SCA TC and CAIA Agree to Introduce Alternative Investment Specialist Certification

SCA TC Introduces CAIA Charter Program and FAI Certificate Program

  Dr. Obaid Al Zaabi, Deputy CEO of the Securities and Commodities Authority (SCA), said that SCA will continue to develop securities and commodities regulations for trading,clearing and settlement in accordance with the standards of the International Organization of Securities Commissions (IOSCO) and the European Securities and Markets Authority (ESMA), as well as other international standards in this regard. Dr. Al Zaabi added that SCA works closely with its partners at the Abu Dhabi Securities Exchange (ADX), the Dubai Financial Market (DFM), and the Dubai Gold and Commodities Exchange (DGCX). He added  that developing mutual fund regulations is a strategic objective as the new regulations also include provisions on the structure of special funds, such as hedge funds, private equity funds, real estate investment trusts (REITs), etc.

In his opening speech at the Middle East Alternative Investment Summit, sponsored by SCA's training center in Dubai in collaboration with the Chartered Alternative Investment Analyst (CAIA) Association, Al Zaabi noted  that alternative investments have become an integral component of the global investments industry. They constitute a vital element that ensures the continuous movement of capital within the financial system and throughout the global economy. This industry provides liquidity and various forms of capital funding, which is a main source of innovation and a catalyst for social and economic development. Alternative investments are growing in popularity and experiencing a high growth rate in assets under management, which exceed US$7 trillion. Furthermore, Middle East investors have become important contributors to the growth of this industry. Focusing on the UAE markets, we find that there are increasing opportunities in various asset categories, such as real estate, infrastructure, and private equity.

He explained that the UAE is an important source of and destination for the alternative investment industry. It enjoys major future growth potential, with the availability of liquid capital, highly-professional fund managers, and an attractive and a diversified range of investment opportunities. Al Zaabi pointed to the summit's role in highlighting important topics, such as liquid alternative investments and the changing landscape of the hedge fund industry. The coverage of these topics shall  benefit regulators, financial markets, investors, and stakeholders in general.

MOU to Promote Professional Qualification

On the sidelines of the summit, SCA signed an MOU with the CAIA Association to promote mutual cooperation in professional development. H.E. Dr. Obaid Al Zaabi, Deputy CEO for Issuance and Legal Affairs, signed the MOU on behalf of SCA with Joanne Murphy, Managing Director of the CAIA Association.

The MOU aims at developing capital markets, the financial services industry, and investment in the UAE in general by raising the level of knowledge and expertise of finance industry professionals in alternative investments through mutual cooperation on  promoting the importance of the CAIA Charter Program and the FAI Certificate Program in the UAE and the GCC region. 

Under the MOU, it has been agreed that the CAIA Association will cooperate with SCA's training center to introduce the CAIA Charter Program and the FAI Certificate Program, both sponsored by the CAIA Association. As per the MOU, the CAIA Association grants alternative investment charter certification upon successful completion of the requirements of the CAIA Charter Program and the FAI Certificate Program.

The CAIA Association also pledges itself to encourage continuous education and professional development of financial services professionals, with special emphasis on alternative investments.

Furthermore, under the MOU, the CAIA Association assumes the responsibility of organizing seminars related to the cooperation topics defined in this MOU, arranging meetings, encouraging the exchange of materials, ideas, and information to spread knowledge, as well as providing advice pertaining to academic research and the financial services industry.

Generally, the two parties will explore new opportunities for other forms of cooperation that may arise from time to time. Each party maintains intellectual property rights for to its own studies, research papers, documents, and programs.

Alternative Investment Industry Growth

The summit was attended by an elite group of securities and investment experts and specialists from across the globe. Alternative investments include  real estate, hedge funds, commodities, and private equity funds. Murphy delivered her speech during the first session, where she addressed recent developments about growth rate of the alternative investments industry. Murphy indicated that the CAIA Association grants membership upon completion of the requirements for the professional qualification.

