Most candidates treat ethics as the section to review the night before the exam. That instinct is understandable — it doesn't feel like it requires the same calculation drilling as private equity waterfalls or commodity roll yield. It's also a mistake, and a more costly one in 2026 than in any prior year.
The CAIA Association replaced its ethics framework entirely in 2025. Candidates are no longer tested on borrowed standards from another designation — they're tested on eight CAIA-specific principles, built from the ground up for the alternative investment industry. This post walks through what those eight principles actually say, how the exam uses real-world misconduct cases to test them, and why this section rewards far more preparation than its reputation suggests. For a broader orientation to the exam, see our complete CAIA Level I candidate guide, and for how ethics fits alongside the rest of the curriculum, see our topic-by-topic breakdown.
For years, candidates studying CAIA ethics were really studying a borrowed framework, one written for a different professional context and adapted to fit. That created a real gap: alternative investments run on structures — limited partnerships, side letters, placement agents, illiquid multi-year holding periods — that don't map cleanly onto the situations a generalist ethics code was built to address.
The 2026 curriculum closes that gap. The new CAIA Ethical Principles are organised around two questions that every investment professional eventually has to answer in practice: am I doing the right things, and am I doing things right. The first question is about intent and values. The second is about competence and execution. Both matter, and the exam treats them as genuinely distinct categories of failure — a professional can have excellent intentions and still cause harm through sloppy practice, or have excellent technical skill and still betray a client through misaligned priorities.
This split is the organising logic behind all eight principles, and understanding it will help you reason through exam questions you haven't seen phrased exactly this way before.
Principle 1: Ethical and Professional Behavior. The broadest principle and the one most often tested in scenario form. It's about more than personal honesty — it asks whether a professional's decisions hold up when you consider their effect on everyone touched by them, not just the paying client. The exam likes to construct scenarios where a decision benefits the client narrowly but creates a cost for some other stakeholder, and asks candidates to identify where the principle has been breached.
Principle 2: Partnership. Reframes the advisor-client relationship as a relationship between peers rather than an expert dispensing wisdom to a layperson. The practical test on the exam usually shows up as a scenario where a professional withholds context a client would need to make a genuinely informed decision — even if nothing illegal happened, the partnership principle was violated because the relationship wasn't treated as mutual.
Principle 3: Client-First Mindset. Often confused with Partnership, but the distinction matters for exam purposes. Partnership is about the quality and honesty of the relationship. Client-first is specifically about resolving competing interests — what happens when a professional has multiple clients, multiple products, or personal incentives that pull against the client's best interest. Conflict-of-interest questions are usually testing this principle specifically.
Principle 4: High Standards of Conduct. Covers transparency, integrity, and accountability as a connected set. The exam frequently tests the boundary between an honest mistake and an ethics violation here — the principle doesn't require perfection, it requires disclosure. A professional who makes an error and discloses it promptly has acted very differently, under this framework, from one who made the same error and concealed it.
Principle 5: High Standards of Practice. Connects ethics back to competence. It sets the expectation that professionals work to an evidence-based standard, not just a sincere one — good intentions don't substitute for rigor. Exam questions testing this principle often involve a professional who acted in good faith but skipped a step in due diligence or analysis that a competent practitioner should not have skipped.
Principle 6: Professional Work. Closely related to Principle 5 but specifically about the quality and documentation of the analytical work itself — assumptions stated clearly, risk properly assessed, conclusions that don't overstate what the analysis actually supports. A professional who builds a model on unstated assumptions and presents the output with unwarranted confidence is a Principle 6 problem even if every individual number is technically correct.
Principle 7: Continued Learning. Holds that professional competence has an expiry date if it isn't renewed. Markets, instruments, and best practices change, and a professional working from years-old knowledge without updating it is a different category of risk from one who is actively current. This principle is newer to test-writers and tends to appear in shorter, more direct question forms rather than elaborate scenarios.
