CAIA Association Q&A

Hamlin Lovell in conversation with CAIA CEO William Kelly


William Kelly spoke about the shift to a multi-asset class paradigm; CAIA’s growing membership, global presence and roadmap for geographic expansion; partnerships with industry and universities; alliances with professional, women and minority associations; the overriding importance of professionalism; and how the CAIA Charter complements other professional designations. Kelly also discussed the online FAI (Fundamentals of Alternative Investments) course, which is particularly sought after by firms that advise on liquid alternatives.

Hamlin Lovell: What is your vision for the alternative investment industry over the next decade?

William Kelly: I get asked this a lot, and the answer sometimes surprises people. Alternative Investments (AI) is our moniker, our brand and our designation. But “alternatives” can also be a misnomer, and I wouldn’t mind if it got rinsed out of the vernacular. The tendency to place traditional investments on the left and alternatives on the right implies one or the other. Ultimately, it is better to consider a multi asset-class solution, starting with the investor’s risk tolerance. From there, the objective is to build the best risk-adjusted portfolio with all available tools as a multi-asset class solution.

HL: Does a world of very low and sometimes negative interest rates increase the need for alternative investments?

WK: Absolutely. Over $7 trillion of sovereign debt now has negative yields and most developed equity markets are at or near cyclical highs, making the traditional 60/40 equities/bonds portfolio a very risky place to be. Any asset owner from the smallest retail investor to the most sophisticated institutional investor must think about a multi-asset approach which includes more uncorrelated asset classes.

HL: CAIA has collaborated with AIMA and MFA on some research papers (most recently, one highlighting the diversity of the hedge fund space published in November 2015 after an earlier paper designed to educate pension fund trustees) and has also done research with the MFA. As well, one of your predecessors as head of CAIA, Florence Lombard, headed AIMA for many years. Does CAIA have its own resources for advocacy and lobbying, or is CAIA more likely to leave this to trade associations such as AIMA and MFA?

WK: We have a very strong relationship with AIMA and MFA, but our members are individuals and not corporations. AIMA and MFA serve a very important need in lobbying on behalf of the alternative investment management industry, but CAIA comes at it more holistically. CAIA is an independent thought leader in investments. We are not charging fees to corporations and are not a lobbyist in the traditional sense. But thoughtful leadership in discussions between industry and regulators is needed to get reasonable regulations in place.

A perfect example is the SEC’s recent (rule 18f-4) proposal on use of futures and derivatives for regulated funds [THFJ has recently published MFA & AIMA’s joint response and a review by lawyers Schulte, Roth & Zabel]. While still young enough as an organization to not have gotten actively involved in formal comment letters to regulators, we were approached by several global industry players to let our independent views be heard. We have begun this process through opinion pieces and writteneditorials on proposals from regulatory bodies and we look to get even more actively engaged in the period ahead.

HL: Can journalists benefit from working with the CAIA Association?

WK: Oftentimes, journalists may not have designations or financial services experience. The challenge then is when they write about the industry or alternatives they tend to drift to pejorative terms around transparency, liquidity, high fees, high risk, etc. This then sets in motion a thought process that alternatives can be very risky or dangerous. In fact, adding alternatives to traditional assets has the potential to dampen risk and volatility. It is important having journalists who are responsible and thoughtful and we need to see more and more of them. Journalists may not always have the time for 450 hours of study for the CAIA Charter, but the Fundamentals of Alternative Investments (FAI), a 20-hour self-study program, could be a perfect solution. We have offered scholarships for FAI to journalists and are happy to play a bigger role in educating this important segment of the market.

HL: Besides AIMA and MFA, does CAIA have links with trade bodies in other asset classes and strategies, such as private equity, venture capital, real estate, forestry, and so on?

WK: We have about 20 such alliances globally. An example is the Institutional Limited Partners Association (ILPA). We also work with regional associations such as the Association of the Luxembourg Funds Industry (ALFI), the Asia Pacific Real Estate Association (APREA) and the Singapore Venture Capital and Private Equity Association (SVCA). Access to their expertise and the member bases that they serve is an integral part of our strategy.

HL: What types of achievements are CAIA’s annual leadership awards intended to recognise?

WK: We recognize thought leadership and doing the right thing when nobody is watching. Recently, Preqin, Julius Baer and Jackson National have made a difference by raising the bar and educating investors about risk.

HL: What have the key milestones in CAIA’s development been since its launch – and during your tenure so far?

WK: When CAIA launched in 2002, there were just 43 candidates for the first exams in 2003. These were humble beginnings. We had to work hard just to find candidates, but we made sure the first class was globally representative with candidates from India, China, Asia Pacific and the US. Now we have 6,000 sitting for the exam every year, as we approach 9,000 Members from almost 90 different countries.

