You're an expert at modelling the dispersal patterns of waves across a seashore, or in the stochastic analysis of neural networks. Now could be the time to apply your talents to devising a model of share price movements or calculating the price of interest rate derivatives.
This is the message from an array of specialist headhunters in both the U.S. and Europe. Top mathematicians are in demand, and investment banks are prepared to pay handsomely for their services.
Packages for quantitative financiers on Wall Street start around $100,000 to $150,000. In London, junior 'quants' can command 80,000 plus. In Paris and Frankfurt (where pay is typically lower), starting packages of €45,000 and €65,000 are standard.
Crystal Balls and Ivory Towers
What do quants do for their money? Ciaran Healy, a consultant at Huxley Finance, a recruiter specialising in quantitative finance appointments, said there are two main roles, both on the trading floor:
- 'Crystal ball quants,' who conduct regression analysis on stock market data in an effort to find unearth patterns and anticipate future trading opportunities
- 'Ivory tower quants,' who use complex mathematical models to price derivative products
Both species are in strong demand, says Healy. Crystal ball gazers are needed by the likes of hedge funds and algorithmic trading platforms in investment banks; exotic derivatives are fuelling banks' demand for ivory tower types.
Quants and Risk
Banks are equally in need of quantitative specialists to work behind the scenes. 'Quants are springing up everywhere,' says Ken April at Wall Street recruiter April International. 'There are quantitative risk people analysing everything about a bank: how it runs, which systems are working best, how services are provided. Even the audit groups have a quant person nowadays.'
European recruiters report a similar surge of interest in quants with a risk focus. John Jessen of Smith-Jessen, a Frankfurt-based recruiter, says Landesbanken and German asset managers are pursuing quants to work in risk management and risk control roles. Asset managers have a particular need for quantitative risk specialists, says Jessen: following the implementation of the Investment Modernization Act in January last year, they are able to invest more heavily in complex derivative products.
Making the Move
Not every mathematician can reap the rewards of working in a quantitative role for an investment bank. Success typically requires two things: a PhD and a top class education.
In the U.S., Healey says banks favor quants from a select few schools: 'There is a massive premium for people with PhDs from Harvard, Yale, Princeton, Dartmouth, Stanford, MIT and Caltech.'
Sometimes Wall Street banks accept exceptional candidates with no more than a Masters degree, says Healey. But this is rare: 'If you don't have a PhD, you've pretty much got to be sleeping with the CFO.'
The City of London favors PhDs from the likes of Oxford and Cambridge Universities, Imperial College and the London School of Economics. It also plunders a handful of universities in France.
France and China: Supplying Quants to the World
French schools, such as University of Paris VI, École Polytechnique, École Normale, École Nationale de la Statistique et de l'Administration Économique (ENSAE) and Université Paris Dauphine, have a strong reputation when it comes to supplying banks in Europe with quant staff.
This is just as well: quant jobs in Paris are rare. 'Plenty of graduates from these schools can't find jobs in France', says Jean Venard, a recruiter at Paris-based Finac Team.
'Around 500 people leave École Polytechnique every year,' says Gérôme Bonnard, another Paris recruiter at RCBF-Consulting, 'A lot of them end up in London.'
French students aspiring to quantitative finance roles will need, at the very least, to study a finance- focused DEA, the equivalent of the first year of a PhD course. Andrew Fisk, a recruiter at Carrington Fox in London, says banks sometimes prefer French DEAs to English PhDs: 'French candidates are a lot more vocationally-oriented. They have typically undertaken one or two internships, which can give them an advantage over PhDs with no knowledge of the industry.'
If France supplies quants to the City of London, China supplies Wall Street. Healy says 40% to 50% of candidates for US quant positions are Chinese. Most have studied first degrees at the likes of Tsinghua, Shanghai Jiao Tong and Beijing Universities, before studying PhDs at schools in the U.S.
The best quants are those who can earn profits for the bank. In the long term, front-office quants who devise successful trading models, or who create profitable new exotic derivative products earn the most. 'If you want to be a top quant, you will need to use your mathematical abilities to make money for the people you work for,' says Shuvo Loha, a director at recruitment firm Janikin Rooke in London. 'If you can do that, you will always be in demand.'
Profitable quants are well remunerated for their efforts. 'The top quants are on $1 million plus, without a shadow of a doubt,' says April on Wall Street.
In the City of London, Fisk says top quants can earn 600,000 plus. In Paris and Frankfurt senior quants typically earn €250,000 euros. But Jessen says some Frankfurt quants at US banks negotiate packages in the high six figures.
Hedge Funds in the Crystal Ball
Ivory tower quants typically spend their careers devising ever more complex derivatives pricing models for investment banks, but crystal ball quants with successful trading models can go it alone.
Take Cliff Asness, who after earning an MBA and PhD in finance from the University of Chicago, joined Goldman Sachs and became managing director and director of quantitative research for the asset management division. Today Asness is managing director and founding principal of AQR Capital Management, a hedge fund with over $11 billion under management.