I work in what you would call an alternative investment fund. I hope you understand I want to be vague about my profile as I’d rather not be identified.
I took the CAIA. Not because I needed it, but mainly because the senior partners / directors (or whatever you want to call the big cheese at my firm) all have it and were very, very insistent (in a kind of stupid and naive way, imho) that we underlings should have done it, too. I figured it couldn’t hurt, because it was - supposedly - relevant to my work and they were paying for it.
However, in fact the curriculum - and the exam - turned out to be very, very disappointing. I was expecting something practical, but I would say that only ca. 25% of the level 1 curriculum is of any use. The rest is a bunch of pointless concepts and classifications, with no application to the real world whatsoever. But let me proceed in order.
1) Ethics. Only decency prevents me from saying what I really think. Since I don’t want to be sued for libel, I’ll have to go with the watered-down version. The focus on ethics is very hypocritical. Scandals in the financial industry did not happen because people didn’t know right from wrong; they happened because they assessed that the financial reward for a questionable behavior was well worth the risk of getting caught / prosecuted etc. No course is ever going to change that. Studying what is and is not acceptable in far-fetched situations is only a PR exercise for the financial industry to pat itself on the back and say to the outside world: look, we take ethics and integrity very seriously! In fact, the very reason money is made in the financial industry is because clients’ interests are secondary to those of the firms dealing with them, no matter how hard the nice men from the CFA, CAIA and other “associations” (not to mention the nice people in investor relations) try to convince you otherwise. Research, in particular, (which is one of the key areas for CFA charterhodlers) is an exercise in hypocrisy and conflict of interests. If research analysts do not “promote” a given company, this company will take business away from the bank. And no ethics course is ever going to change that. Think of what happened to Philip Ingram, a research analyst at Merrill Lynch whose note criticizing the excesses of the Irish banking system was pulled and redacted because the Irish banks were too important a client for Philip’s employer, which eventually fired him
( http://ftalphaville.ft.com/blog/2011/02/07/480841/merrills-missing-irela… ).
2) Classifications. Honestly, who on Earth cares whether ETFs are cheap beta or alternative beta? Whether a real estate invetsment is core real estate or opportunistic real estate? Whether hedge funds are process drivers or process innovators? Please, somebody please explain to me what the point of memorizing these obscure classifications is. Does it make me a better investment analyst? Does it help me make better investment decisions? I don’t know about you guys, but if I hire an analyst for my team, or if I invest with an asset manager, I want an analyst who understands the nitty gritty details of what he’s investing in; I want an analyst who challenges the consensus, who doesn’t care if the top bananas at CAIA consider ETFs this-beta or that-beta, but understand how an ETF is structured, if it’s synthetic or not, what risks the synthetic structure exposes him to, what exactly is the collateral, etc.
3) Historic performance. Again, what’s the point of memorising in such excruciating detail that index A is more leptokurtic than index B, that index C outperformed index D in year X but not in year Y, etc. Please, somebody please tell me what the point is. I find this not only a pointless exercise in passive memorization, but also methodologically wrong and misleading: the fact that a given index performed in a certain way in a given period does not mean that it will keep performing similarly forever. Instead, the CAIA seems to infer general rules which cannot be inferred, because there is no universal rule governing the performance of any asset (‘alternative’ or not). Will the generation currently entering the workforce enjoy the same returns from the same assets as the baby-boomers? I highly doubt it. Again, a good analyst should challenge the consensus, challenge what he was taught, go beyond what is supposed to be “conventional wisdom”.
4) Difficulty. The first question about any certification in the alphabet soup of titles now available tends to be: “Is it hard?”. Well, it all depends on what you mean by “hard”. Memorising the phone book of all the councils within the M25 is extremely hard. It’s also utterly pointless. But the difficulty lies in having the time to memorise an incredibly large amount of data; no intellectual nor analytical skills beyond passive memorisation required there. Studying the latest theory in the fields of advanced calculus or particle physics, instead, requires little in terms of memory but much in terms of analytical skills. If you’re dumb you may memorise it but you’ll never fully understand it, no matter how long and hard you try. In the year 2011, when any information can be easily found in a matter of nanoseconds, I have no use for people who are good at the “difficult” task of passively memorising tons of data. I do, however, want to hire people who, regardless of their memorisation skills, can interpret and understand the data that some stupid monkey is better at memorising: banal data can be found on google, while original analysis based on easily available data is not as easy to produce.
I often think of this comparison: if CAIA were a test on Excel (or a similar software, or a programming language, etc), those who’d pass it with first class grades would be those who know every detail of the syntax of every formula, no matter how arcane or obscure or useless, but are not necessarily good at building complex and reliable models. The good excel monkeys (I mean, analysts…) are, instead, those who can build complex and reliable models, finding original solutions to the problems they encounter, even if they don’t remember all the syntax, because when they don’t they can look it up on the internet in a matter of nanoseconds.
This is my $ 0.02. I’d be interested in understanding what others think.