The Curious History of CAIA

By Madeline Heckman on behalf of Joseph F. Pescatore

In 1990, I was working at the New York Mercantile Exchange (NYMEX) on the 7th floor of 4 World Trade Center in New York. The trading floor at NYMEX was where 90% of the world’s futures and options of crude oil and other energy-related products were traded and served as a benchmark for pricing crude oil globally. To grow the Exchange’s market share, I traveled across the country and internationally to meet with the largest institutional investors to promote the benefits of managed futures and commodities. Investment teams scratched their heads or pushed back with concerns about volatility, placement within a portfolio, lack of benchmarking, and unclear sources of return.

With alternatives not widely accepted by institutional investors, I knew we needed material evidence to demonstrate the value of managed futures and alternatives more broadly. I had heard about a professor at the University of Massachusetts who recently created an academic thinktank to study alternative investments—The Center for International Securities and Derivatives Markets (CISDM). Soon after meeting the professor, I joined the CISDM board of advisors and commissioned him to produce a series of academic whitepapers.

Armed with hundreds of copies of this academic research, I set out, again, to meet with the largest endowments, foundations, pensions, and sovereign wealth funds. As I had hoped, these meetings raised investors’ curiosity. With tangible evidence pointing to the benefits of including alternatives in a prudent institutional portfolio, investors wanted more information.

With the other few advisors on the CISDM board, I met with industry associations like the Managed Futures Association (now the Managed Funds Association) in Washington and the Alternative Investment Management Association in London to familiarize them with our research and efforts, and to open the door for potential collaboration. We discussed challenges within the alternatives sector.

To make alternatives more widely accepted as a legitimate component of a portfolio, we needed academic research, a journal, a textbook, and a designation. With research well underway, I approached a publishing company about creating the Journal of Alternative Investments and the Handbook of Alternative Investment Strategies. Once those were published, we shifted our focus to creating a globally recognized designation for professionals with expertise in alternatives. At the time, the CFA did not cover alternatives in its curriculum, so we aimed to build an equivalent for the alternatives space.

Our second annual board meeting for CISDM was held at the Lord Jeffrey Inn in Amherst, Massachusetts. As we passed boxes of Chinese takeout across the board table, the handful of us brainstormed ideas on an academic curriculum for alternatives. I took pen to paper and began scribbling. Negatively skewed distribution…multifactor analysis…risk characteristics…downside equity risk management. That late night in Amherst produced something far greater than we had hoped – the Chartered Alternative Investment Analyst (CAIA) exam and certification.

Despite its modest origin, CAIA has expanded into a globally recognized designation, and alternatives are hardly alternative.