Quants Call the Shots

For the young and mathematically inclined, rarely have times been better on the Wall Street catwalk. Quantitative analytics jobs are the new black.

Hiring of junior-level quants 'is very hot,' says Peter Arian, a recruiter with New York-based Analytic Recruiting. 'It's back to what it was in 1999-2000, with people getting multiple offers and counter offers when they go to leave. There's really a void of people with three to five years of experience, because there wasn't a lot of hiring going on post-9/11.'

The post-9/11 downturn in investment banking forced a seismic shift in profit centers. These days, says Scott Gerson, president of New York-based quant recruiting firm Focus Capital Markets, 'a lot of hedge funds are doing well, and investment banks are expanding their derivative trading activities after making most of their money trading in 2004 rather than investment banking.'

The Fast Lane

Hedge funds are powering much of the hiring, and the internal hedge funds at big banks are no exception. Citigroup's Tribeca fund is said to be aggressively expanding its quant brain trust, with Credit Suisse First Boston following suit as it rebuilds its internal hedge fund.

As a result, banks and hedge funds need talent-and lots of it. 'Everybody wants to hire people with three years of experience,' says Arian, explaining that these junior level quants, earning $75,000-$110,000 base plus 20-50% bonus, have 'learned enough but aren't that expensive.'

In a break with the PhD-obsessed past, a new credential-the relatively recent Masters of Science degree in mathematical finance-has gained Street credibility. By pursuing an MS degree rather than a PhD, graduate students with a facility for numbers can earn their stripes in as little as three semesters-learning everything they need for doing quant work on Wall Street.

The best programs-and the ones that open the most doors-are said to be offered by NYU, Columbia University, Carnegie-Mellon, Stanford and Berkeley, with Princeton running a smaller, but competitive, program.

While some firms still want PhDs, says Arian, 'some places would prefer not to have a PhD because they might not be as practically oriented, more theoretical.' In other words, he says, 'If you need an answer to three decimal points, an MS is fine. If you need an answer to 10 decimal points, you probably need a PhD.'

Hot, Hotter, Hottest

'Right now if you ask me what's hot, it's credit derivatives,' says Gerson, whose clients include hedge funds and banks involved in derivatives trading.

Quants with backgrounds in equity derivatives and those with high-frequency trading backgrounds are also sought after (though the latter may be cooling), and some old types of derivatives have recently come back into vogue.

'Mortgage derivatives again are really of concern because the swift changes in interest rates are affecting the mortgage markets. Prepayment modeling is a very, very in-demand area,' says Gerson.

Quants fluent in buyside and black-box strategies are commanding an especially high premium, says Steve Fleming, a partner at search firm Wall Street Options, which recruits quants for hedge funds, fund of funds and private equity shops.

'Right now every major bank and hedge fund is in this area,' observes Fleming, who says they're seeking PhD and MS candidates with 'a strong aptitude for math and statistics, someone who can program and someone who has a quant mind for putting together programs for these strategies.'

Future Returns

While a second- or third-year quant rarely makes more than $250,000 a year, compensation can escalate from there. 'I certainly know people with five years experience who are making $300,000-$500,000,' says Gerson.

On the other hand, says Arian, 'we'll talk to people who have 10 years experience and make $100,000, and others with the same experience making 10 or 20 times that.'

'I'd say early on in your career you're paid for potential, and at some point in your career you're paid for performance,' he explains.

And there's no denying that some quants don't perform well in the real world. 'A lot of these people I see all the time, they have all these models they back test for years, but when you're in the line of fire and actually using someone else's money, they can completely bomb,' says Gerson.

But plenty of mathematical whizzes thrive in the free market. 'It's seeing results right away,' he says. 'It's working with people with similar intellect and desire and entrepreneurship. It's cutting edge. It's coming up with ideas and watching them work.'