The CAIA

Association
CAIA LEVEL II
Candidate Orientation
March 2023 Exam

The Global Professional Body for Alternative

Investment Education
Today’s Presenters
Steve Novakovic
Managing Director, CAIA Curriculum
CAIA Association
Part I
Exam Experience
Aleeza Amador Kathy Lyons
Candidate Relations Associate Sr. Candidate Relations Manager
CAIA Association CAIA Association
¡Yo hablo español!
Part II
Candidate Experience
 Digital Learning
Platform
Discover the essential guide containing all the tools, content, and
terminology you need to pass the Chartered Alternative Investment
Analyst® exams. 

Handy features - Highlight content, create

Available ONLY through Wiley Efficient custom notes, pace your study time, take self-
assessments, communicate with other
Learning
Candidates, and much more!

Accessible for 18 months from date of Digital environment incorporates almost all
purchase with automatic updates as released learning content, including the full
curriculum, study guide, workbook, and
additional readings into one platform.
 Other critical
readings and tools

Curriculum & Study Tools Curric

u lu m

Emerging Topics CAIA Sample

Download at CAIA.org Questions
Access at CAIA.org

Exam Registration includes access to the Digital Curriculum CAIA Handbook CAIA L2 Study Guide
Download at CAIA.org Download at CAIA.org
CAIA Curriculum
Level I:
The Analyst’s Approach
 Introduction to Alternative
Investments
 Hedge Funds and Managed Futures
 Commodities and Real Assets
 Structured Products and Credit
Derivatives
 Private Equity, Private Debt, and
Venture Capital
Level II :
The Allocator’s Approach
 Ethics, Regulation, and ESG
 Models and Methods
 Investors and Investment Policy
 Risk Management and Asset
Allocation
 Due Diligence and Manager Selection
 Emerging Topics
LEVEL II – Exam Topics & Format
Approximate Exam Weight
Level II Topic
Multiple Choice Constructed Response
Emerging Topics 0% 10%
Ethics, Regulations, and ESG 0% 10%
Models 8%-12% 0%-10%
Institutional Asset Owners and Investment Policies 8%-12% 0%-10%
Risk and Risk Management 8%-12% 0%-10%
Methods for Alternative Investments 8%-12% 0%-10%
Accessing Alternative Investments 8%-12% 0%-10%
Due Diligence & Selecting Managers 8%-12% 0%-10%
Volatility and Complex Strategies 8%-12% 0%-10%
Total 70% 30%

Minutes Format Approximate Weights

120 Multiple Choice (all parts) 70%

30* Optional Break -
120 Constructed Response (all parts) 30% *) 20 minutes optional break
when Online Remote Proctored
240 Total Examination Minutes 100% Testing
LEVEL II – Exam Format
 Calculation
Maximum 30% of points from questions requiring a calculation

 100 Multiple Choice Questions + 3 Essays

Section 1 : 100 questions / 120 minutes / 70% weight
Section 2 : 3 essays / 120 minutes / 30% weight

 Constructed-response/essay questions
Are typed into the exam center computer
Grammar and spelling are not graded
- Short answers may be appropriate
- Give graders enough information to follow your thought process and give you a chance at partial credit
Focus on the content as presented in the CAIA curriculum
- Can come from any of the three required readings
- May cover one topic or multiple topics in a single essay
Each question has 3 to 5 parts
- Be sure to carefully answer and label each part of the question
Future Curriculum Cycle Update

 Annual Revision available October for following full-year exam Future Update Summary
cycle

 10-40% revised each year Example:

 Digital curriculum: Access for 18 months from date of purchase;
can be updated for retakes
 Print curriculum: Must be replaced in October of prior year for
March or September retakes
 The study guide is incorporated into digital and print curriculum
materials and is also available for free review at caia.org.
 September 2023 exam takers will
purchase Level I or Level II curriculum
materials on or after March 2023.
 Materials will be relevant through the
September 2023 exam window.
 Digital materials from Wiley eLearning
can be updated through 18 months (e.g.,
If Level I purchased in June 2023, it can
be updated for the March 2024 exam
after October 2023).
 Level II – Exam Topics
Emerging Topics
Ethics, Regulation, and ESG
Models
Institutional Asset Owners and
Investment Policies
Risk and Risk Management
Methods for Alternative Investments
Accessing Alternative Investments
Due Diligence and Selecting
Strategies
Volatility and Complex Strategies
 TOPIC 1: Emerging Topics
• Decentralized Finance: On blockchain- and smart-contract based financial markets
• Responsible investing in private equity
• Assessing Long-Term Investor Performance
• Portfolio Rebalancing Strategies
• Expected returns for private equity
• Longevity and liabilities
• A Short Intro to the World of Cryptocurrencies
• Channels for Exposure to Bitcoin
Download from Caia.org
 Level II – Exam Topics

