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-ireland-note/ ). 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.
(1) If you study 3-4 years for a designation like CFA, I think the financial award will not be greater than the public reprimand and loss of those many hours of painstaking studies. (At least that is what they hope) (2) I don’t know how it happens in the industry. But, they were classifying the products into beta and alpha to presumably show that the two types should be separated. Because current managers disguise beta as alpha and get paid incentive fees for nothing. (3) I myself found it awkward that I had to remember the distributions. However, CAIA is revamping it’s syllabus. (4) Regardless of how hard or easy the exam is, it does show dedication. According to your analogy about excel, would you rather hire someone who can show that he knows EVERY syntactical rule -OR would you hire someone who can’t prove or disprove that he has any excel skill? (at least in the interview room). Personally, I am doing certifications because I am still a student. I want to study finance (not necessarily for a job), and these give me direction and a sense of personal achievement.
I generally agree with everything you said… I too found that memorizing all of these 5, 10 year returns, kurtosis, etc… odd… As you mentioned in this information age, it would seem that all of these information would be something that we can get if we need to. I could see why they’re doing this… But I don’t think it’s the best way. I mentioned this on few of the other posts… But I was more concerned about the way the whole curriculum was setup. I understand that this is a fairly new exam… But no practice exams, end of chapter questions, and no text book… seems odd… I would think these are the things that they would prepare from the first exam… so that people can receive a text book (considering we’re paying $1000+ for the exam!) and some questions to let people understand what to expect.
I agree with #3. The rest of it, I think you are just bitter. I am also amazed at someone ranting about the CAIA. It’s not like it’s that difficult of an exam. Level I had a 74% pass rate in September 2011. Try the CFA - pass rates of 40% per test with 10 times the material.
I kind of agree with the first post, I felt similar to that. However this is just an exam, so learn some memorisation techniques and shut up. By the way, how many people are actually taking the CAIA to learn something? I have heard of so many claiming to have studies for it just 2 weeks. I find it rather pointless.
What do you think about ethics, then? Useful? Would studying this curriculum have prevented all the financial scandals we know about? Would Madoff have been a honest, law-abiding fund manager if he had been a CAIA? And what about memorising all those obscure classifications? Do you think it makes sense to classify ETFs as beta-this or beta-that without understanding what is in an ETF and what the risks are? Do you think all this passive memorisation turns candidates into good investment analysts? I complain about the things I find pointless - as simple as that.
Sorry, I’m not sure I understand. Do you mean CAIA is or isn’t worth the effort (and the cost)? Why?
Fine. But I don’t see the point of dedicating so much material to classifying products into beta-this or beta-that, without spending a single word on what these products really are. Before deciding how to invest in ETFs, which do you think is more important to know? How some academics classify them, or what is actually in those instruments, how they replicate the indices, what collateral is used if the structure is synthetic, etc?
Let’s hope! I would keep no more than 30% of the current curriculum…
I couldn’t care less if a candidate interviewing for a role in my team memorized the syntax for all the Excel formulae. What I do care about, and what I test extensively when I interview, is the thought process, the reasoning, the approach. Depending on the role I am recruiting for, I almost always grill candidates on how they would approach a specific financial modelling problem. I couldn’t care less what software / programming language / formulae they know or don’t know; I want to be sure that they identify the key drivers, the parameters which are instead less important, the key risk factors, a robust modelling approach, etc. If a candidate has a good idea of how to structure a problem, learning a specific software or formula to translate his ideas into a model is a piece of cake. Instead, memorising all the possible formulae is no guarantee that the candidate would be able to structure a model. Similarly, a valid exam, be it at university or in a professional certification, should test the approach and the thought process more than passive memorisation of dull concepts. And that’s because it’s much easier to forget passively memorized concepts than a thought process to analyse and solve difficult problems.
Stupid comment, but I’ll respond. Yeah, I think ethics are useful - helps clarify a thing here or there. So question - what about doctors? They have countless terms they need to memorize that are classified based on obscure latin names and such. And I’m sure any ethical questions they face have not stopped some doctors from doing totally unethical things either. So I guess Med School and all those exams they have to take are just POINTLESS, right? Just yesterday some manager I was interviewing mentioned “bespoke exposure on the short side”. I knew exactly what he was talking about even before he went deeper into it. But hey, pointless right? I hope you passed. Maybe you’ll quit whining and get back to the books.
You are miserable! No one told you to stay in the profession…go be a nurse! A lot less headache and maybe a lot less money as well but you don’t need to take these exams, another life awaits you…some of your points merit some value ( but not enough for your rant) but it sounds like you want the certification so that eventually your chance will come to be the next Madoff…or not…that remains to be seen.
Is this serious? Honestly, my girlfriend is a lawyer, and ask her how much she remembers from the bar she took 4 months ago, practically nothing. Does that make the bar pointless, absolutely not. Same goes for med boards, and what about college where you just cram and forget. So college is useless as well? These tests are about establishing a base line level. By passing the CAIA/ CFA/ FRM, you tell employers that you have this sort of knowledge and are driven enough and dedicated enough to put in the hours. Will getting these make you Warren Buffet, of course not, but to say they aren’t worthwhile is absurd.
