A shot in the arm for alternatives field

Date: Monday, May 15, 2006
Author: Jeff Benjamin, InvestmentNews.com

DETROIT - In an industry loaded with all manner of professional designations and credentials, the Chartered Alternative Investment Analyst Association appears to have found its niche.

The fact that the number of people sitting for the two-part CAIA exams has doubled annually since it was established three years ago illustrates both the appeal of alternative-investment strategies and the thirst for knowledge in this area. In 2003, there were 233 applicants, while 1,535 sat for the exams in 2005.

"I believe it's the only educational process and certification for the alternatives industry," said Peter Mauthe, chief operating officer of Rhoads Lucca Capital Management Inc. in Dallas.

Mr. Mauthe, whose firm manages $140 million in client assets, said he is pursuing the designation as a way of helping his financial advisory practice stand out from the crowd.

"I think it's meaningful to illustrate to clients that we're not only in the alternatives space, but we've also shown a desire to learn more about it," he said.

In addition to financial advisers, who make up about one-third of exam candidates, the CAIA designation is being pursued by pension fund managers, lawyers, accountants, market analysts and at least a dozen representatives from the Securities and Exchange Commission.

Bad research

"In this industry, a lot of the research gets done for marketing purposes, and a lot of it is just bad," said Jane Buchan, managing director at Pacific Alternative

Asset Management Co. LLC, an Irvine, Calif.-based fund-of-hedge-funds firm with $7.5 billion under management.

She earned her CAIA designation and has required the same of the firm's 14 analysts.

"It helps you to better understand alternatives," Ms. Buchan said. "And it's very strongly geared toward

people who have to invest across multiple strategies or sectors."

The sudden popularity of the CAIA designation, which is coordinated out of the association's Amherst, Mass., headquarters, has not been lost on the CFA Institute, the administrator of the chartered financial analyst designation.

With about 3,000 people expected to take the CAIA exam this year, the designation's numbers would look like a rounding error in the context of the CFA Institute, which will administer more than 84,000 CFA exams this year.

"Imitation is the sincerest form of flattery," said Bob Johnson, managing director in charge of CFA programs. There is no such thing as competition when it comes to elevating the overall level of knowledge and understanding in the financial services industry, he said.

In fact, the CAIA has included the Charlottesville, Va.-based CFA Institute's standards-of-practice handbook in its educational program.

"If we can get more financial professionals aspiring to our standards, we feel it will elevate the whole industry," Mr. Johnson said.

He said the CFA Institute is planning to revamp the program's focus on alternative investing. "Professionals all over the world think we need more emphasis on alternatives, and you will start to see that in our CFA programs," Mr. Johnson said.

The CAIA association, which has 575 members, was developed cooperatively by the Alternative Investment Management Association Ltd. in London and the Center for International Securities and Derivatives Market in Amherst.

Similar to the CFA, which has nearly 69,000 members in 120 countries, the CAIA has developed a global following, with exam candidates representing 50 countries. The CAIA program concentrates on five categories of alternative investing: hedge funds, private equity, real estate, commodities and managed futures.

"It's very difficult to find concise information on alternatives, and for most advisers, I think [the CAIA designation] would be beneficial," said Robert Levitt, president of Levitt Capital Management LLC of Boca Raton, Fla. But Mr. Levitt, who manages more than $350 million, including his own hedge fund, doesn't think the designation would benefit his business.

"If you're running a hedge fund, you aren't really looking for that kind of education," he said.

The purpose of the designation is less about investing in a particular asset class or strategy than it is about understanding how all the pieces fit together and how to evaluate the various strategies, observers say.

"This designation formalizes my knowledge of alternatives and broadens my focus," said Bill Kay, a vice president at Morgan Stanley Alternative Investment Partners in West Conshohocken, Pa.

He is responsible for getting wealthy individuals and institutional investors to invest in the firm's alternative products. Mr. Kay is one of seven people at the alternative-investments operation to have earned the CAIA designation, and there are 11 more employees enrolled in the program.

A focus on alternative investing is the common denominator among CAIA designees, but the similarities often stop there.

"I think the designation gave me a little more push in the marketplace," said Bill Gruzynski, managing director at Emerald Strategies LLC, a Chicago advisory firm with $13 million under advisement. "I've always had a good sense of alternative strategies and a pretty good overview understanding, but the CAIA helped me to develop better insight."

A large part of the appeal can be traced to the relative dearth of programs designed specifically for alternative investments.

"Prior to the CAIA, there was no real means for people to get an education in alternatives," said Craig Asche, executive director of the association. "The university programs don't offer an education on alternatives, and most of the financial services firms are not in any kind of position to develop a proper program."

Jeff Benjamin can be reached at

jbenjamin@crain.com.