mark Yusko,
President and CIO of Morgan
Creek Capital Management, LLC,
will give a presentation on "Alternative Thinking About
Investments." Seating is limited; this is an invitation-only
event.
CAIA on the Road
CAIA's fall travel itinerary has quickly filled up we are looking forward to meeting our members and colleagues in the following cities:
September
Europe: Stockholm 22nd, Oslo 23rd, Helsinki 24th, Munich 29th, Luxembourg 30th & Oct 1st
October
Europe: Madrid 2nd & 3rd; Stockholm 20th & 21st, Oslo 22nd & 23rd , Copenhagen 24th
US: San Francisco 15th
November/December
Europe: Zurich Nov. 27th & 28th, London Dec. 1st - 3rd, Dublin Dec. 4th & 5th
The Association is available to give private, on-site
presentations of the CAIA program in each of these cities. These
presentations are an excellent way to increase your company's awareness
of the value of the CAIA program, as well as to highlight your
significant achievement in earning the designation.
Contact events@caia.org.
for more information on planning an exclusive informational meeting for
your colleagues.
We look forward to seeing you while we are on the road!
Positions at CAIA
Interested in joining the CAIA Association team? We're looking for exceptional professionals to help us meet our growing needs.
The Association is experiencing unprecedented growth and offers competitive salary and benefits. Contact the CAIA Association at hr@caia.org for more information.
Associate Directors of Industry Relations -
Americas & Australasia
The Associate Director of Industry Relations positions supports the strategic objective of promoting the CAIA designation by coordinating and executing outreach to the investment community. These institutions include, but are not limited to, financial firms, industry associations, and regulatory bodies.
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IT Director
The IT Director will partner with the management team to align company information technology with the strategic direction of the CAIA Association by building and developing IT organization, processes and procedures to support business needs. The IT Director is responsible for the IT development and deployment and user training to ensure quality, performance and scalability of all IT systems.
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