I joined CAIA two and a half years ago and saw a tremendous opportunity to not only focus on our Members and Candidates, but to also focus on the institutions for whom they work. If we sort our records by employer, we find some truly outstanding global names. Our focus is to make CAIA the preferred credential companies look for and require among professionals working in alternatives. There is a lot more work to do, and at CAIA we have a sense of urgency around this mission.

HL: How much time do you spend on the road and how much at CAIA HQ?

WK: I just got back from two weeks in Europe. I was in Asia – India and South Korea – two weeks before that. Soon I will be in Japan for our 27th chapter launch. I strike a balance to reach out to Members and opportunities well outside of Amherst to build the brand externally and throughout the world. Fortunately, the day to day running of the organisation is in safe hands with Deborah McLean (MD of External Relations) and Ruth Carolan (MD of Operations) who do not travel nearly as much. Today most employees are at our Amherst, Massachusetts HQ but we expect headcount to grow faster outside the US as we invest in curriculum, exams, and business development to support our global Member base. Outside of the US, we currently have offices in Geneva, Hong Kong, and Singapore thatare led by senior executives with deep knowledge and contacts in these regions.

HL: How does your experience of building a business from scratch (Boston Partners) and running a large fund management business (Robeco), inform your ambitions for CAIA?

WK: You should ask the board who appointed me! They saw a need for somebody to take CAIA from a well-respected association to a more powerful global brand. CAIA is a ‘Not for Profit’ but I am not sure that really applies to the way we approach its operation. CAIA is a powerful business with the potential for substantial operating leverage. More candidate throughput can generate revenues to reinvest in the business, brand, and strategy. I understand every aspect of growth and what it takes to grow a business. I am proud to be the custodian and steward of the CAIA brand and the opportunity ahead for our Members is enormous.

HL: How important are corporate partnerships, such as the one recently tied up with Allianz?

WK: It is all part of a more institutional approach to get big organisations, asset owners and asset managers viewing CAIA as a thought leader and educational partner. If we cannot make it with names like Allianz we have no business being here in the first place. Corporate partnerships are a cornerstone of institutionalising the approach.

HL: How important are partnerships with universities, such as the ones with Emory and HKUST?

WK: Very important, and we may end this year with 40 academic partners globally. Historically the average career tenure of Level II candidates suggested that over two thirds have at least 10 years of experience. For many CAIA is a second degree, as they already have a PhD, MBA or CFA. Now that more students want to be in alternative asset classes straight out of university, they are starting to think of CAIA as their first designation. We are seeing the average age of candidates ticking down.

HL: Do you have membership targets for CAIA in various regions?

WK: Membership levels are an outcome not a goal. We are focused on an institutional approach, developing our academic and association partnerships and building the brand globally. If we focus on these priorities, the numbers will take care of themselves.

HL: What lay behind the initiative to offer scholarships for women?

WK: Jane Buchan, PAAMCO CEO and CAIA’s board chair, has a long relationship with 100 Women in Hedge Funds. CAIA teamed up with 100WHF to launch a scholars program that attracts and rewards rising women in the alternative investment field. We are big believers in diversity across the board, encouraging women and other underrepresented groups to bring more diverse opinions, views and backgrounds into this industry.

HL: Do you see this concept expanding to include any other groups who might benefit from additional support?

WK: We recently provided scholarships to fellows at the Toigo Foundation, a group that supports the career advancement and leadership development of underrepresented talent, after learning that Toigo has a number of CAIA Charterholders among their alumni ranks. CAIA and Toigo share a lot of common goals, and this partnership complements the 100 Women scholarships.

HL: Where do you see most growth coming from – Asia?

WK: The split of candidates and members today is half Americas, one third EMEA and the balance in APAC. We just launched an India Chapter in 2015 after China and Australia in 2014 and have long-established chapters in Hong Kong, Singapore and Seoul. From a low current base, a tremendous uptick is expected and India and China are looming large.

HL: Why did you decide to hold the CAIA AGM outside the US and what was the significance of this?

WK: We decided to hold it not just outside Amherst for the first time but in the strategically important market of Mumbai. In addition to the board meeting, we met with the local SEBI regulator, hosted Member events and private dinners, and held a press briefing that generated terrific discussions with reporters.

HL: New chapters launched over the past few months include Ireland, Atlanta, India and the Cayman Islands. How many new chapters do you expect to see over 2016 and 2017?

WK: We were at 17 chapters when I joined and expect to end 2016 close to 30 with Miami, Japan, and Philadelphia coming soon. Our member base is very important, in terms of coalescing them around the group for networking and CPD (Continuing Professional Development). There is no magic number in terms of the size of the local membership for launching a chapter. It is more about finding passionate members who want to get something launched. We would generally want 30-40 members to start a chapter, but this is not a hard and fast rule and we are open minded about smaller chapters. We are seeing an increase in candidate and member numbers in the Middle East and in Latin America (particularly Brazil), which are likely sites for future chapters.

