10 Most Tested Concepts for CAIA Level I 2025 Candidates

If you’re sitting the CAIA Level I exam in 2025, your best edge is mastering the curriculum’s most exam-relevant learning objectives (LOs). Based exclusively on the 2025 Learning Objectives, here are the ten concepts that show up again and again across readings, vignette prompts, and calculation questions—along with crisp guidance on what to know cold and how exam writers like to test it.

1) Ethics & Professional Standards (Standards I–VI)

Ethics remains perennial, high-stakes, and highly scenario-driven. You should be able to interpret and apply Standards I–VI—Professionalism; Integrity of Capital Markets; Duties to Clients; Duties to Employers; Investment Analysis, Recommendations & Actions; and Conflicts of Interest—and identify practical compliance procedures (e.g., dealing with material non-public information, suitability, performance presentation, and record retention). Expect caselets that probe gray areas like priority of transactions or independence/objectivity. Build a mental checklist for each Standard to quickly test for violations under time pressure.

2) Fund Structures, Legal Documents, Fees & Terms

Know how alternative funds are put together and governed: who the participants are (LPs/GPs/administrators/prime brokers), the core documents (PPM, LPA, subscription agreement, management company operating agreement), and the governance mechanisms (LPAC, key-person provisions). Be ready to calculate and interpret management fees, carried interest, hurdles, and clawbacks—and to explain incentive alignment and potential perverse incentives. Global structures and regulations (e.g., AIFMD; SICAV/ICAV) and the drawdown vs. open-end design (and high-water marks) are regular testing angles.

3) Private Equity Fund Economics: IRR, J-Curve & Waterfalls

PE economics is calculation-heavy. You need to (i) solve IRR and understand its pitfalls (multiple IRRs, reinvestment assumptions), (ii) apply modified IRR and compare against time-weighted returns, (iii) compute PME and interpret DPI/TVPI/RVPI, (iv) recognize J-curve drivers (illiquidity and accounting conservatism), and (v) model waterfalls (fund-as-a-whole vs. deal-by-deal; hard vs. soft hurdles; catch-up; vesting; clawback). The exam frequently embeds a simplified cash-flow table and asks for sequencing of distributions and the resulting GP/LP take.

4) Risk Measures & VaR Estimation Most Tested Concepts for CAIA Level I 2025 Candidates

Alternative portfolios exhibit downside asymmetry and path-dependence, so CAIA pushes beyond plain volatility. Be able to define, compute, and interpret: semivariance, downside deviation, tracking error, shortfall risk, and drawdowns; explain VaR vs. CVaR, and discuss VaR’s strengths/weaknesses. Then estimate VaR via parametric, historical simulation, and Monte Carlo; know inputs (volatility estimation choices), and how component VaRs aggregate under differing correlation assumptions. Questions often pivot from a conceptual prompt into a quick parametric VaR or drawdown calculation.

5) Performance Measurement, Benchmarking & Smoothing

Master the ratios and their interpretation under non-normal returns: Sharpe, Sortino, Treynor, Information Ratio, and Return on VaR—plus Jensen’s alpha and M². Understand benchmark types and what sound performance attribution looks like for alternatives. Just as crucial: recognize the effects of stale pricing and appraisal-based smoothing on observed volatility and correlation, and how that can bias due diligence if not adjusted. Expect items asking you to select the “best” measure for a strategy with skew/kurtosis or to diagnose smoothed series. Most Tested Concepts for CAIA Level I 2025 Candidates

6) Statistical Foundations for Alternative Returns

Be fluent with return distributions (normal vs. lognormal), moments (skewness, kurtosis, excess kurtosis), correlation vs. rank correlation, beta, and autocorrelation—and why alts often violate normality (autocorrelation, illiquidity, and nonlinear payoffs). You should also apply the Jarque–Bera test and interpret what a rejection implies for your model choice. On the inference side, nail the four steps of hypothesis testing, Type I/II errors, p-values/confidence intervals, and the classic sampling/testing pitfalls (selection bias, survivorship bias, data mining, backfilling, and overfitting). These underlie many “alpha-finding” trick questions.