Besides the fact that nobody is forcing you to stay in this industry!
Studying anatomy or, say, the irregular verbs of a foreign language is boring and dull - at least to me - but it is clearly absolutely necessary. A doctor visiting a patient cannot “google” the location of a bone, nor can someone speaking a foreign language interrupt a conversation saying: “Hold on - wait till I look up how to conjugate this verb”. I happen to speak two foreign languages; learning all the irregular verbs, quirks etc was a big pain at first, but I never complained, not for a single second, because the necessity and the use of all that painful, passive memorization was always very clear to me. However, again, what is the point of knowing that the CAIA association classifies structured products into beta-this and beta-that, if the curriculum doesn’t even barely scratch the surface of what these structured products are, what’s in there, what risks they expose investors to, etc? I think knowing what a product is and how it works is way more important than knowing the obscure, subjective classification someone came up with. Evidently you don’t agree; fine, but you haven’t bothered to explain why. I’m still here and I’m all ears. Being able to understand what someone means when he/she talks about ‘bespoke exposure to the short side’ is great - you both share the same jargon. But it’s utterly pointless if this jargon is not backed up by a deep understanding of the products. The CAIA curriculum gives you the former (the jargon) but not the latter (the deep understanding). If you think all the concepts the CAIA curriculum focuses on are so important, then why do you think there are so many people in banking and investment management who studied completely unrelated subjects? Banks do hire plenty of young kids who studied maths, physics, statistics and I-don’t-even-remember-how-many-other subjects other than economics or finance into their graduate programs, and, guess what, they can become good bankers/analysts just by learning on the job. Some of the best colleagues I ever worked with went down this route, and I’m not talking about the odd exception that proves the rule. To my knowledge, no one, no matter how outstandingly bright, can become a brain surgeon, a neurobiologist or an aeronautical engineer if he studied completely unrelated subjects: in those fields you cannot just ‘learn on the job’, whereas in finance you can, all the more so in non-technical, sales roles (which, incidentally, tend to be among the best paid); I still remember an MD shouting at a young intern who wanted to show off his theoretical knowledge. yelling that in sales the only thing that matters is entertaining clients, not boring them with theories and models (this is the edited, censored version, but I am sure you get the concept). My interpretation is that most of the theoretical stuff taught in business schools and in professional certifications is not as useful as they’d like us to believe. What is yours? Of course, I’d love to be able to say that what I studied at university is fundamental for my work, that I constantly apply complex theories which require years of hard study, etc. But I am honest enough to admit this is not the case. Finally, passing has nothing to do with my complaints. I passed most exams in business school with straight As, yet I do recognize that most of what I had to study was pointless, for the reasons mentioned above. This actually leads me to another consideration: you don’t need to be Freud to understand that most people tend to want to feel proud of what they perceive as important achievements, and find it very hard to acknowledge that an important choice they made may have been a mistake. This is the reason why, for example, I have yet to meet an MBA who admits he regrets doing an MBA, even if he landed the same role he had prior to business school, and got heavily indebted in the process. Or why all the IT people I know who spent time and money on the CFA brag about how happy they are they did it, even if it had zero impact whatsoever on their careers; no, I take that back: it had a very negative impact, considering they spent time and money for nothing; oh sure, they ‘learnt’ something, but if they just wanted to ‘learn’ they could have simply bought the books without spending $$$ on the exams. Or, similarly, why most people who graduated in finance like to think that what they studied was very useful, even though they have several colleagues who studied completely unrelated subjects, learnt on the job, and who are doing just fine.
You don’t agree with me. Fine. Forums are meant for discussion, after all. However, I see insults, not debate, in your reply. I want to stay in the profession. I simply resent that the CAIA curriculum is too abstract and of little practical use, for the reasons mentioned before. I do not want the certification at all costs. Having it could have some value in the pre-screening phase of a job interview, when the CAIA might increase my chances of being selected by an automated algorithm searching CVs for keywords, or by a clueless recruiter or HR interviewer who doesn’t understand the business. But any manager who places more value in these 4 letters than in the actual experience of a candidate is a manager I have no interest in working for. Finally, your comment about Madoff simply shows how you resort to insults when you cannot reply with a reasonable counter-argument. Sad.
? Criticizing the CAIA curriculum doesn’t mean I hate the industry and want to leave it. I want to keep working in the industry, but I strongly criticize CAIA for the reasons I mentioned. What’s the problem?
