A Road Map to Quant Careers

eFC logo

More than two decades after Wall Street's invasion by "rocket scientists" first made headlines, specialized quantitative skills continue to be one of the hottest areas in a generally hot job market.

Both finance industry veterans and newly minted math and physics Ph.Ds are angling to get in on the action. When the New York Society of Security Analysts devoted one of its monthly "career chats" to "How to Join the Derivatives Boom," it attracted the largest audience of any event in the series.

Hiring managers and recruiters say that even advanced quant degree holders with no finance experience face little difficulty landing jobs. "One can apply what you learned in other fields directly to Wall Street," says Gregg Berman, head of strategic development at RiskMetrics Group. An undergraduate education in math or a closely related subject can be directly transferable to finance, he notes. Such degrees are also seen as indicating good problem-solving ability.

Within investment banks, credit derivatives departments are a natural destination for quant talent. There is wide agreement that their products, math-intensive by nature, remain the fastest-growing area of Wall Street. Other quant-friendly fields include risk management, mortgage-backed and asset-backed securities, equity derivatives and model-based proprietary trading.

On the buy side, numerous quant-driven asset management firms also consider people with advanced quantitative degrees who lack finance experience, says Tom Kellerhals, senior partner at The Westminster Group. Such institutions run the gamut from behemoths like San Francisco-based Barclays Global Investors, whose funds total $1.8 trillion, to Quantitative Management Associates, a New Jersey firm with $60 billion under management.

What it Takes to Get Ahead

For hard-core quants already in finance, advancement rests not just on mathematical ability but - more importantly - on a combination of street smarts and social skills. Along with good communication, Berman says quants should focus on the practical aspects of working with financial data, and understand not only the math that goes into a model, but the reality of how much computing power is needed to execute it in real-world conditions.

Quants also must understand the limitations of real data, which is often "dirty," Berman says. Some data points will be missing, others may need to be corrected. Academic finance texts tend to ignore complicating factors like "bad days" - coupon payment or contract settlement dates that shave reinvestment interest because they fall on a weekend or holiday.

Berman has seen compensation packages for new Ph.D.s without experience range from under $100,000 to "a few hundred thousand." Quant roles paying $500,000 and more typically require five to 10 years of market experience, he says.

Most mid-level and senior quant roles require a strong understanding of finance, (often demonstrated by earning an MBA or a CFA designation), programming skills (such as VBA or .Net, plus C and SQL), the ability to communicate (an area that trips up many candidates), and years of experience in a particular area, says a recruiter involved who asked not to be identified.

Crossing the Lines

"In general, the closer to the front office you are, the more money you're going to make," says Berman. While trades bring in more money than research reports, research can pay off if its focus creates a profitable trading system, he says.

When evaluating people with operations backgrounds for front-office roles, Berman says, "We at RiskMetrics look for expertise in whatever they're doing." If an applicant's current job involves settling equity options, Berman asks questions to gauge how well the applicant understands the options and the practical challenges of processing them. He'll also probe their understanding of options theory, which is essential for front-office roles like trading.

For experienced cash-market traders seeking to break into derivatives, Berman offers this advice: Leverage your relationships with counterparties. For example, a cash bond trader can approach someone at a hedge fund who uses credit default swaps. If you express your desire to branch out to CDS, and detail your study program and other concrete efforts you're making toward your goal, the counterparty may go to bat for you.

Some derivatives roles, such as in marketing and sales, don't require a quant degree. Experts point to "prime brokerage" - brokers who cater to high-rolling hedge funds - as an especially desirable niche. Why? Because those roles are unlikely to be moved to overseas sites.