Principle 8: Collaboration. Holds that no individual professional's judgment is sufficient on its own — peer review, diverse perspectives, and challenge from colleagues improve outcomes and catch errors that one person working alone would miss. Exam questions here often involve a professional who bypassed a review process under time pressure, with consequences that a second set of eyes would likely have caught.
Here's the trap candidates fall into: memorising eight principle names and one-line descriptions feels like solid ethics preparation. It isn't, because the exam rarely asks "which principle is this?" in a direct, definitional way. It gives you a scenario and asks you to identify the right course of action, or to identify which principle was violated by a decision that may have looked reasonable on the surface.
This means you need to understand each principle well enough to apply it to a situation you haven't seen described in exactly that language before. The case studies CAIA includes in the curriculum exist precisely for this reason — they're not historical trivia, they're worked examples of how to map a real situation onto the principles. Walking through a few of them is the fastest way to build the pattern-recognition the exam actually rewards.
The CAIA curriculum includes five real-world misconduct cases as part of the ethics reading. Each one is instructive less for the scandal itself than for how cleanly it maps onto multiple principles at once — which is the skill the exam is testing.
MF Global is fundamentally a story about a CEO who overrode his own risk function. The firm's chief risk officer raised concerns about the size of a large sovereign debt bet; the CEO had the CRO replaced rather than scaling back the position. When the bet went wrong and the firm faced a liquidity shortfall, customer funds that were legally required to be kept segregated were used to plug the gap. For exam purposes, this case shows that an ethics violation doesn't have to start with dishonesty — it can start with a governance failure that only becomes outright misconduct once losses create pressure to cover them up.
Archegos Capital Management illustrates how a structural loophole can create the conditions for an ethics breach even before anyone does anything individually corrupt. Operating as a family office rather than a registered fund, Archegos faced lighter disclosure requirements and used that gap to build enormous, opaque leveraged positions across multiple banks, with no single counterparty able to see the full picture. When one large position fell sharply, the firm couldn't meet margin calls, and the unwind cost its banking counterparties billions. The lesson here is about transparency obligations existing independently of what's strictly required by regulation — just because something is legally permitted doesn't mean withholding it from counterparties is ethically sound.
The Bear Stearns hedge fund collapse is a clean test of the gap between what a firm tells investors and what it knows internally. Portfolio managers reassured investors that the funds were a good opportunity — while internal performance data was already showing serious deterioration in the underlying subprime mortgage exposure. This case is a useful exam template because it shows a violation built almost entirely on the gap between communicated confidence and known risk, rather than on any single dramatic act of fraud.
The New York State Common Retirement Fund pay-to-play scandal and the CalPERS bribery case both test a different pattern: misconduct that flows through the LP side and through intermediaries, not just through a fund manager. In both cases, the official responsible for directing public pension capital accepted personal benefits in exchange for steering investment decisions toward specific firms. These cases correct a natural candidate assumption that ethics violations only happen on the sell side, among managers raising capital. Allocators, and the placement agents who connect them to managers, are just as exposed to ethical failure, and the exam will test scenarios from that side of the relationship too.
Read each principle and then ask yourself what kind of real-world situation it's designed to catch. Don't stop at the definition — generate your own example of a borderline case for each principle, something that isn't an obvious, dramatic violation but a genuinely ambiguous judgment call. That's the level of difficulty the exam operates at.
Work through the five case studies and practise mapping each one to multiple principles, not just the most obvious one. Most real misconduct touches several principles simultaneously — a single bad decision is rarely an isolated breach of just one rule. The exam reflects this by sometimes asking which combination of principles was violated, not just which single one.
Pay attention to the cases that don't involve a fund manager defrauding investors directly. The pension fund cases are a useful corrective if your mental model of "ethics violation" defaults to a manager misleading clients. The exam tests the full range of relationships in the investment ecosystem, including allocators and intermediaries.
Finally, don't treat this section as separate from the rest of your preparation. The same precision the exam expects in private equity calculations or hedge fund mechanics applies here — vague, surface-level familiarity with the principles will not hold up against a well-constructed scenario question.
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