By
Madeline Heckman on behalf of Joseph F. Pescatore
In 1990, I
was working at the New York Mercantile Exchange (NYMEX) on the 7th floor
of 4 World Trade Center in New York. The trading floor at NYMEX was where 90%
of the world’s futures and options of crude oil and other energy-related
products were traded and served as a benchmark for pricing crude oil globally.
To grow the Exchange’s market share, I traveled across the country and
internationally to meet with the largest institutional investors to promote the
benefits of managed futures and commodities. Investment teams scratched their
heads or pushed back with concerns about volatility, placement within a
portfolio, lack of benchmarking, and unclear sources of return.
With
alternatives not widely accepted by institutional investors, I knew we needed
material evidence to demonstrate the value of managed futures and alternatives
more broadly. I had heard about a professor at the University of Massachusetts
who recently created an academic thinktank to study alternative investments—The
Center for International Securities and Derivatives Markets (CISDM). Soon after
meeting the professor, I joined the CISDM board of advisors and commissioned
him to produce a series of academic whitepapers.
Armed with
hundreds of copies of this academic research, I set out, again, to meet with
the largest endowments, foundations, pensions, and sovereign wealth funds. As I
had hoped, these meetings raised investors’ curiosity. With tangible evidence
pointing to the benefits of including alternatives in a prudent institutional
portfolio, investors wanted more information.
With the
other few advisors on the CISDM board, I met with industry associations like
the Managed Futures Association (now the Managed Funds Association) in
Washington and the Alternative Investment Management Association in London to
familiarize them with our research and efforts, and to open the door for
potential collaboration. We discussed challenges within the alternatives
sector.
To make
alternatives more widely accepted as a legitimate component of a portfolio, we
needed academic research, a journal, a textbook, and a designation. With
research well underway, I approached a publishing company about creating the
Journal of Alternative Investments and the Handbook of Alternative Investment
Strategies. Once those were published, we shifted our focus to creating a
globally recognized designation for professionals with expertise in
alternatives. At the time, the CFA did not cover alternatives in its
curriculum, so we aimed to build an equivalent for the alternatives space.
Our second
annual board meeting for CISDM was held at the Lord Jeffrey Inn in Amherst,
Massachusetts. As we passed boxes of Chinese takeout across the board table,
the handful of us brainstormed ideas on an academic curriculum for
alternatives. I took pen to paper and began scribbling. Negatively skewed
distribution…multifactor analysis…risk characteristics…downside equity risk
management. That late night in Amherst produced something far greater than
we had hoped – the Chartered Alternative Investment Analyst (CAIA) exam and
certification.
Despite its
modest origin, CAIA
has expanded into a globally recognized designation, and alternatives are
hardly alternative.