Emerging Topics
Study Guide Information for Sample Emerging Topics Article
 
Ethics, Regulation, and ESG  Reading 1, Article A
• Are Liquidity and Counterparty Risk Priced in the Credit Default Swap Market?
Models

Institutional Asset Owners and  Keywords

Investment Policies • Credit default swaps (CDS)
• Systematic counterparty risk
Risk and Risk Management
• Undercollateralization
Methods for Alternative Investments
 Learning Objectives
Accessing Alternative Investments • Demonstrate knowledge of the current credit default swap (CDS) market landscape.
• Demonstrate knowledge of the structural approach to valuing CDS contracts.
Due Diligence and Selecting
Strategies • Demonstrate knowledge of liquidity and counterparty risks in CDS markets.
• Demonstrate knowledge of CDS spreads.
Volatility and Complex Strategies
 Level II – Exam Topics

Emerging Topics
Ethics, Regulation, and ESG
Models
Institutional Asset Owners and
Investment Policies
PART A
“Are Liquidity and Counterparty Risk Priced in the Credit Default Swap Market?” by Pu, Wang, and Wu, introduces credit
default swaps (CDS) and their return drivers.
I. Define a CDS. (0.5 points)
II. Describe the purpose of a typical CDS.  (0.5 points)

Risk and Risk Management III. Identify the counterparties based on their roles in a typical CDS transaction. (0.5 points)
IV. Describe the associated cash flows in a typical CDS transaction. (0.5 points)
Methods for Alternative Investments

(2 points)
Accessing Alternative Investments

Due Diligence and Selecting

Strategies

Volatility and Complex Strategies

 Level II – Exam Topics
Emerging Topics
Ethics, Regulation, and ESG
Models
Institutional Asset Owners and
Investment Policies
Risk and Risk Management
Methods for Alternative Investments
Accessing Alternative Investments
Due Diligence and Selecting
Strategies
Volatility and Complex Strategies
PART B
Consider an equally weighted portfolio of three highly risky corporate bonds that form the collateral to a collateralized debt
obligation (CDO). Each of the bonds is issued by a different corporation, but the bonds are otherwise identical. The
probability of default for each of the bonds in any market condition is 20%. The defaults are uncorrelated, and the recovery
rate is zero.
Apply the process of tranching to the portfolio of the three corporate bonds to repackage its cash flows into a structured
product comprised of three equally sized tranches (senior, mezzanine, and junior). The senior tranche defaults only after all
three bonds default.
I. Calculate the probability of default of each tranche: senior, mezzanine, and junior. In your answer, indicate a brief
description of the number of bonds that must default in order for each tranche to default. (3 points).
II.Now assume that the defaults of the bonds become perfectly correlated as a result of a systemic shock. What is the new
default probability of the senior tranche. (1 point)
(4 points)
 Level II – Exam Topics

Emerging Topics
PART C
 
Ethics, Regulation, and ESG
Credit rating agencies developed their expertise in rating single-name bond issues.
Models
I. Identify and briefly describe the principal challenge of the rating process when applied to structured finance securities
Institutional Asset Owners and rather than single-name bond issues. (1 point)
Investment Policies
II.Discuss how this rating challenge is linked to the losses experienced by investment grade tranches of structured
Risk and Risk Management
products during the subprime crisis of 2007-2008. Base your answer on the arguments and evidence presented in “The
Methods for Alternative Investments Economics of Structured Finance” by Coval, Jurek, and Stafford. (1 point)

Accessing Alternative Investments

(2 points)
Due Diligence and Selecting
Strategies

Volatility and Complex Strategies

 Level II – Exam Topics

Emerging Topics
PART D
 
Ethics, Regulation, and ESG
For the following two questions, base your answers on the material presented in “Insurance-Linked Securities: A Niche
Models Market Expanding” by Weistroffer.

