Demand For Quant Alchemy Intensifies

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As the war for Quant talent intensifies, banks are going head-to-head with macro hedge funds to secure quant superstars in the constant pursuit of absolute alpha. 

by Alex White

Partner, Talent & Research 28th Jan 2017

With traditional trading roles diminishing, human traders are losing out to machines, with 'quants' now the firm stars in ascendence in the banking arena. When we consult with heads of trading, whether that be at investment banks, or strategic hedge funds, leaders are committed to improving their strategic data architecture, they are acutely aware of the value of data and the role that machine learning (ML) and automation has to play in building, operating and risk controlling super low-latency competitive trading strategies.

With financial securities evolving to become increasingly complex, the demand has increased for people with superior numerical literacy who not only comprehend the sophisticated mathematical and statistical models that price securities, but who can also control and engineer them to generate greater profits and reduce trading risk. These actors are known as quantitative analysts, or 'quants', they are aggressively pursued and woo'd by both banks and trading firms alike for the mercurial ability to engineer data in new and innovative ways for even greater returns.

Inside most investment banks, quants are referred to simply as 'desk quants', they work alongside the traders to produce statistical models to analyse trading book risks and to identify opportunities for creating complex derivatives on behalf of their clients. The desk quants create pricing models for these derivatives. They also create models that create strategies to direct trading decisions and that make traders more efficient. But desk quants in banks aren’t actually traders. And because of this, they’re not compensated quite as well as the traders in terms of both base salary and bonuses.

While quant's make a measurable contribution to a bank’s overall profitability, as a stand alone component they are looked on as more of a support function, Quants construct the pricing models and algorithms that price derivatives, so in essence they do generate revenue, just not as much as the traders. A trader will be a able to support their claim for a sizeable bonus based on their assertion that they have produced a measurable amount of profit for the bank, whilst the quants are looked on as valuable functionaries, albeit well compensated.

To attract and retain financially literate desk quants banks will need to devise more competitive talent acquisition strategies. There is somewhat of a bidding war underway out there right now for finance-savvy quant talent: systematic macro hedge funds are going head-to-head with the banks for the same quantity of talent, and they seemingly have deeper pockets when it comes to constructing offers and putting compensation packages together. As the results of our recent salary survey show, quants running systematic trading strategies in hedge funds are some of the highest paid functionaries in the financial space, with salaries on a seemingly positive linear slope. 

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Author - Alex White

#quant #banking #macrohedge

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