CAIA's Don Chambers Talks Alternative Investments

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Don Chambers is one of the authors of
CAIA Level I: An Introduction to Core Topics in Alternative Investments
(Wiley), a reference / text book compiled with the primary aim of helping people achieve CAIA certification. But, Chambers says, it can also be useful for traders and investors. He spoke to Benzinga to tell us more.
First of all, can you give us a brief background of yourself?
I have been an academic professor my whole career. While being a professor, I've had a variety of positions in addition to that. I was the director of alternative investments at an investment firm called Karpus Investment Management. I was there for a total of about 15 years. Then I eventually became the director of the Level I organization of the CAIA organization. I'm the director of the Level I curriculum. CAIA is a certification program and there are two levels, 1 and 2.
How did you get involved with this book?
The CAIA organization began about ten years ago. I was with the first class that graduated with the CAIA designation. I actually took the certification while with Karpus. The program was created by a number of practitioners and some academics from the University of Massachusetts. I knew some of the people involved in the program, and I continued to be in association with the program informally. About four years ago I was brought on board on a part-time basis with CAIA to help grade examinations. There are two evolutions I want to briefly overview here. One is that the program began in 2003, and when it began they were mostly grabbing reading that was already out there, putting them together. The area was pretty primitive back in 2002. About six years ago, they adopted a very well-written handbook on alternative investments written by Mark Anson. About three years ago, they had him revise that handbook a little in the direction of what we wanted for our program. We began to create literature internally like that, and that created the first edition of this book. With the second edition of this book, we very much said now we've got something pretty close to what we want, how can we go through this and a) update it, but b) really direct towards the specific vacuum that we see out there in the market. That is what you're holding in your hands. So we adopted Anson's book, then revised it slightly, then revised it a lot more.
Who is the book for?
The primary purpose is for the candidates that are sitting for the CAIA exam. The second purpose is that we believe it is well-suited as a text book in a university level course on alternative investments, and the third purpose really circles back to the original Anson book, which is as a reference to alternative investments designed for practitioners. It's the sort of thing that, if I were in alternative investments or interested in them, as I was 25 years ago, it's the sort of book I'd want to pick up as a broad introduction to the entire spectrum of institution quality alternative investments. I want to be clear that we're not advocating alternative investments with this book. We're certainly not discouraging them. But it's a rather clinical, almost reference sort of treatment, as opposed to a "how do you beat the market" sort of treatment. This isn't something that somebody can pick up and say "what are the six ways to beat the market". This is something that you pick up to understand the market. As you go through the market, if you look at it carefully, you'll see that it really does discuss why potentially a strategy might offer a superior return and potentially why the strategy might not be appropriate. It's rather clinical in its tone. For instance, if you're interested in an activist hedge fund strategy, a hedge fund strategy that is devoted to corporate governance activism, there are about ten pages that really go through why there might be value that can be unlocked there. Trying to guide a person so as to be able to differentiate between those activist hedge funds, then we really do seem to be unlocking value for shareholders, and what to look for when picking a hedge fund manager. But I really would distance it away from somebody saying that it's going to specifically point you towards how to beat the market. I think it's going to give you the tools for which you can make decisions about where the market can and can't be beat.
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There are four names on the front (Mark Anson, Chambers, Keith Black and Hossein Kazemi) - what was your role?
Mark Anson's name is there because he wrote the previous edition, and of course this book draws heavily from that. Not just in words, but in the whole structure of the book. I did a lot of the revised writing, and I was really the person that brought it together. I really did like an editing role as well. Keith Black is also on staff at CAIA - he's full-time. He did a lot of the hedge fund writing. Hossein Kazemi did some structured product writing and commodity writing, and he also helped a lot with the editing of the book. I think that one of the roles that I played was not only doing a lot of the writing but also trying to integrate the parts of the book. When you have multiple authors like some of the books that you'll see out there in the practitioner market, it's really just a collection of independent authors who really weren't working with each other. Each chapter is a different topic which doesn't necessarily relate with or interface with the other chapters written by other authors. I'm not trying to brag, but just trying to state the fact that I was the person just trying to make sure that everything was integrated with everything else, so that things weren't repeated in different chapters. I had the vision of the whole.
That's quite a task with this much information…
It was an unbelievable task, and that's what blew me away about this project - realizing the scope of alternative investments and trying to decide what goes in the book and what doesn't, and what comes out is an 850 page book. There's an awful lot of stuff that we had to leave out, because alternative investments is such a wide area. This book focus' on institutional quality alternative investments and so leaves out stuff like collectibles, that an individual may be interested in but a financial institution wouldn't. There's so much that could go in there. You could literally write a whole book on farmland, or timberland, or infrastructure, or intellectual property. We added all of those topics to this book relative to the last edition, and we did so in probably 30 pages. One of the things we faced was keeping this down to 850 pages, and the other was my realization of what 850 densely-written pages of a book, how much work it takes. It was really more than I thought.
What can Benzinga readers get out of the book?
Again, this is not a book with a plug n' play investment strategy. This book can give them a framework within which they can do a better job of designing their own strategies. Of course, that's what you traders are ultimately going to be doing. It really tries to emphasize a way of thinking. The book lays out a lot of institutional information, but I think one of the biggest things it can offer is insights into why assets might offer the return that they offer, and why some of those returns might be superior or inferior. I hope people enjoy the economic reasoning that goes into the methodologies that the book describes.
Follow me @BCallwood.
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