HL: CFA Charterholders are perhaps the most obvious group to ‘cross-sell’ the CAIA designation. How many other types of professionals do you see taking CAIA e.g. your own original profession of accountancy; lawyers, actuaries, insurance loss adjusters, fund directors?

WK: We do not target by job title per se but the CFA is a good place to start. There are great cross-selling opportunities between traditional and alternative asset classes. Some 30% of our members are CFA Charterholders, and people always find the two complementary. There are also a lot of Financial Risk Manager (FRM) designation holders, and Certified Financial Planners (CFPs). There is room for many different ones. We continue to see tremendous interest among asset owners, consultants, the big four accounting firms, and regulators. The bar for professionalism must continue to go up. Unlike law or accountancy, in financial services there is no single all pervasive designation but rather more diversity, with many designations. No single one can be an absolute standard for every part of the world, but CAIA will continue to be that leader in the alternatives space.

HL: How much overlap is there among the curriculum of CAIA and other designations, such as CFA, FRM, PRM etc?

WK: CFA Institute was kind enough to let us use their ethics piece. They wrote what is considered to be the industry standard. CFA Institute has now moved a bit more to a multi-asset approach but CAIA is very complementary, offering a much deeper dive into alternatives. If you are a professional coming into the industry, you need to figure out what client base you have, what regulator to interface with, and pick a professional designation to underscore your commitment. There is no one size fits all approach and sometimes a local designation may make sense. But professionalism matters, full stop — not just to get the letters after your name but also to represent to your client base and regulators that a higher bar makes a difference. It seems extraordinary that you do not need a degree to run billions of assets when other professions such as accountants and lawyers do need them.

HL: How many members have more than one designation?

WK: Well, north of 50% have one or more of CFA, FRM, CPA, PhD. Once again this shows there is no one size to fit all.

HL: There have been rumours of a merger between CFA Institute and CAIA Association. Is this ever likely to happen?

WK: Other professional associations are friends, as together we can make a bigger difference than trying to tackle the world alone. CAIA was present at the CFA Annual Conference in Frankfurt in 2015, and we were at the same event in Montreal in 2016. Having gotten to know CFA Institute CEO Paul Smithvery well in my short tenure, I have tremendous respect for CFA Institute, which is a world-class brand. CFA Institute and other designations are not competitors. My only competitor is ignorance and it has unlimited resources, where the less it does, the stronger it gets! We need to beat that back every day and the more allies, the better.

HL: Various levels of the CFA designation can satisfy regulatory criteria for approving people to carry out certain functions, in some countries, and the CFA is even obligatory in a handful of places. Where does CAIA do the same and do you expect it to over time?

WK: CAIA should matter to global regulators as well as to members. As a recent example, in Malta the local regulator had several designations approved for the Maltese market. CAIA is now on that list. As we grow, CAIA can continue to exercise more presence and influence in raising awareness that credentialing matters, as well as to be recognised by more regulators over time. These relationships and discussions continue globally as we look to be a meaningful partner in this space.

HL: You also advise the Certified Investment Fund Director (CIFD) institute as part of a strategic partnership with the Institute of Bankers. How many other strategic links does CAIA have with other professional associations?

WK: The CIFD is particularly interesting to me as I have sat on mutual fund boards and have chaired audit committees. Knowledge, preparedness, and professional undertakings of directors all matter a lot. The ultimate backstop for fund shareholders is the directors so they are very important. It is key that we be part of a solution provider.

CAIA EMEA head Laura Merlini, CAIA, CIFD has obtained the new director’s designation and is one of the first 100 to do so globally. About 25% of the curriculum is our FAI course taking 21 hours. Then there are another three two-day programmes covering the investment side, regulatory, and governance. We will continue to see more throughputs for CIFD.

HL: You have launched a campaign on the London Underground entitled “Mind the Gap” at London Underground’s Bank station. This is clearly a pun (on the announcement alerting passengers to watch out for the gap between the train and the platform) but the message is that investment professionals may need to expand their grasp of alternatives.

WK: There are indeed knowledge gaps. The return profile of alternatives is very different in terms of understanding and analytics. Pricing, cash-flow, and liquidity constraints are different. Professionals need to acknowledge and fill this ‘gap’ of knowledge. The ad is phraseology from the London vernacular but it neatly underscores our point.

HL: What are they key additions made to the CAIA curriculum over the past few years?