7) Derivatives Toolkit: Forwards, Futures, Options & Swaps

Exam writers love linking instrument mechanics to risk/return. Be ready to contrast forwards vs. futures (trading, mark-to-market, margins, and counterparty risk), set no-arbitrage forward prices (including FRAs and implied forward rates), and apply cost-of-carry when assets have storage costs and convenience yields. On options, know exposure diagrams, standard spreads/combinations, put–call parity, and option sensitivities (delta, gamma, vega, theta, rho). Understand interest rate swaps (payer/receiver, valuation, and risk). Questions often require one-to-two-step computations plus a conceptual follow-up on risk impacts.

8) Commodities: Term Structure, Roll Yield & Calendar Spreads

Commodities are tested through the lens of forward curves. Understand contango vs. backwardation (both in perfect and imperfect markets), how basis evolves, and how roll yield links to curve slope and return decomposition for fully collateralized futures. You should be able to interpret and compute calendar spread returns and discuss the risks of rolling strategies. Expect a curve sketch with a prompt asking you to identify expected roll return and how storage costs/inventory conditions move the curve.

9) Real Estate Valuation & Public/Private Vehicles

Real estate shows up in both qualitative and computational items. Know the three valuation approaches—sales comparison, cost, and income—with the income approach drilled into cap-rates, DCF (including reversion cap rates), and the construction of NOI. Be comfortable computing cap rates and gross income multipliers and referencing appraisal-based indices (e.g., NCREIF). You should also distinguish private vehicles from public REITs/REOCs and recognize how stale pricing and liquidity premia color observed returns and correlations.

10) Private Debt & Credit Risk (Direct Lending, Mezzanine, Distressed)

Credit has grown into a core Level I competency. Start with credit risk analysis—credit spreads, ratings, financial ratios, capital structure and priority of claims—and how covenants (maintenance vs. incurrence; negative/affirmative) control risk. Understand the landscape: leveraged loans, direct lending, mezzanine (including warrants and PIK features), venture debt, and distressed (recovery, absolute priority, reorganization basics). Practical exam angles include selecting the right covenant for a risk, identifying fulcrum securities, or comparing structures’ risk-return trade-offs.

How to Study These Concepts (and Think Like an Item Writer)

• Marry definitions to decisions. Don’t memorize in isolation. For each concept above, practice what you would do—e.g., which performance ratio to use for a negatively skewed strategy, or how a hard hurdle changes the GP’s marginal incentives around the catch-up range.

• Build a pricing-risk bridge. After computing a forward or swap value, write one sentence about how that position changes your exposure (carry, convexity, counterparty). Examiners love a quick pivot from math to risk insight.

• Expect non-normal data. Many vignette series hinge on recognizing smoothing, stale prices, or autocorrelation—and then choosing a measure (e.g., Sortino over Sharpe) or a test (Jarque–Bera) that respects those realities.

• Waterfall muscle memory. Rehearse distribution sequences until they’re automatic: return of capital → preferred return → catch-up → carried interest. Swap in hard vs. soft hurdles and confirm end-state GP/LP splits.

• Know the mechanics of short selling. Even where equity long/short or hedging shows up, questions often probe substitute dividends, rebates, bought-ins, and the anatomy of a short squeeze.

Quick Self-Check Before Exam Day

• Can you list and apply Standards I–VI to a case in under three minutes?

• Can you compute IRR/MIRR/PME, explain the J-curve, and run a full waterfall?

• If shown a forward curve, can you infer roll yield and the likely total return effect of rolling?

• Given a returns series with smoothing, can you pick the right performance ratio and explain why Sharpe can mislead?

• Can you outline how maintenance vs. incurrence covenants protect lenders differently?

• Do you know when to use parametric vs. historical vs. Monte Carlo VaR, and how correlations change aggregated VaR?

• Could you sketch an option payoff, identify the Greeks most relevant to the trade, and connect them to risk management?

Final Word

The CAIA Level I exam rewards candidates who can compute accurately, choose appropriately, and explain succinctly. If you internalize the ten concepts above—and practice moving fluidly from formulas to implications—you’ll convert core LOs into confident points on test day. Build repetition around the calculations (IRR/PME/waterfalls; VaR; cap rates; forwards/options/swaps), and rehearse your ethics and fund-structure reasoning with short, punchy case analyses. That combination is the most reliable path to a passing score in 2025.

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