Institutional Asset Owners and I. Briefly describe the purpose of catastrophe (cat) bonds from the perspective of insurance companies. (1 point).
Investment Policies
II. Briefly describe how insurance-linked securities (ILS) extend traditional reinsurance. (1 point)
Risk and Risk Management

Methods for Alternative Investments

(2 points)
Accessing Alternative Investments

Due Diligence and Selecting

Strategies

Volatility and Complex Strategies

 Level II – Exam Topics

Emerging Topics
 TOPIC 2: Ethics, Regulation, and ESG
Ethics, Regulation, and ESG
 The practices and standards for ethical considerations experienced in the
Models investment profession on a daily basis

Institutional Asset Owners and  Topics:

Investment Policies
• CFA Asset Manager Code (AMC)
Risk and Risk Management
• AMC Recommendations and Guidance
Methods for Alternative Investments
• Global Regulation

Accessing Alternative Investments • ESG and Alternative Investments

Due Diligence and Selecting • ESG Analysis and Application

Strategies

Volatility and Complex Strategies

 Level II – Exam Topics

Emerging Topics
 TOPIC 3: Models
Ethics, Regulation, and ESG

Models
 Topics:
Institutional Asset Owners and
• Modeling Overview and Interest Rate Models
Investment Policies
• Credit Risk Models
Risk and Risk Management
• Multi-Factor Equity Pricing Models
Methods for Alternative Investments
• Asset Allocation Processes and the Mean-Variance Model
Accessing Alternative Investments • Other Asset Allocation Approaches
Due Diligence and Selecting
Strategies

Volatility and Complex Strategies

 Level II – Exam Topics

Emerging Topics
 TOPIC 4: Institutional Asset Owners and Investment Policies
Ethics, Regulation, and ESG

Models
 Topics:
Institutional Asset Owners and • Types of Asset Owners and the Investment Policy Statement
Investment Policies • Foundations and the Endowment Model
Risk and Risk Management • Pension Fund Portfolio Management
• Sovereign Wealth Funds
Methods for Alternative Investments • Family Offices and the Family Office Model

Accessing Alternative Investments

Due Diligence and Selecting

Strategies

Volatility and Complex Strategies

 Level II – Exam Topics

Emerging Topics
 TOPIC 5: Risk and Risk Management
Ethics, Regulation, and ESG

Models
 Topics:
Institutional Asset Owners and
• Cases in Tail Risk
Investment Policies
• Benchmarking and Performance Attribution
Risk and Risk Management
• Liquidity and Funding Risks
Methods for Alternative Investments
• Hedging, Rebalancing, and Monitoring
Accessing Alternative Investments • Risk Measurement, Risk Management, and Risk Systems
Due Diligence and Selecting
Strategies

Volatility and Complex Strategies

 Level II – Exam Topics

Emerging Topics
 TOPIC 6: Methods for Alternative Investments
Ethics, Regulation, and ESG

Models  Topics:

Institutional Asset Owners and
Investment Policies
Risk and Risk Management
• Valuation and Hedging Using Binomial Trees
• Directional Strategies and Methods
• Multivariate Empirical Methods and Performance Persistence

Methods for Alternative Investments • Relative Value Methods

• Valuation Methods for Private Assets: The Case of Real Estate

Accessing Alternative Investments

Due Diligence and Selecting

Strategies

Volatility and Complex Strategies

 Level II – Exam Topics

Emerging Topics
 TOPIC 7: Accessing Alternative Investments
Ethics, Regulation, and ESG

Models  Topics:

Institutional Asset Owners and • Hedge Fund Replication

Investment Policies
• Diversified Access to Hedge Funds
Risk and Risk Management
• Access to Real Estate and Commodities

Methods for Alternative Investments • Access Through Private Structures

• The Risk and Performance of Private and Listed Assets

Accessing Alternative Investments

Due Diligence and Selecting

Strategies

Volatility and Complex Strategies

 Level II – Exam Topics

Emerging Topics
 TOPIC 8: Due Diligence and Selecting Managers
Ethics, Regulation, and ESG

