Chartered Alternative Investment Analyst (CAIA) Professional Standards, Ethics, and the Alternative Investment Industry Syllabus

Professional Standards, Ethics, and the Alternative Investment Industry syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Professional Standards, Ethics, and the Alternative Investment Industry in Chartered Alternative Investment Analyst (CAIA), not a summary of it.

1. 1

   The CAIA Ethical Framework and CFA Institute Code & Standards

   4 topics

   • Foundations of professional conduct in alternatives
     • Purpose of a code of ethics and professional standards
     • Fiduciary duty versus suitability obligations
     • CAIA Member Agreement and disciplinary process
   • The CFA Institute Code of Ethics
     • Six components of the Code
     • Acting with integrity, competence, and diligence
   • Standards of Professional Conduct (I-VII)
     • Professionalism and integrity of capital markets
     • Duties to clients and to employers
     • Investment analysis, recommendations, and actions
     • Conflicts of interest and responsibilities as a member
   • Applying standards to alternative investment cases
     • Material nonpublic information in private markets
     • Performance presentation and marketing of funds
2. 2

   Conflicts of Interest and Trust in Alternatives

   3 topics

   • Sources of conflict in private and hedge fund structures
     • Manager compensation incentives
     • Side letters and preferential terms
     • Related-party transactions and cross-fund trades
   • Disclosure, transparency, and governance controls
     • Conflict-of-interest policies
     • Independent boards and advisory committees (LPAC)
   • Valuation conflicts and self-reported marks
     • Independent pricing and third-party administrators
     • Stale and gated pricing risks
3. 3

   The Landscape and Size of the Alternative Investment Universe

   3 topics

   • Defining alternative investments
     • Real assets, hedge funds, private equity, structured products, digital assets
     • Distinguishing traditional from alternative exposures
   • Investor types and motivations
     • Pensions, endowments, sovereign wealth, family offices
     • Liquidity, diversification, and return objectives
   • Industry trends and institutionalization
     • Growth of allocations and democratization
     • Fee compression and co-investment trends

Professional Standards, Ethics, and the Alternative Investment Industry flashcards for Chartered Alternative Investment Analyst (CAIA)

21 of 49 cards from the Professional Standards, Ethics, and the Alternative Investment Industry deck — real questions with worked answers.

1. What are the six components of the CFA Institute Code of Ethics that members must follow?

   (1) Act with integrity, competence, diligence, respect, and in an ethical manner; (2) Place the integrity of the profession and clients' interests above their own; (3) Use reasonable care and exercise independent professional judgment; (4) Practice and encourage others to practice in a professional and ethical way; (5) Promote the integrity and viability of global capital markets for the ultimate benefit of society; (6) Maintain and improve professional competence.

2. What is the difference between the CFA Institute Code of Ethics and the Standards of Professional Conduct?

   The Code of Ethics is a set of high-level ethical principles describing the values members aspire to; the Standards of Professional Conduct are the specific, enforceable rules that operationalize the Code and govern day-to-day behavior.

3. List the seven Standards of Professional Conduct (I–VII) by title.

   I. Professionalism; II. Integrity of Capital Markets; III. Duties to Clients; IV. Duties to Employers; V. Investment Analysis, Recommendations, and Actions; VI. Conflicts of Interest; VII. Responsibilities as a CFA Institute Member or CFA Candidate.

4. What four sub-sections make up Standard I: Professionalism?

   I(A) Knowledge of the Law; I(B) Independence and Objectivity; I(C) Misrepresentation; I(D) Misconduct.

5. Under Standard I(A) Knowledge of the Law, which law applies when local law, the Code/Standards, and another country's law conflict?

   Members must comply with the more strict applicable law; when laws conflict, follow the law (or the Code and Standards) that imposes the higher, more stringent standard of conduct.

6. What does Standard I(B) Independence and Objectivity require regarding gifts from clients versus third parties?

   Members must maintain independence and objectivity. Modest, customary gifts from clients (for past performance, not to influence future action) are generally permissible with disclosure to the employer, but gifts/benefits from third parties seeking to influence judgment must be refused or disclosed.

7. What conduct does Standard I(C) Misrepresentation prohibit?

   Knowingly making any untrue statement or omission about investments, qualifications, services, or performance, including plagiarism and guaranteeing specific returns on volatile investments.

8. What is the scope of Standard I(D) Misconduct?

   Prohibits any professional conduct involving dishonesty, fraud, or deceit, and any act that reflects adversely on professional reputation, integrity, or competence (it covers behavior beyond investment activities).

9. What are the two sub-sections of Standard II: Integrity of Capital Markets?

   II(A) Material Nonpublic Information; II(B) Market Manipulation.

10. Under Standard II(A), when is information considered 'material' and 'nonpublic'?

    Information is material if its disclosure would likely affect a security's price or if reasonable investors would want it before making a decision; it is nonpublic until it has been disseminated or is available to the marketplace in general.

11. What is the 'mosaic theory' under Standard II(A)?

    An analyst may combine material public information with nonmaterial nonpublic information to reach an investment conclusion and act on it, even if those conclusions would be material if communicated directly by the issuer.

12. What two forms of market manipulation does Standard II(B) prohibit?

    Information-based manipulation (spreading false rumors) and transaction-based manipulation (trades that distort prices or volume, such as wash trades, or that secure a controlling position to manipulate the price).

13. List the sub-sections of Standard III: Duties to Clients.

    III(A) Loyalty, Prudence, and Care; III(B) Fair Dealing; III(C) Suitability; III(D) Performance Presentation; III(E) Preservation of Confidentiality.

14. To whom is the duty of loyalty owed under Standard III(A) when managing a pension or trust?

    The duty of loyalty, prudence, and care is owed to the ultimate beneficiaries of the fund/trust, not to the person who hired the manager or to the plan sponsor.

15. What does Standard III(B) Fair Dealing require when disseminating recommendations and allocating trades?

    Members must deal fairly and objectively with all clients when providing investment analysis, making recommendations, taking action, or engaging in other professional activities (fair, not necessarily equal, treatment), and allocate trades, including IPOs/hot issues, fairly among clients.

16. What two levels of suitability analysis does Standard III(C) require?

    (1) For clients with an investment policy statement, ensure each investment is suitable given the client's objectives, constraints, and the total portfolio; (2) for managing to a mandate/strategy/style, ensure investments are consistent with the stated mandate.

17. What does Standard III(D) Performance Presentation require?

    Members must make reasonable efforts to ensure performance information is fair, accurate, and complete, and must not misstate or mislead about past performance or expected results.

18. Under Standard III(E), when may a member disclose confidential client information?

    Confidentiality must be preserved unless the information concerns illegal activities, disclosure is required by law, or the client/prospect permits disclosure. A key exception is responding to a lawful CFA Institute Professional Conduct Program investigation.

19. List the sub-sections of Standard IV: Duties to Employers.

    IV(A) Loyalty; IV(B) Additional Compensation Arrangements; IV(C) Responsibilities of Supervisors.

20. Under Standard IV(A) Loyalty, what may a departing employee do before resignation?

    Act for the employer's benefit and not deprive it of skills/abilities, divulge confidential information, or misappropriate property. Before leaving, they may prepare to compete but must not solicit clients or take records/files; only publicly available client information and personal memory may generally be used.

21. What does Standard IV(B) Additional Compensation Arrangements require?

    Members must not accept gifts, benefits, compensation, or consideration that competes with or could create a conflict with their employer's interest unless they obtain written consent from all parties involved.

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