In this episode of Strategic Investor Radio, host Charley Wright interviews Bill Kelly, the CEO of the Chartered Alternative Investment Analyst (“CAIA”) Association. Bill began his career as a CPA for Price Waterhouse before moving on to asset management, where he had a nearly 30-year career on the “buy side.” Ultimately, he was the founding partner of an asset management firm that sold to Robeco, and he says this experience gave him a great deal of insight into how the industry runs.
Today, Bill is the CEO of the CAIA Association, and he says “our product is education.” The CAIA began conducting classes in 2003, when there were only 43 students – including previous Strategic Investor Radio guest Dick Pfister, who proudly boasts of his “#10” CAIA charter. Now the CAIA Association has more than 8,400 members in 90 different countries, and its annual class sizes are in the neighborhood of 6,000 students.
Education is so vital, in Bill’s view, since there are still so many popular misunderstandings pertaining to alternative investments. For instance, most people think hedge funds are an “asset class,” when in reality, two funds can be virtually exact opposites: As Bill notes, hedge funds can be “risk mitigators” or they can be used to make “leveraged beta plays” on specific assets, such as the British pound post-Brexit.
People generally don’t appreciate how much the hedge fund industry has changed, either: In 2000, there were about 3,000 hedge funds managing around $500 billion; but in the time since, the number of funds has tripled and their assets under management (“AUM”) have multiplied by six-fold.
But why is it so important to understand alternatives? As Charley points out, many institutional investors (i.e., pension funds) have fixed obligations streaming into the future, and they need to generate investment returns to meet those obligations. Given the low-interest-rate environment and concerns about stock-market valuation, institutions will likely need to diversify into alternatives in order to even have a chance of meeting their target returns.