Models  Topics:

Institutional Asset Owners and • Active Management and New Investments

Investment Policies • Selection of a Fund Manager

Risk and Risk Management • Investment Process Due Diligence

• Operational Due Diligence
Methods for Alternative Investments • Due Diligence of Terms and Business Activities

Accessing Alternative Investments

Due Diligence and Selecting

Strategies

Volatility and Complex Strategies

 Level II – Exam Topics

Emerging Topics
 TOPIC 9: Volatility and Complex Strategies
Ethics, Regulation, and ESG

Models  Topics:

Institutional Asset Owners and • Volatility as a Factor Exposure

Investment Policies • Volatility, Correlation, and Dispersion Products and Strategies

Risk and Risk Management • Complexity and Structured Products

• Insurance-Linked Products and Hybrid Securities
Methods for Alternative Investments • Complexity and the Case of Cross-Border Real Estate Investing

Accessing Alternative Investments

Due Diligence and Selecting

Strategies

Volatility and Complex Strategies

 Level II – Exam Topics
Emerging Topics
Ethics, Regulation, and ESG
Models
Institutional Asset Owners and
Investment Policies
Risk and Risk Management
Methods for Alternative Investments
Accessing Alternative Investments
Due Diligence and Selecting
Strategies
Volatility and Complex Strategies
SAMPLE QUESTIONS
 Suppose Vasicek’s model estimates that the next period’s short-term rate is 5%. Which of the
following comes closest to the current short-term rate, if the long-term mean level of the short-
term interest rates is 4% and the speed of adjustment (kappa) is 0.5?
a. 4%
b. 5%
c. 6%
Vasicek’s model can be inverted to solve for the current short-term rate rt = [E(rt1) – k * m] / (1-k).
rt = [5% - 0.5 x 4%] / (1 – 0.5) = 6%.
 Which of the following types of catastrophe bond triggers initiates principal reductions based on
the level of actual excess claims paid by the issuer?
a. Modeled trigger
b. Parametric trigger
c. Indemnity trigger
d. Industry loss trigger
 Level II – Exam Topics
Emerging Topics
Ethics, Regulation, and ESG
Models
Institutional Asset Owners and
Investment Policies
Risk and Risk Management
Methods for Alternative Investments
Accessing Alternative Investments
Due Diligence and Selecting
Strategies
Volatility and Complex Strategies
SAMPLE QUESTION
 Which three of the following are most likely contributors to
returns earned by investors embracing the endowment model?
I. Aggressive asset allocation
II. First mover advantage
III. Minimizing liquidity risk
IV. Sophisticated board oversight
a. II, III, and IV only
b. I, III, and IV only
c. I, II, and IV only
d. I, II, and III only
 Candidate
Experience

Optimize Your
Study Resources
Exam Experience
Your CAIA Profile

Obtain your Curriculum

Schedule Your Exam Seat

Your CAIA Journey

Optimize your
CAIA Exam
Experience
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 Keep your Account profile up to date.

 Our team & Test Partner Pearson keep you

informed via email
Your CAIA Journey

Candidate
Resources
1. Register as a candidate
2. Schedule your exam seat
3. Prepare your learning journey
4. Study for your exam day
 *Retake fees will remain at $450 for the March 2023 exam
Register session. Beginning with the September 2023 exam session, retake
fees will increase to new fee structure of $795.

Create an Account Registration & Curriculum Candidate Policies

Fees Overview
Schedule: Testing Options There are two options to take
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Create an Account  Please wait one hour after registering for your exam
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before attempting to schedule your test center
Exam appointment.

