What You MUST Know Before Sitting for the CAIA Level 1 Exam 2025

The CAIA Level 1 exam is a gateway for professionals looking to advance in the alternative investment industry. It covers a broad range of topics, from professional ethics to complex financial instruments. As the exam approaches, candidates must focus on key high-yield topics, essential formulas, and strategic time management to ensure success. CAIA Level 1 Exam 2025 , CAIA Level 1 , CAIA

This guide provides a last-minute revision strategy, highlights the most critical exam topics, and shares actionable tips to maximize your score.

1. Core Topics You Must Master

The CAIA Level 1 exam is divided into multiple sections, each carrying significant weight. Here’s what you need to focus on:

Professional Standards and Ethics (15-25%)

Ethics plays a crucial role in the CAIA exam. Candidates must understand:

Standard I: Professionalism – Knowledge of the law, independence, objectivity, misrepresentation, and misconduct.
Standard II: Integrity of Capital Markets – Handling material nonpublic information and preventing market manipulation.
Standard III: Duties to Clients – Loyalty, prudence, fair dealing, suitability, and confidentiality.
Standard IV: Duties to Employers – Loyalty, additional compensation arrangements, and supervision responsibilities.
Standard V: Investment Analysis and Actions – Diligence, communication, and record retention.
Standard VI: Conflicts of Interest – Disclosure, transaction priority, and referral fees.

Introduction to Alternative Investments (20-25%)

Alternative investments differ from traditional stocks and bonds. Key concepts include:

Real assets – Commodities, real estate, infrastructure, and intellectual property.
Hedge funds – Strategies, risk-return profiles, and regulatory considerations.
Private equity – Venture capital, leveraged buyouts (LBOs), and growth equity.
Private debt – Direct lending, distressed debt, and structured products.
Market efficiency vs. inefficiency – How alternative investments differ from traditional ones.

Quantitative Methods & Portfolio Management (10-15%)

Return computation methods – Time-weighted vs. dollar-weighted returns.
Statistical measures – Mean, variance, skewness, kurtosis.
Risk metrics – Standard deviation, Value at Risk (VaR), beta, correlation.
Hedge fund performance metrics – Sharpe ratio, Sortino ratio, Jensen’s alpha.

Risk Management & Financial Markets (10-15%)

Liquidity risk – Differences in private vs. public markets.
Short selling – Mechanics, benefits, and risks.
Legal structures in alternative investing – Limited partnerships, SPVs, and feeder funds.
Financial markets – Primary, secondary, and private capital markets.

Private Equity & Hedge Funds (10-15%)

Fund structures – Open-end vs. closed-end funds, high-water marks.
Private equity valuation – IRR, modified IRR, PME method.
Hedge fund strategies – Global macro, long-short equity, event-driven, and quantitative funds.

2. Key Formulas & Concepts to Memorize

The CAIA Level 1 exam includes many calculation-based questions. You must be comfortable with:

Sharpe Ratio

Sortino Ratio

Jensen’s Alpha

Value at Risk (VaR)

Carried Interest & Hurdle Rate Calculations

IRR & Modified IRR (MIRR)

Lognormal Distributions

3. Exam Strategy: How to Approach the CAIA Level 1

Time Management is Critical

The exam consists of 200 multiple-choice questions in 4 hours.
Target 1.2 minutes per question to avoid running out of time.
Skip and return – Don’t get stuck on difficult questions. Mark them and come back later.
Use elimination – Narrow down choices and make educated guesses.

Mock Exams & Practice Questions

Take at least two full-length practice exams under timed conditions.
Focus on question interpretation – Many errors occur due to misreading.
Review wrong answers thoroughly and reinforce weak areas.

Tackle Ethics and Professional Standards First

Ethics questions are often judgment-based, not pure memorization.
Apply real-world reasoning instead of trying to memorize scenarios.

Use the Formula Sheet Wisely

Memorize high-yield formulas before the exam.
Write them down during the first five minutes of the test to avoid mental blocks later.

Understand How Alternative Investments Differ from Traditional Investments

Alternative investments have higher illiquidity, inefficiency, and complexity.
Valuation methods, return distributions, and risk factors differ significantly from stocks and bonds.

4. Last-Minute Revision Plan

Final 7 Days

Review core concepts – Ethics, hedge funds, private equity, and risk management.
Do one full mock exam – Simulate exam conditions.
Analyze mistakes – Identify patterns in wrong answers.

Final 3 Days

Revisit high-yield topics – Ethics, major formulas, hedge funds, and portfolio management.
Work on weak areas – Focus on topics you struggled with in mock exams.
Do 50-100 practice questions per day – Reinforce exam-style problem solving.

Final 24 Hours

Review formulas and key concepts – Avoid heavy studying.
Get 7-8 hours of sleep – Rested minds perform better.
Prepare for exam logistics – Valid ID, calculator, exam confirmation, snacks, and hydration.

Success in the CAIA Level 1 exam depends on strategic revision, mastering core topics, and practicing under exam conditions. Focus on the high-weight sections, memorize essential formulas, and refine your time management. By following this structured approach, you will walk into the exam room prepared and confident.

Best of luck with your CAIA journey!

Are you preparing for the CAIA Level 1 Exam in 2025?

Boost your chances of success on the CAIA Level 1 Exam with the right preparation—explore our exclusive study materials and resources to excel in your certiication journey!