CAIA Level I: An Introduction to Core Topics in Alternative Investments, 2nd Edition

CHAPTER 2

The Environment of Alternative Investments

This chapter1 provides a foundation regarding the environment of alternative investing, including the participants, financial markets, regulations, and taxation. Its focus is on understanding the purposes and functions of these components to gain knowledge of why the investing environment is structured the way it is and how the different components interact.

2.1 THE PARTICIPANTS

Participants can be divided into four major categories: the buy-side, the sell-side, service providers, and regulators. This section briefly describes the primary roles of the first three categories of participants, and the primary role of regulators is discussed in Section 2.3.

2.1.1 The Buy-Side

Buy-side refers to the institutions and entities that buy large quantities of securities for the portfolios they manage. The buy-side contrasts with the sell-side, detailed in Section 2.1.2, which focuses on distributing securities to the public. Examples of buy-side institutions follow.

Plan Sponsors

A plan sponsor is a designated party, such as a company or employer, that establishes a health care or retirement plan (pension) that has special legal or taxation status, such as a 401(k) retirement plan in the United States for employees. Plan sponsors are companies or other collectives that establish the health care and retirement plans for the benefit of the organization's employees or members. Plan sponsors are responsible for determining membership parameters ...