GUEST COMMENT: The game is NOT over for quants
Quants are at the centre of the vortex as banks go down the plughole, with some feeling pretty sorry for themselves. Much of the collapse in morale is down to Quanting being a young profession: most have never been personally affected by a recession before. When Paul Wilmott started teaching Quant finance at Oxford in the 1990s, it was an obscure specialisation.
Quants are part of the furniture
But although the economy has fallen back to the 1970s, Quant techniques have jumped out of their niche and diffused into the framework of the bank itself. Try getting a job as a trader at JP Morgan ignorant of some interesting mathematics and see how far you get. A language degree might get you in as a secretary if you're pretty, else dream on. Even accountants (but not Fred Goodwin) are now expected to understand the basics of mathematical finance, these skills being used from fund management to structuring, wealth management and (not well enough) in risk management.
Looking forward, a complex global economy requires complex mechanisms, though we must learn from Apple in putting a pretty face on ugly business practices. Political dynamics within banks will require some rebranding, and more than a few job titles changing from Quantitative Analyst to "risk manager", and Quants will need to grow new skills to move past the current situation.
Work in wealth management and government debt markets
Firms still need to hedge currency and commodity exposure, and loans will need to be structured to fit the cash flows from investments. The stimulus packages risk inflation, and there are now no risk free investments anywhere at any price. That means work in wealth management and vastly more activity in the government debt markets. Pensions experts are contemptuous of the efforts so far by banks to offer products that are of any real value in managing long term pension risk ( hint : 25 years is not "long term"), which means there are big opportunities here.
Executives at some firms have attacked the pesky "clever people" who got banks into this mess, and say they will go back to a simpler business model. But imagine the reaction if the CEO of Ford or Apple announced they were giving up on clever stuff, and going back to the products they offered in 1990. Their competitors would not believe their luck: you can't compete without a new product stream because profit margins will decrease until your whole business gets bought by Lloyds for peanuts.
Exploit the massive mispricing
Consultancies see more regulation as a goldmine, some of you will be working for them soon. In fact, my firm is positive enough about the demand for quants to have taken on more staff.
This mess has meant massive mispricing across all asset classes. Exploiting that will be hard, and will not be done by accountants or compliance, even though we will be burdened by more of both for years to come. But exploit it we must if the economy is to unlock any time soon.
Dominic Connor is a Director of P&D Quant Recruitment.
