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

The CFA® curriculum categorizes assets other than equity, fixed-income, and derivatives as Alternative Investments, covering a wide range of topics from tangible assets like gold to hedge fund strategies. Alternative investments are supplemental strategies to traditional long-only positions and are not necessarily uncommon or recent additions to the investment universe.

Common categories of Alternative Investments include:

  • Hedge funds, which use various strategies to aim for positive returns.
  • Private capital, including private equity (e.g., leverage buyout, venture capital) and private debt (e.g., direct lending, mezzanine loans).
  • Real estate, comprising residential and commercial sectors.
  • Natural resources, like commodities, timberland, and farmland.
  • Infrastructure, which encompasses buildings, bridges, roads, etc.

Alternative investments may involve non-traditional approaches, allowing flexibility with derivatives, leverage, illiquid assets, and short positions, encompassing traditional and less traditional assets. Active management is typical in Alternative Investments, exploring hedge funds, private equity, real estate, commodities, and infrastructure, emphasizing their common characteristics and role in diversification and potentially 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.

Study Tips for CFA Alternative Investments

Besides the typical long-only investments in stocks, bonds, and cash, there is also room for alternative assets in a diversified portfolio. These alternative investments encompass hedge funds, private equity, real estate, natural resources, and infrastructure – the five main categories. It's important to note that for the Level 1 exam, candidates aren't required to possess an extensive understanding of these concepts. However, in Levels 2 and 3, the readings delve deeper into these subcategories.

  • Strategy Differentiation: Distinguishing between various hedge fund strategy categories is vital for effective decision-making.
  • Quantitative Aspects: While CFA Level 1's Alternative Investments mainly focus on qualitative aspects, it's essential to grasp key investment return calculations and performance metrics.
  • Limited Calculator Use: Expect minimal calculator usage during this predominantly qualitative study session.
  • Complex Learning Curve: Given their relative unfamiliarity, alternative investments present a wealth of new terminology, valuation models, and market structures to master across all three CFA levels.
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Frequently Asked Questions

The learning modules and practice questions predominantly emphasize conceptual understanding, particularly focusing on definitions and contextual comprehension, making them relatively easy to score well on. While a limited number of calculations are involved, primarily about cost analysis and the impact of fee structures on returns, these too can be mastered with practice.

For registered candidates, the CFA Institute offers official study materials and an array of online resources accessible through its website. However, engaging with a comprehensive QBank that spans all chapters and readings is the most effective approach to preparing for the exam. The UWorld CFA QBank, in particular, provides a substantial collection of over 100 questions, each accompanied by detailed explanations, extensively covering the domain of artificial intelligence.

After moving through a QBank, the next step is taking Mock Exams, to see how you are doing with the content. UWorld’s CFA 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. Look at our CFA L1 Formula Sheet page for further resources and tips.
Similar to the Level 1 curriculum, the Level 2 readings delve into their subject matter with greater depth and detail, making them inherently more challenging.

Mastery in Alternative Investments demands rigorous practice, and there’s no better tool than QBank sessions. UWorld’s CFA Level 3 prep is not just cost-effective with three tailored plans but also boasts an abundance of QBank resources. Elevate your preparation with progress-tracking through Mock Exams, engaging lecture series, and a suite of flexible, student-centric features. It’s the unparalleled companion to ensure your triumph in acing the exam.

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