CFA® Alternative Investments
Summary, Syllabus, Topics, and Sample Questions (L1, L2, L3)

The CFA® curriculum tends to categorize all assets other than equity, fixed-income, and derivatives as Alternative Investments, so it covers a broad range of topics from tangible assets such as gold to hedge fund strategies. Alternative investments are supplemental strategies to traditional long-only positions. The terms “traditional” and “alternative” should not imply that alternatives are necessarily uncommon or that they are relatively recent additions to the investment universe. Specifically, the most common categories of Alternative Investments are:

  • Hedge funds are pooled investments for which the managers use a wide range of strategies with the aim of generating positive returns
  • Private capital includes private equity (leverage buyout, venture capital funds) and private debt (direct lending, mezzanine loans, venture debt, distressed debt).
  • Real estate includes two major sectors: residential real estate and commercial real estate
  • Natural resources typically include commodities, timberland, and farmland
  • Infrastructure such as buildings, bridges, roads etc.

Alternative investments also include non-traditional approaches to investing in asset classes, such as private equity funds and hedge funds. These funds may give the manager flexibility to use derivatives and leverage, make investments in illiquid assets, and take short positions. The assets in which these vehicles invest can include traditional assets (stocks, bonds, and cash) as well as less traditional assets. Management of Alternative Investments is typically active. This topic explores Alternative Investments, including hedge funds, private equity, real estate, commodities, and infrastructure, covering their common characteristics, and their usefulness for creating diversification and/or higher returns.

The CFAI® Alternative Investments curriculum is an important topic if you work in asset management as it is expected to capture 49% of global asset management revenue by 2024.

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Study Tips for CFA Alternative Investments

In addition to the more conventional long-only positions in stocks, bonds, and cash, alternative other assets can be used. Hedge funds, private equity, real estate, natural resources, and infrastructure are the five primary areas of alternative investments. Candidates are not expected to have an extraordinarily in-depth comprehension of this content, at least not for the Level 1 exam. The readings at Levels 2 and 3 cover the same subcategories but go into more detail.

  • It is critical to be able to discern between the many categories of strategies when dealing with hedge funds.
  • Although the CFA Level 1 Alternative Investments are addressed from a highly qualitative standpoint, there are some calculations for investment return and performance metrics that you should be familiar with.
  • You won't need your calculator much throughout this largely qualitative study session.
  • Alternative investments are often least familiar to CFA candidates, so there is lots of vocabulary as well as different kinds of valuation models and market structures to learn throughout all three levels.

Frequently Asked Questions

Both the learning modules and practice questions are mostly conceptual, with a focus on definitions and context. These are easy points to score. There are a few calculations, mostly addressing costs and fee structures and their effects on returns. CFA Institute provides official material as well as online resources for registered candidates on their website.

The best way to study for the exam is to practice with a QBank across all chapters and readings. The UWorld CFA QBank offers over 100 questions and detailed explanations covering AI.

After moving through a QBank, the next step is taking Mock Exams, to see how you are doing with the content. UWorld’s mock exams closely replicate the actual CFA L1 exam experience to help you prepare and boost your confidence on test day. Like the actual CFA exam, our mock exams consist of two 2-hour 15-minute sessions, each with 90 multiple-choice questions spanning multiple subjects and not included in the standard QBank.

Understanding the underlying concept of each formula will help you memorize related concepts and formulas. Think of it as a mathematical depiction of the concept rather than memorizing phrases one by one. As you build this foundation of understanding, reinforce it through repetition and application. Take a look at our CFA L1 Formula Sheet page for further resources and tips.

As with all of the Level 2 curriculum, compared to Level 1, these readings–and the material they explore–have more depth and detail, and therefore are more difficult.
After moving through a QBank, check your progress by taking Mock Exams. UWorld is releasing its CFA Level 3 test prep later this year, which will closely replicate the actual CFA L3 exam experience.

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