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CAIA Level I: An Introduction to Core Topics in Alternative Investments, 2nd Edition by Hossein Kazemi, Keith H. Black, Donald R. Chambers, Mark J. P. Anson, CAIA Association

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CHAPTER 1

What Is an Alternative Investment?

Definitions of what constitutes an alternative investment vary substantially. One reason for these differences lies in the purposes for which the definitions are being used. But definitions also vary because alternative investing is largely a new field for which consensus has not emerged, and it also is a rapidly changing field for which consensus will probably always remain elusive.

Analyzing these various definitions provides a useful starting point to understanding alternative investments. So we begin this introductory chapter by examining commonly used methods of defining alternative investments.

1.1 ALTERNATIVE INVESTMENTS BY EXCLUSION

Alternative investments are sometimes viewed as including any investment that is not simply a long position in traditional investments. Typically, traditional investments include long positions in equities, fixed income, and cash. For example, if a particular investment such as private equity is not commonly covered as equity in books on investments, then many people would view the investment as an alternative investment.

The alternative investments by exclusion definition is overly broad for the purposes of the CAIA curriculum. First, the term investment includes a very broad spectrum. A good definition of an investment is that it is deferred consumption. Any outlay of cash made with the prospect of receiving future benefits might be considered an investment. So investments can range from planting ...

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