Analyse this: the future for quants

Though most banks report quant headcount is up on pre-crisis levels, jobs in front-office functions such as derivatives pricing have been decimated

Over dinner, a senior derivatives structurer at a French bank is offering his thoughts on the graduates who pass through France’s storied grandes écoles – one of which he attended himself. Over the years, the scientists and mathematicians produced by these institutions have provided a steady stream of recruits for banks’ derivatives desks and quant analytics teams – but recently, the flow has started to dry up.

“Now, they all want to go into fintech. I mean, why would you want to work for a bank today when you can work for the next Google?” he asks.

It was a question echoed by many industry practitioners Risk.net spoke to while compiling its inaugural guide to the world’s leading quantitative finance master’s programmes – a four-month project. One of the metrics the guide tracks is graduate employment by industry; banking and finance still dominate – but technology isn’t
far behind.

This probably says as much about the demands modern banking is placing on graduates as it does about graduates’ desire to look elsewhere. Though most banks report quant headcount is up on pre-crisis levels, jobs in front-office functions such as derivatives pricing have been decimated.

Such roles carried status and prestige within a bank, and offered a high degree of autonomy; the same can’t always be said of the roles that have taken their place. Taking apart a model and stress-testing it will present an interesting challenge to a graduate working in a bank’s model validation team – but it is not the same as designing and building a model from scratch, practitioners note.

Some of the other roles banks now need grads to fill – analysing shifting market structure and writing algorithms for a bank’s e-trading desks, for instance – have more obvious appeal to those motivated by competitive instincts. But it is data scientists comfortable working with large information sets that banks need to fill such roles, rather than pricing specialists – and here in particular, banks have a fight on their hands for top talent. Many grads with these skills are attracted to the campus environment cultivated by buy-side and technology firms. As fund manager AB’s chief risk officer Andrew Chin puts it, there is a widespread perception among grads that these jobs are “cooler”.

The trouble with geography

Increasingly, newer quant jobs at banks aren’t based in London or New York either: from Casablanca to Kolkata, many have begun offshoring quant jobs as part of a broader drive to move jobs to lower-cost locations. While it might help cut costs in the short term, others see it as storing up trouble for the future.

“When my generation retires – which, personally, I’d like to do in the next five years – who’s going to take our place?” asks one senior quant at a European bank.

Banks are aware of these dangers – competition, a lack of clear succession planning, a possible leadership gap – but it will take a concerted effort to manage them.  

As Gordon Lee, executive director with the quant analytics group at UBS puts it: “As a profession, we need to think about the value proposition we offer the class of 2017. There is no divine right for the quant profession to exist indefinitely; it is up to this generation to define it for future.”