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What Is a Chartered Alternative Investment Analyst (CAIA)?

Chartered alternative investment analysts (CAIAs) help you select and manage assets like hedge funds, private equity, and commodities. Learn more about them in this detailed guide.

When one thinks of investing, stocks and bonds may quickly come to mind. However, there is a wide variety of alternative investments one can make, such as hedge funds, private equity, commodities, and real assets. If you’re looking to buy any of these, you may need assistance from an expert such as a Chartered Alternative Investment Analyst (CAIA) to avoid mistakes and make wise decisions.

This article will define the role of a CAIA. We’ll explain what it takes to earn this designation, as well as the ethical standards they follow. You’ll also learn about the types of clients they typically serve and whether you should hire one.

CAIA Definition

A CAIA is a professional who primarily specializes in assisting clients with alternative investments. In this capacity, they can work with you to select and manage investments in alternate asset classes, such as hedge funds, private equity, and real assets. Those with this charter designation earn it from the CAIA Association (CAIAA) after completing two rigorous curricula.

Experts with the CAIA designation can work in a wide variety of positions involving alternative investments. Often, CAIAs will work in a client-facing advisory role, assisting individuals or businesses with portfolio management and analysis. However, these professionals may also work with firms of varying sizes as an executive or analyst.

Understanding Alternative Investments

Alternative investments are those that differ from traditional securities, such as stocks, bonds, mutual funds, and the like. They’re typically part of unique investment strategies that aim to diversify and gain positive returns, despite volatile market conditions. Here are the most common that fit into this category:

  • Hedge funds are investment pools that utilize unique strategies and often trade liquid assets to earn high returns. Generally, they are limited to high-net-worth individuals and institutional investors, such as pension plans, insurers, and other large organizations.
  • Private equity is any investment one makes in a private (non-listed) company. Common examples include buyouts, as well as growth and venture capital.
  • Private debt is an investment that a bank doesn’t finance. For instance, if a company lends someone a sum of cash at a fixed interest rate, this is private debt provided that it isn’t a bank or a note on an open market.
  • Real assets refer to investments such as real estate, farmland, timber, intellectual property, and other similar assets.
  • Commodities broadly refer to physical goods, such as gold, silver, oil, and agricultural products. This type of asset’s value mainly rises depending on market supply and demand.
  • Collectibles, such as artwork, cars, toys, baseball cards, and wines are alternative investments one can make. Many people buy and hold these in hopes of long-term appreciation. However, some hope to profit off of this type by trading often.
  • Cryptocurrency refers to investing in digital currencies like Bitcoin, Ethereum, and XRP. This investment type has garnered a great deal of popularity in recent years.
  • Structured products blend traditional securities like stocks and bonds to adjust for risk and reward.

While alternative investments can be a path toward big returns, they can also carry a high level of risk, such as liquidity concerns and lack of regulation. This elevates the importance of hiring a professional, such as a CAIA, who’s well-versed in analyzing, selecting, and managing these types of assets.

How to Become a CAIA

CAIA candidates must complete two curriculum levels and their accompanying exams to receive the designation. Level I primarily emphasizes a foundational knowledge and understanding of alternative investments. It also introduces the standards of ethics candidates must follow. Level II expands upon the fundamentals from the previous curriculum, while also outlining the applications of this knowledge.

Below is a more specific outline of the concepts each level focuses on:

Level I:

The first stage of the CAIA charter’s curriculum works to establish a fundamental understanding of alternative investments, as well as the standards one must follow at all times. Candidates must also complete and pass a 200 multiple-choice question exam. Below are the main topics the charter focuses on:

  • Professional Standards and Ethics
  • Introduction to Alternative Investments
  • Real Assets
  • Private Debt
  • Private Equity
  • Hedge Funds
  • Digital Assets
  • Additional Strategies

Level II:

The CAIA charter’s second curriculum level aims to expand upon the fundamentals in the first stage, while also focusing on more advanced concepts. This includes courses on risk management, market volatility, and alternative investment strategies. Candidates must also pass a 100 multiple-choice question exam, as well as three essay-question sections. Here are the topics the second level emphasizes:

  • Emerging Topics
  • Universal Investment Considerations
  • Models
  • Institutional Asset Owners and Investment Policies
  • Risk and Risk Management
  • Methods for Alternative Investments
  • Accessing Alternative Investments
  • Due Diligence and Selecting Managers
  • Volatility and Complex Strategies

Ethical Standards

Both CAIA candidates and charter members must adhere to the CAIAA’s code of ethics. These inform how these professionals carry themselves in the industry and interact with others. Here are the key elements of these standards:

  • Members or candidates may not act in a way that jeopardizes the “integrity” or “security” of the CAIAA.
  • Members or candidates may not “engage in any professional conduct” that involves “dishonesty, fraud, or deceit.”
  • Members or candidates shall “act with integrity, competence, diligence, respect, and in an ethical manner with the public.”
  • Members or candidates must report any misconduct to the CAIAA in writing if they’ve been involved in a legal matter in the last five years.

Who Should Hire a CAIA?

The main role of a CAIA is to assist clients with alternative investments. As mentioned earlier, several types of assets apply here, all with varying barriers to entry. However, high-net-worth or institutional investors are most equipped to invest within the alternative category.

For instance, hedge funds require individuals to be an accredited investor to invest. This means you must have at least $200,000 of income in each of the past two years and a net worth of $1,000,000. If you’re married, you may have $300,000 of combined income in the past two years, while also meeting the net-worth requirement. Institutional investors are also more apt to invest in alternative asset classes. These are typically large organizations, such as pension funds, insurers, or non-profits.

Chartered Financial Analyst vs. CAIA

Chartered Financial Analysts (CFAs) are similar to CAIAs in that both are prestigious designations that enable professionals to assist clients with financial and investing tasks. CFAs receive their credentials from the CFA Institute and are among the most renowned experts in the industry. Like CAIAs, they may work directly with clients or within larger organizations as an executive or analyst.

CFAs and CAIAs are both adept at portfolio and investment management. The latter, however, heavily focuses on alternative investments, rather than traditional ones. If you’re looking to hire a professional with one distinction or the other, consider what types of investments you’re able and would like to make.

Frequently Asked Questions

Is a CAIA better than a CFA?

Both are incredibly prestigious distinctions in the financial industry. CAIAs focus heavily on assisting clients with making and managing alternative investments, such as in hedge funds, private equities, real assets, and more. CFAs are experts in traditional securities, such as stocks, bonds, mutual funds, and ETFs.

Can a CAIA help me with hedge funds?

Yes, one of these experts will be able to help you invest in hedge funds. This includes selecting one that fits your portfolio and monitoring progress to ensure positive returns over time. Keep in mind that, to invest in a hedge fund, you typically must be an accredited or institutional investor.

Is a CAIA a fiduciary?

CAIA charter holders are fiduciaries that follow strict ethical standards. The CAIAA requires members and candidates alike to conduct themselves with integrity and avoid dishonesty and fraud. They must also report themselves to the organization if they’re involved in any legal matters, such as a felony or misdemeanor.

How long does it take to become a CAIA?

To complete both Levels I and II of the charter, candidates should plan to commit at least 400 total hours of study time. Because exams are administered twice a year, prospective members can complete the requirements in less than a year.