Option 2: Online remote proctored exam via

OnVUE**
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information about this option available 
 Critical - carefully read the OnVUE physical and
system requirements and determine if you meet the
requirements.
 Opt-in for online proctoring using the link in your
CAIA profile

Tips!
 Schedule your exam as soon as possible
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 Can’t find a seat? Contact us candidate@caia.org
 Try to schedule at the beginning of the test window
Schedule: Testing Options
Option
Create 1:
an Account Option 1:
Testing at a Person Vue Test Center Online Remote testing via OnVue
2-part exam 2-part exam
• 5-minute NDA review and agreement • 5-minute NDA review and agreement

• 5-minute Tutorial • 5-minute Tutorial

• Part 1: 100 multiple choice questions/120 minutes • Part 1: 100 multiple choice questions/120 minutes

• Optional 10-minute comment period

• 30-minute optional break, can leave testing room
• Part 2: Constructed Response/120 minutes
• Optional 10-minute comment period
• 20-minute optional break, this is the only time you
can leave the view of webcam
• Part 2: Constructed Response/120 minutes

Total 5 hours Total 4.5 hours

Schedule: Testing Options
Option
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an Account Option 1:
Testing at a Person Vue Test Center Online Remote testing via OnVue

• Controlled test site environment (Pearson VUE COVID • Safe, secure, private, quiet personal location of your
protocols in place) choosing

• Onsite exam proctors monitoring Candidates in testing room • Minimum Equipment and Internet requirements must be met

• Center availability • Proctor monitors Candidates via webcam

• Awareness of updated Pearson VUE COVID-19 protocols • Time to prepare
• Schedule early in the exam window in case of any • Review minimum system requirements and run system
disruption test
• Schedule early in the exam window in case of a technical
issue
Schedule: Testing Options
Option 1: Option 1:
Testing at a Person Vue Test Center Online Remote testing via OnVue
Comparing Your Pearson VUE Test Center Online Remote Testing
Options

Calculator Candidates may only use a CAIA approved calculator.

See Candidate Handbook at www.caia.org
Whiteboard Dry erase board and pen are provided Digital whiteboard ONLY, online scratch pad
within exam
Un-scheduled breaks Yes, for bathroom use only and may be No.
escorted. Time lost.
What can I bring into Approved calculator, ID, locker key. A small One clear glass of water, approved calculator,
the testing space locker will be available for personal items. cell phone for check in purposes, then it must
be out of reach.
Accommodations Available upon request to Available but may be more limited, upon
accommodations@caia.org request to accommodations@caia.org
Your Appointment Details
Create an Account
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Candidate Study Calculator Optional Prep
Handbook Providers

CAIA Handbook
Download at CAIA.org
Study
Study Materials Study Guide
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Study Materials Study Guide
Helpful Tips
Orientation Frequently Asked Special
Sessions Questions Accommodations

www.caia.org/https://caia.org/ori
entation-sessions

A copy of todays slide deck and

a link to the recording will soon
be available.
Exam Day
ID POLICY Create an Account
 Two valid (not expired) forms of ID (1 Primary ID required for online
proctored exam)
 Both must have a signature
 One must have a photo
 Passport preferred
 The name on your IDs must exactly match the name with which you schedule
your exam.

CALCULATOR POLICY – For both test site and online proctored options
 Texas Instruments BA II Plus (including the TI BA Plus Professional)
 Hewlett Packard 12C (including the HP 12C Platinum, HP 12C 25th
Anniversary Edition, HP 12C 30th Anniversary edition and HP 12C Prestige)
 Exam proctors will inspect your calculator prior to the start of the exam.
Candidate Performance Report

The CAIA Candidate Performance

Report is intended to aid in self-
assessment by indicating your areas of
relative strength and weakness among
the topics in the exam, compared to a
reference group.
The reference group is comprised of all
candidates whose total test scores were
within the bottom quartile of those who
passed the exam during the testing
window in which you sat for the exam.

Grades are shared 8 weeks after the

last LI exam day.
 Your success is our success
Roadmap: Prepare for Your CAIA Exam

In preparation of your CAIA Exam,

our team weekly shares
3 INSIGHTS | 2 TIPS | 1 ACTION ITEM
Check your email

Best of luck with exam preparations!

If you have additional questions,

please contact us at candidate@caia.org.
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Connected.
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Today’s Presenters

Steve Novakovic Kathy Lyons Aleeza Amador

Managing Director, CAIA Curriculum
CAIA Association
Part I
Exam Experience
Sr. Candidate Relations Manager
CAIA Association
Part II
Candidate Experience
Candidate Relations Associate
CAIA Association
¡Yo hablo español!