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Chronicles of an Allocator

Chronicles: February 2020

Issue 1, February 2020

Dear CAIA Members and Investment Professionals,

We’re excited to introduce the inaugural edition of Chronicles of an Allocator. This monthly newsletter has been carefully curated to provide you with a selection of thought leadership pieces, designed to assist and inform the capital allocation process.

As we continuously journey through our now 100 country reach, we have the privilege of interacting with some of the largest and most influential allocators and managers around the world. The dialogue and debate generated in these interactions are invaluable and result in a broad array of blogs, webinars, events, articles, and white papers. We know that navigating the sea of content from the CAIA Association, along with other sources, can be overwhelming. That’s where Chronicles can help.

On a monthly basis, our Content Strategy team will choose a handful of the most relevant industry material to help you chart your own course. Regardless of your current seat, LP or GP, buy-side or sell-side, consultant or service provider, traditional or alternative, we aim to equip all investment professionals to think like an allocator.

As the professional body for the alternative investments industry, our mission begins with ethics and standards. Still, producing relevant content is also a crucial ingredient and this newsletter is just one example of our determination to ensure that the CAIA Association is a trusted voice in the industry. We would greatly appreciate any feedback or counsel on our efforts as we endeavor to serve you better.

Hope to see you in our travels,

John L. Bowman, CFA, Senior Managing Director, Twitter, LinkedIn

Keith Black, PhD, CFA, CAIA, FDP, Managing Director Content Strategy, Twitter, LinkedIn

Aaron Filbeck, CFA, CAIA, CIPM, Associate Director, Content Development, Twitter, LinkedIn

Environmental, Social, and Governance

Sustainable Investing: Fast-Forwarding Its Evolution

Featuring Bill Kelly, President and CEO of CAIA Association

A joint study between CAIA Association, AIMA, and KPMG sought to answer three questions: What is the current state of progress in implementing sustainable investing? Why is the pace of progress being held back by various barriers? How are these barriers being tackled on the ground by evolving best practices? After surveying 135 institutional investors, hedge fund managers, and long-only managers with combined assets under management of over $6 trillion, the results show that investors are increasingly expecting asset managers to deliver attractive financial returns while considering the environmental and social risks associated with their investments.

What About Beta?: Leery Funk’s Open Letter to Sovereign Leaders

By Bill Kelly, President and CEO of CAIA Association

In this edition of What About Beta?, Kelly offers his take on Larry Fink’s recent letter urging executives to step up against the crisis of climate change. In a period where the global economy is so reliant on fossil fuels, it’s more difficult than ever for people and investors to align environmentally friendly initiatives with financial incentives. Making true progress, Kelly claims, may not always be an organized effort, but will require individuals to step up… even if no one else does.

Democratization of Alternative Investments

An Alternative View of Manager Selection Risk

By Hossein Kazemi, PhD, CFA, Senior Advisor, and Aaron Filbeck, CFA, CAIA, CIPM, Associate Director of Content Development at CAIA Association

Manager selection in alternative investments can be a key differentiator for a positive or negative investor experience. In a time where investors are starting to allocate more capital outside of traditional equities and fixed income, some for the first time, relying on index risk and return to set expectations ignores two major risks: return smoothing and sub-manager diversification. In this summary editor’s letter from Volume 8, Issue 4 of the Alternative Investment Analyst Review, Kazemi and Filbeck analyze these risks in order to help investors properly estimate traditional risk metrics for non-traditional asset classes.

What About Beta?: Hope May Not Be a Strategy, but Neither is a 60/40

By Aaron Filbeck, CFA, CAIA, CIPM, Associate Director of Content Development at CAIA Association

Active management and the concept of diversification need a better value proposition. As a guest contributor to What About Beta?, Filbeck argues that if investors are to truly feel a sense of ownership over their own investment portfolios, investment professionals must begin to speak with them in a common language. Alphas, betas, and correlations are an important part of the investment process, but they should be applied and communicated in the context of a client’s goals and objectives.

Artificial Intelligence and Data Science

A Conversation with the Institute of Business Ethics

By Keith Black, PhD, CFA, CAIA, FDP, Managing Director of Content Strategy at CAIA Association

Recently, CAIA Association and FDP Institute sat down for a conversation with Guen Donde, the Head of Research for the Institute of Business Ethics (IBE). The discussion ranged from human biases, General Data Protection Regulation (GDPR), the impact data has on compliance departments and firms’ codes of ethics. Black provides a summary of the conversation in this post, and a link to the full webcast is available at the end.

A Conversation with Gene Getman, CAIA

Featuring Gene Getman, CAIA, Client Portfolio Manager at Lombard Odier Investment Managers

In this webcast, CAIA Association and FDP Institute talked with Gene Getman, CAIA, and discussed the differences between big data and alternative data, data sources, and the technical challenges of utilizing big data.

Current/Future State of the Industry

The Growth of the Private Credit Market

By Keith Black, PhD, CFA, CAIA, FDP, Managing Director of Content Strategy at CAIA Association

After a prolonged period of extremely low, or even negative, interest rates, investors have turned to private market assets to find differentiated sources of income. In Volume 7, Issue 2 of Real Assets Adviser, Dr. Black discusses the meteoric rise in private credit assets under management, the differences between private credit strategies and fund structures, and the importance of due diligence in an opaque asset class.

Beyond the Meat, Beyond the Traditional

By Aaron Filbeck, CFA, CAIA, CIPM, Associate Director of Content Development at CAIA Association

Earlier this year, J.P. Morgan Asset Management released their 2020 Global Alternatives Outlook. The report offers a unique framework for investors as they think about allocating alternative investments. The remainder of the report offers J.P. Morgan’s take on where opportunities and risks lie within multiple asset classes. In this CAIA Alternative Viewpoint, Filbeck offers a summary of the report and his own interpretation of the broader themes that are likely to impact alternative investments, regardless of asset class.

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All posts are the opinion of the contributor. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CAIA Association or the contributor's employer.