As to the changing hedge fund strategies in the Middle East, Murphy said that hedge funds were not behind the 2008 global financial crisis. This was a banking crisis. Only 1 percent of hedge funds are exclusively dedicated to short selling and hedge funds make modest use of leverage. Hedge funds are generally regulated and there are many hedge funds that pursue  various strategies.

 At the end of her speech, Murphy generally addressed the future expectations about the hedge fund industry, including: (1) investors need to be more understanding and aware of the strategies of hedge funds; (2) hedge funds should be treated as alternative investments; (3) the availability of industry information platforms of various industry actors; (4) institutional investors from the Middle East and North Africa (MENA) region and Asia will have a major role in this industry.

US Hedge Funds

In the next session, Dr. Keith Black, Managing Director of Curriculum and Exams at the CAIA Association, addressed the US hedge fund industry and its growth rates, saying that there are different types of investors in hedge funds. Generally hedge funds are offered through private placements to solvent investors.  These are less-regulated and less-transparent funds compared to other funds, therefore investors tend to invest in them to generate high returns. Besides, these funds are not required to disclose liquidity conditions or the nature of investments.

Black then explained that the motivation behind investing in these funds is to diversify market risk since these funds have different risk-return profiles and fund managers exhibit sufficient investment flexibility.

He finally addressed the challenges that should be overcome, including the lack of industry awareness, the need to educate investors about the structure of these funds and shed more light on current and past fund performance. Black stressed that investors should ask themselves whether or not the fees charged by the fund managers are reasonable and acceptable.         

Hedge Fund Industry Caveats

Dr. Majed  Muhtaseb, CFA, CAIA, Consultant at SCA, spoke about the hedge fund industry, explaining that managers of these funds show more management flexibility and that investors must meet certain income and/or asset tests to be eligible to invest in these funds. Dr. Muhtaseb then spoke about the fraud committed by fund managers and the legal complaints filed by the US Securities and Exchange commission against them.

Dr. Muhtaseb pointed out that these funds' investments and assets are priced by independent vendors to determine the fund's net asset value (NAV).  Companies marketing these funds should be aware of the fund's investments and structure.  

He presented the details of hedge fund manager fraud cases and the lessons learned from them. Muhtaseb also emphasized that investors must:

·       Make sure to check the facts and information related to fund managers, including basic facts such as their educational and professional background.

·       Make sure that they conduct a thorough due diligence  

·       Monitor the fund manager and his team. 

·       Monitor the relationship of the fund manager with vendors, prime broker, auditor, accountant, marketer etc.Be a very skeptic analyst.

At the end of his speech, Muhtaseb recommended (1) that there be a compliance system either within the fund or outsourced (2) that there be an industry information platform established by institutional investors and stakeholders; (3) that regulators, advisors, and investors monitor the performance and activities of these funds; and (4) that there be an independent board of directors.

Mohamed Abdul Hady, Head of Investment Office at the Roads and Transport Authority's (RTA) CEO office, also spoke at the summit.

It is noteworthy that the CAIA Association, a non-for-profit organization established in 2002, is the world leader in alternative assessment education. It has a global network of alternative investment leaders in over 80 countries. The CAIA Association is best known for its CAIA Charter, an internationally recognized qualification granted upon successful completion of a rigorous two-level exam series combined with relevant work experience. Earning the CAIA Charter is the gateway to becoming a CAIA member. The CAIA Association also introduces the Fundamentals of Alternative Investments (FAI) Certificate Program, an online course that provides an introduction to alternative investment core concepts.       

Having grown rapidly, the CAIA Association now supports vibrant chapters for its Charter Holder members in financial centers across the world, produces world-class research publications, and sponsors educational and networking events to help the CAIA community to keep pace with the industry.

A number of participants and partners were honored at the summit. A raffle draw was also made for fee-free training courses provided by SCA.