WK: It is very important to stay current. The moment our curriculum becomes an academic exercise, CAIA is pretty much irrelevant. We regularly figure out our coverage and emphasis. Areas like private debt and infrastructure are getting more and more emphasis and hedge funds are now only 15% of the CAIA curriculum. We just released the third edition of our Level 1 textbook and the Level 2 textbook is coming this fall. Longevity risk was added to the second edition of the textbook and was the subject of one issue of our official publication, the Journal of Alternative Investments (JAI). On the horizon we expect to be adding content in other emerging areas of alternative investments. In between editions, core and integrated topics white papers provide a great opportunity to get new material into the mix of the curriculum.

HL: The Global Investment Performance Standards (GIPS) have been expanded to accommodate issues around alternative investments. What are examples of other external influences on the curriculum?

WK: Anybody in the space must continue toevolve, and we think credentials like the CIPM (Certificate in Performance Management) designation make an excellent contribution to the industry through more uniformed standards. We have also spent time with the Hedge Fund Standards Board (HFSB) on transparency issues and fully recognize and respect the Standards that they have brought to the market. There are many sources of complementary content and education that do not always need to be found inside our curriculum.

HL: What inspired CAIA to launch the FAI certificate in 2014?

WK: FAI was created for a specific reason and solution – the advent of liquid alternatives and a whole new set of asset owners, including less sophisticated investors in liquid alternatives ‘40 Act wrappers and UCITS funds. More solutions are being wrapped in this way and education is needed.

Traditionally, with institutional investors, smart portfolio managers, asset owners, and consultants, worked closely together. But the retail investor is not talking to the PM. Their primary point of contact is the wholesaler, and the emphasis should be more on solutions than on products. Two years in, we have had 2,000 people go through the programme including wholesalers or RIAs who needed to get their knowledge up to speed. This is a great outcome for the end investor, and they matter most. It is about enlightening end asset owners.

HL: Is the potential audience for the FAI wider than for the CAIA Charter or just different?

WK: Based on the math of the number of hours taken (20 versus 450) that’s the case. But FAI is not a shortcut to the core curriculum embodied in the CAIA Charter. One is an executive summary and the other a deep dive. The two can be seen as a barbell, and for those in senior positions we would strongly discourage the FAI as it is a shortcut, when what they really need is to show professional knowledge in a much deeper way. For wholesalers, and retail asset owners, FAI makes great sense. Most of the first 2,000 FAI candidates are represented by a handful of institutions who want more clarity and education for their staff and salesforce: including Jackson Financial, Allianz, Deutsche Asset Management and Columbia Threadneedle. Around 70% of candidates have come from this handful of institutions. Some who study the FAI may later take the CAIA exams, but they were not designed with this intent and rather to serve distinct educational needs in the market.

HL: The FAI is already accepted for continuing education hours for the CIMA®, CIMC®, CPWA®, and CFP® designations. Do you expect to widen the number of other professional organisations that will recognise the value?

WK: We do. Each one is unique. It takes some work to get these mutual recognition deals done and we would like to see a broader reach.

HL: CAIA is present at many industry and professional conferences, such as the CFA Annual Conference. Does CAIA put on its own conference events?

WK: Yes. ALTSLA 2016, held in March, was our second annual conference initiated by our LA Chapter in partnership with the California Hedge Fund Association and CFA Society of LA. This was a one day event with no commercialisation, just 100% education. The conference doubled in size from 2015, drawing 500 people this year and 100 people on a wait list. We had outstanding sponsorship, including EY as the lead, and a very impressive line-up of world-class speakers. I also had the opportunity and honour to interview Oaktree founder Howard Marks, and that was a tremendous chance for our community to hear, and maybe apply, some of his sage advice. This was very successful in LA, and we want to export it elsewhere.

HL: Are CAIA’s webinars reaching out to the biggest audiences?

WK: Webinars are a tremendous asset, and we use them regularly to reach a global audience and provide thought leadership. Our curriculum hasto be relevant and that means understanding where the world is going. Our knowledge extends far beyond what makes it into the textbook, and Keith Black, Managing Director of Curriculum and Exam, uses educational webinars frequently as part of that agenda.

HL: Why did CAIA start a Virtual Chapter?

WK: We launched the Virtual Chapter to provide educational opportunities to members located in areas without a physical Chapter. Keith Black and I head up the Virtual Chapter, and we offer online events with outstanding speakers and experts located anywhere in the world. For instance in May 2016, Campbell and Co.’s Director of Investment Strategies, Kathryn Kaminski [who was selected as one of EY & THFJ’s 50 Leading Women in Hedge Funds] is presenting a virtual chapter webinar on managed futures.

HL: What are your closing takeaways?

WK: Professionalism matters. We have a unique product and a major role to play globally. There is no one designation to fit all investment professionals, but we have a thoughtful curriculum and a first mover advantage in the alternative investment space. It is a huge opportunity and responsibility to take on the role of global educator and thought leader in this space.