"I find if someone wants a career in risk management specifically, then they aren't ambitious enough for me. They should want to move on to trade or some other end of the business."
Risk management is critical to investment banks, though it's not always an area people target as a career path. Aaron Brown, executive director in Risk Methodology at Morgan Stanley, discusses his role and the career prospects for those interested in this area of investment management. Brown, who authored The Poker Face of Wall Street, has worked as a trader, portfolio manager, head of mortgage securities and as a risk manager.
What sort of skills sets do you look for in new hires?
There are three essentials I definitely look for: energy, honesty, and talent. More specifically, for my job someone would need quantitative ability, in addition to derivative knowledge and IT project management. But when I hire, I would take someone with quantitative ability and either derivative knowledge or the IT background, since it's rare to find people with all three skills.
People tend to have certain career paths, and you never get both the derivative and IT experience. I tend to get people coming out of IT who then get a master's in quantitative finance or financial engineering, or I get someone with a trading background.
So, where are the majority of your new hires coming from? And, where do these people typically go?
Well, it's changing quite a bit now since there just aren't enough desk traders and desk quants to fill the demand. That's part of the reason why all of the quant degrees cropped up in the first place. We do our own training here, and so we do hire just a few direct from college, with no experience. I have seen those people go on to desk quant positions or to become junior traders.
But I prefer someone with the interest and the background, as it's easier to know if they have the head for this kind of thing. We hire many more experienced people. They typically go on to a business role in portfolio management or prime brokerage, or a few go into front office development to work on IT systems.
It seems as if the titles in the risk side of the business can differ greatly, depending on the firm. Do you find that to be true?
It's certainly different depending on the firm, but usually there's the head of risk or the chief risk officer. Then reporting to him or her would be the head of market risk, the head of credit risk, and the head of risk methodology. Within risk methodology, there might be someone on model valuation, market risk methodology, and more.
Can you tell us a bit about the day-to-day in risk methodology there?
The nice thing about working in the middle office is that it pays well and there's less stress than you might imagine, since there's a big team and experienced people at the top.
The biggest stress for those on lower levels is to make those contacts. It's important that people learn that they need to do more than just the job, or they'll find themselves no better off than when they first started. Having a position in risk needs to be a learning and development process, since most of the people there aren't going to be the head of risk. They will move on to other things. I like to say that we're a starting point or a finishing school, and those people working here need to use the time wisely. You can certainly get caught up in regulatory deadlines or a report being due, but you can't let the day-to-day distract you.
What convinced you that risk was an important end of the business to target in your career trajectory?
It was really the events of the late 1980s and early 1990s that convinced me risk management was the future of finance. The ones who do it well have a tremendous advantage. The title is really a factor of the organization. I'm part of a team on the corporate level, working to manage the risk of the firm. Before Morgan Stanley, I was at Citigroup in credit risk architecture.
What do you think are the biggest challenges in area?
Most of the stress is self-imposed by individuals who want to break new ground, often when they shouldn't. This is an area where you don't make decisions in two seconds. We have all the information available at the firm but, of course, if there's a big disaster, you do get blamed for it. But that's true in every job. People often stress because they want to go beyond the needs of the job. Certainly, deadlines do pile up, and there are new products, regulatory or front-office issues.
What other areas of the investment banking world do you think are then applicable to you?
I am from the old generation, and I did a lot of trading, but all of that is changing. I tell people who want a career in risk management to move on to the desk. You simply don't need or have too many people who work on the risk side for the firm. I find if someone wants a career in risk management specifically, then they aren't ambitious enough for me. They should want to move on to trade or some other end of the business.
There simply isn't a ton of people at the top of risk management, but this is where you do see the firm at the highest level. The pay is good at the moment because of the supply and demand equation, but many people need to understand that if you're not directly generating money, then many people simply won't see the kind of money most want on Wall Street in the front office.