Sector View: Equity derivatives, hot or not?
Just what is going on in the equity derivatives market? In the past few weeks, two investment banks have announced the appointment of over 30 people.
Are equity derivatives the place to be right now?
To listen to Malcolm Pace, a headhunter specialising in equity derivatives at Global Executive Search: absolutely yes. "Demand for equity derivatives talent has been strong this year. Most candidates have had two or three jobs in hand and been able to pick the best."
The source of the opportunities is no secret. In July, Nomura announced it had poached 13 equity derivatives staff from Merrill Lynch. Merrill Lynch retaliated by announcing it had recruited 17 equity derivatives staff since last September from the likes of Goldman Sachs, UBS, and Lehman Brothers.
Nor are Merrill and Nomura the only grazers for talent: Société Générale, Barclays Capital, and CDC Ixis have also been bulking up with equity derivatives muscle since the start of the year.
Europe warmer than US
The boom hasn't affected all equity derivatives staff equally, however. European sales staff, particularly those with a Scandinavian or German-client focus, have been the main beneficiaries of the recent spree.
Cristina Garcia-Peri, managing director responsible for corporate equity derivatives Europe, Middle East and Africa (EMEA) at Merrill Lynch, said as well as the 17 hires already announced, the bank has hired an additional team of eight for its corporate equity derivatives business alone: 'It's a growth area. Corporate clients are becoming increasingly more sophisticated and interested in complex structured products.'
Banks in the US have been behaving in a more restrained fashion. Headhunters said US hires have been 'strategic' (read 'limited'). Barclays Capital has already hired one senior US options trader this year. Maurits Schouten, head of equity linked and equity derivative products at BarCap, said there are plans to recruit another two in the months to come.
In Europe, however, bountiful demand has taken its toll on pay, which is starting to be bid up: Pace said European equity derivatives sales people have been changing hands for packages in excess of $500,000.
Past its peak?
Before rushing headlong into a career in equity derivatives, it's worth bearing in mind that the hiring rush is probably over, just for for the moment at least. There are two restraining factors at play right now: poor market conditions and the fact that recruiting during the second half of the year is always expensive because bonuses must be bought out.
Poor market conditions are down to low volatility. Equity market volatility has fallen dramatically since the start of the year and the need to hedge risks using equity derivative products has fallen as a result.
This doesn't mean things won't get better. Schouten, said conditions may not be fantastic now, but hiring is being driven by the market's long term potential: 'All clients, whether institutional, corporate, hedge funds, or retail, are much more aware of equity derivatives. When volatility picks up, demand will be strong.'
Garcia-Peri is similarly bullish for the long term: 'If you look at the size of the FX and interest rate derivatives market, which are huge by comparison, the corporate equity derivatives market could become a lot bigger in future"
Headhunters are even more optimistic. Once bonuses have been paid in early 2005, they predict the equity derivatives hiring conveyor will begin again. 'All the top houses will be looking to strengthen their equity derivatives teams in January', said Pace.
After this year's rampant hiring, there are still plenty of holes to be filled: Goldman Sachs and UBS have lost several staff to Merrill Lynch; in France, Credit Lyonnais has lost out to Barclays Capital. Joachim Willnow, head of equity derivatives at Nomura said the bank is still keeping its hiring options open. 2004 is proving a good year for equity derivatives staff. 2005 could be better still.
Want to work in equity derivatives? Click here on what it takes.
