Alternative Investments. Hossein Kazemi

professionals, and academics.

      The CAIA Association has experienced rapid growth in its membership over the past 13 years. It is now a truly global professional organization, with over 7,000 members in over 80 countries. We strive to stay nimble in our process so that curriculum remains relevant and keeps pace with the constant changes in this dynamic industry.

      Benefits

      Although the CAIA Association's origins are largely based in the efforts of professionals in the hedge fund and managed futures space, these founders correctly identified a void in the wider understanding of alternative investments as a whole. From the beginning, the CAIA curriculum has also covered private equity, commodities, and real assets, always with an eye toward shifts in the industry. Today, several hundred CAIA members identify their main area of expertise as real estate or private equity, and several hundred more are from family offices, pension funds, endowments, and sovereign wealth funds, which allocate across multiple classes within the alternative investment industry. To ensure benefit to the widest spectrum of members, we have developed curriculum subcommittees that represent each area of coverage within the curriculum. Alternative investment areas and products share some distinct features, such as the relative freedom on the part of investment managers to act in the best interests of their investors, alignment of interests between asset owners and asset managers, and relative illiquidity of the investment positions of some investment products. These characteristics necessitate conceptual and actual modifications to the standard investment performance analysis and decision-making paradigms.

      Our curriculum readings are designed with two goals in mind. First, to provide readers with the tools needed to solve problems they encounter in performing their professional duties. Second, to provide them with a conceptual framework that is essential for investment professionals who strive to keep up with new developments in the alternative investment industry.

      Readers will find the publications in our series to be beneficial, whether from the standpoint of allocating to new asset classes and strategies in order to gain broader diversification or from the standpoint of a specialist needing to better understand the competing options available to sophisticated investors globally. In both cases, readers will be better equipped to serve their clients' needs.

      The CAIA Programs and the CAIA Alternative Investment Analyst Series

      The CAIA Level I required readings are contained in this one text, supplemented only by the CFA Institute's Standards of Practice Handbook. Level I candidates are assumed to have mastered some knowledge of financial markets, securities pricing, and derivatives markets in advance of commencing studies for the Level I exam.

      Many resources are freely available on our website (caia.org). We will continue to update the CAIA Level I Study Guide every six months (each exam cycle). The study guide outlines all of the readings and corresponding learning objectives (LOs) that candidates are responsible for meeting. The guide also contains important information for candidates regarding the use of LOs, testing policies, topic weightings, where to find and report errata, and much more. The entire exam process is outlined in the CAIA Candidate Handbook, which is available at caia.org. Candidates can also access a workbook that solves the problems presented at the end of each chapter and other important study aids.

      We believe you will find this series to be the most comprehensive, rigorous, and globally relevant source of educational material available within the field of alternative investments.

Donald R. Chambers, PhD, CAIAAssociate Director of CurriculumCAIA AssociationMarch 2015

      Acknowledgments

      We would like to thank the many individuals who played important roles in producing this book. In particular, we owe great thanks to William Kelly, Chief Executive Officer of the CAIA Association, and our committee members:

      Curriculum Advisory Council

      Stephane Amara, CAIA

      Mark Anson, CAIA

      Garry Crowder

      David McCarthy

      Tom Robinson, CAIA

      Hilary Till

      James Tomeo

      Hedge Funds, CTAs, and Fund of Hedge Funds Committee

      Jaeson Dubrovay, CAIA

      Mark Hutchinson

      Kathryn Kaminski, CAIA

      Jim Liew

      Hamlin Lovell, CAIA

      Putri Pascualy

      Mark Wiltshire, CAIA

      Real Assets (Real Estate, Commodities, Infrastructure, Intellectual Properties, and Natural Resources) Committee

      Tom Arnold, CAIA

      Andrew Baum

      Georg Inderst

      Sameer Jain

      Tom Johnson, CAIA

      David Lynn

      George A. Martin

      Joelle Miffre

      Richard Spurgin

      Private Equity and Venture Capital Committee

      James Bachman, CAIA

      Erik Benrud, CAIA

      Douglas Cumming

      Ludovic Phalippou

      Pierre-Yves Mathonet

      Thomas Meyer

      Gitanjali M. Swamy

      Due Diligence, Risk Management, and Regulation Committee

      Gordon Barnes, CAIA

      Michal Crowder

      Jason Scharfman

      Christopher Schelling, CAIA

      Sean Gill, CAIA

      Tom Kehoe

      Danny Santiago, CAIA

      Asset Allocation, Endowments, Pension Funds, and Sovereign Funds Committee

      Samuel Gallo, CAIA

      James T. Gillies, CAIA

      Special credit goes to CAIA staff for their valuable contributions in painstakingly bringing the third edition to completion.

      CAIA Staff

      Beth Rochon, Curriculum Project Manager

      Andrew Dunham, Research and Publications Coordinator

      Nelson Lacey, Director of Exams

      Kathy Champagne, Senior Associate Director Exams Administration

      Kristaps Licis, Senior Associate Director of Exams

      Outside Editor

      Jamie Thaman

      About the Authors

      The CAIA Association is an independent, not-for-profit global organization committed to education and professionalism in the field of alternative investments. The Association was established in 2002 by industry leaders under the guidance of the Alternative Investment Management Association (AIMA) and the Center for International Securities and Derivatives Markets (CISDM) with the belief that a strong foundation of knowledge is essential for all professionals. The curriculum includes two exams (Level I and Level II) administered to professional analysts in this growing field so that, upon successful completion, the individuals are designated Chartered Alternative Investment Analysts (CAIA). The CAIA designation has a great deal of prestige in the global community. Members come from over 80 countries on six continents.

      Dr. Donald R. Chambers, CAIA, is Associate Director of Programs at the CAIA Association; the Walter E. Hanson/KPMG Professor of Finance at Lafayette College in Easton, Pennsylvania; and Chief Investment Officer