CFA^® Level I Alternative Investments Tips

By: Kaplan Schweser

August 15, 2024

Although the Alternative Investment topic on the CFA Level I exam is relatively minor, it still carries weight in your overall score. Therefore, gaining a solid grasp of the foundational concepts and calculations for Level I will also be essential for preparing you for Level II.

TABLE OF CONTENTS

Categories, Characteristics, and Compensation Structures of Alternative Investments
Performance Calculation and Appraisal of Alternative Investments
Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds

Types of Alternative Investment Funds

The Alternative Investments which are included in the CFA Level I syllabus are:

Private Capital
Real Estate
Commodities
Infrastructure
Natural Resources
Hedge Funds

The broader definition includes any investment which doesn’t fall under the heading of traditional investments, which refers to long-only investments in cash or publicly traded stocks and bonds.

How To Study for CFA Level I Alternative Investments Topic

Alternative Investments is a short topic area in the CFA curriculum. The readings are laid out logically:

A broader introduction to Alternative Investments
A look at the return calculations
Then a look at the key characteristics of different types of Alternative Investments

After studying each reading, practice as many questions as you can using QBanks to test your understanding of this topic. Since it’s a small section of the exam, don’t forget to dedicate at least a week to your study plan for Alternative Investments.

CFA Level I 6-Month Study Progress Tracker

What is a Learning Outcome Statement (LOS) for the CFA Exam?

Learning Outcome Statements while studying for a CFA exam refer to specific skills and concepts you should possess within an exam topic whereas exam topics describe the broader body of knowledge you should have. For example, the Alternative Investments exam topic at Level I has a small number of LOSs that you’ll need to learn.

An example of a CFA LOS for Alternative Investments is “describe issues in performance appraisal of alternative investments.”

Why CFA Candidates Need To Learn Alternative Investments

As an analyst, it is important to have an understanding of a broad range of possible investment options in order to make suitable investment decisions. Over the last decade in particular the Alternative Investments market has grown significantly and continues to do so.

Assess your baseline knowledge of the Level I CFA Program curriculum with a free CFA diagnostic exam

How Much of the CFA Exam Tests Alternative Investments?

The Alternative Investments topic represents 7%-10% of the Level I exam, which is approximately 9-14 questions. It is tested in the afternoon session, within the Assets Area, alongside Equity Investments, Fixed Income, and Derivatives.

Is the CFA Level I Alternative Investments Topic Hard?

As long as you designate some time to Alternative Investments, this tends to be a fairly manageable area of the syllabus. It’s the smallest exam weight (alongside Derivatives), and is seen as an introduction to different types of Alternative Investments.

Focus on becoming familiar with the characteristics of investments such as Real Estate and Hedge Funds, and you should be able to achieve a good grade on exam day.

Try Today’s Featured Level I Practice Question

When Should CFA Level I Candidates Study Alternative Investments?

This is a standalone topic that can be covered at any point during your studies. If you decide to study this earlier on, do make sure you review the content again closer to the exam as it is easy to forget about this area due to its shorter, less technical nature.

However, these can be quicker marks on exam day than long complex calculations, so Alternative investments should not be neglected.

Best CFA Level I Study Order >>

2024 CFA Level I Alternative Investments Topic Readings

Below are overviews of each Level I Alternative Investment reading and what you are expected to learn.

Categories, Characteristics, and Compensation Structures of Alternative Investments

After an introduction to the term Alternative Investments, this reading introduces 8 different categories (such as real estate and commodities), before explaining different methods of investment. The reading ends by introducing common compensation and fee structures (such as hurdle rates and high-water marks).

Performance Calculation and Appraisal of Alternative Investments

Performance appraisal can be more tricky for Alternative Investments as compared to traditional investments, so this reading considers what risks arise, and which performance measures can be used to combat this.

There are very few calculations within this topic, but calculating and interpreting returns on alternative investments both before and after fees is an important one in this reading.

Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds

The final reading within Alternative Investments takes each of the assets from its title and considers the key characteristics of each in turn, including the potential benefits, risks and return from an investment.

Review Alternative Investment Concepts with Free Flashcards

Calculator Basics for the CFA Level I Exam

There are no specific calculation functions to learn for Alternative Investments but do make sure you spend the time practicing the fee calculations within the second reading.

CFA Level I Exam Practice Questions

Answer these 5 questions to test your readiness for the Level I Exam.

Is the Alternative Investments Topic the Same for CFA Level I and Level II?

Alternative Investments is a similar weight on the Level II exam compared to the Level I exam. Level II builds on the foundations learned at Level I to focus:

Real Estate
Private Equity
Commodities

What Are the Best Notes for Studying Alternative Investments?

We would recommend starting off by reading the SchweserNotes for Alternative Investments, which also provide illustrative examples and Module Quizzes for you to test your understanding. Once you have covered the material, you should cover as many other questions as possible from our range of resources such as the Schweser QBank.

Ready To Start Preparing For Alternative Investments?

Looking for more guidance on how to prepare for Alternative Investments? Enroll in one of our CFA Level I Premium study packages to receive expert instruction, CFA Program study materials, and more. Give yourself the best chance to prepare, practice, and perform on the CFA exam.