If your girlfriend remembers so little after such a short time then yes, I would probably dare (how heretical of me!) express some concerns about the actual usefulness of the whole effort. However, I would at least like to believe (I know nothing about the bar exam) that she studied stuff that’s relevant for her work, so when she needs it later revising something studied in the past should be easier than studying something new from scratch. As for what you study as a young kid, the point there is not practical application in the workplace, but stimulating critical thinking and an interest towards culture in general. Again, my main complaint is that I don’t understand what the point is of studying the classification of financial products is if you don’t understand what they are and how they work. This is no base line to me. The financial crisis is an excellent example of what happens when people invest in products they don’t understand because, among other reasons (stupidity, biased incentives, pure dishonesty, etc) they trust flawed theories without applying any critical thinking. Practical example (one of the many): In 2009 Calpers, the fund previously managed by Mark Anson (who was the CIO), the author of the CAIA book, sued the rating agencies claiming it was misled on the nature of structured products which had become toxic. http://www.nytimes.com/2009/07/15/business/15calpers.html http://latimesblogs.latimes.com/money_co/2011/08/calpers-drops-suit-against-fitch-ratings.html The best part is that, according to the press, Calpers based its investment decision purely on the ratings, because the nature of the securities comprising the structures was ‘proprietary information’. They didn’t know what they were buying! I can imagine the conversation among a shady salesman and a Clueless Alternative Investment Analyst at Calpers: Salesman: Hey, bro, wanna buy some cheap beta? CAIA: sure, bro, I got the hots for this kind of stuff! Salesman: And since I like you. I’m gonna throw in some bespoke beta, too! CAIA: wow, double beta! How much you got? Salesman: as much as you want and more. I can’t tell you what’s actually in there, but it was rated AAA, and you ain’t gonna question AAA hot beta, are you, bro? CAIA: who cares? I never learnt what’s in these structured products anyway. But I like these betas! The books I studied say they are goood for you and that AAA is great stuff, bro! I don’t know if Mr Anson was involved in these investment decisions. But it’s a bit of a paradox to me that the fund where he was CIO made such a stupid mistake.
These exams aren’t meant to teach you everything about everything dude. You can’t have an exam go 100 miles wide and 100 miles deep. If you are gonna go as wide as the CAIA and more importantly the CFA go, you have to accept they won’t go that deep on most subjects. They teach you the basics and show employers you are seriously dedicated to the profession. Did the CFA teach me when was the best time to put on a bear put spread? No, but I knew what it was when the time came to dig deeper. If you don’t like it all, then don’t take it. You are obviously ranting for some insecure reason. More Designations = More Money for me. Point, set, match.
To OP: a lot of what you said probably makes sense. However, since you’ve already learned the material, you might as well be positive and try to figure out its usefulness, even if it’s not a lot. A lot of academic knowledge is not meant to be directly applicable to the real world. It might, however, provide you with a mental framework to which you can apply your own assumptions and reasoning, and from which you can develop your own conclusions. Lets use your argument about historical data as an example. Sure, historical skew and kurtosis might not persist into the future. However, once you learn how different assets have behaved in the past, maybe you can start thinking about why they performed in those ways. Maybe you can develop your own understanding of how historical events have influenced the volatility of different assets, and maybe you can start to think about how similar events in the future might influence the returns on those same assets. Before developing this reasoning, it’s very useful to understand what happened in the past. I would encourage you to keep an open mind about the CAIA or other material. You might come to appreciate it after a while.
Wallstreet1234 sounds like he is planted. Before these arguments of the CAIA come into fruition, the OP needs to provide proof to the forum moderators that he does in fact work in the profession and passed both levels. I came here because this post was on the front page. This site shouldn’t blog post forum threads, that is sensationalist.
And why is that? Because I dared criticise the CAIA curriculum? Would you like everyone to provide proof of his/her credentials, or only those who dare express criticism? Look, I couldn’t care less if you don’t believe me. The point is not my experience, but whether it makes sense to classify things you don’t really understand. It was very disappointing to see that 90% of the replies were pointless insults, and that only a couple of replies were civilised. I thought forums were meant for discussions, but obviously this one isn’t.
I have no control over that, but I see nothing wrong with it.
Another 2 cents worth… Everyone should be allowed their opinion without slamming others. Do we need to agree on everything to get along. Sometimes hot debate makes us really think about things and push us to explain what we think we believe, ultimately crystallizing or correcting our highly held convictions… Let’s all be civil and take a page from media. They often print sensational editorials - stuff most of us disagree with - but also publish opposing comments readers send in, I believe, without bashing the author. As for the subject in question… Personally, I am taking CAIA to educate myself. It’s a huge benefit for those without a finance degree who end up in the industry. I’m finding it motivates me and helps me enjoy the job more. Now knowing why distressed debt funds often hold both CDS and high-yield debt really interests me, something I was totally bored with when I was working with them. I also agree it with others that it can serve as a good baseline, because who knows where lateral moves will take you. But I also agree with WS that it’s better to have a monkey who can creatively solve the problem, not necessarily remember all the formulas. But if you have a 3rd choice, someone who has a mix of both, I think that’s even better. I find knowing “most” the formulas in advance helps after you’ve decided how to tackle the problem… Peace.