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Structured credit recruiters’ answers to your questions

We asked three structured credit recruiters to answer your questions over a three day period. Two went the distance, one dropped out. Their responses are below (scroll down to the comments at the base of this page to read them).

Panel members were:

· Alex Tracey, managing director of search firm Clifden Partners.

· Russell Clark, director of search firm Mantis Partners.

· Jason Kennedy, chief executive of financial services recruitment firm Kennedy Associates.

NB: If you post a question now, it won’t be answered by the recruiters above. They were only on hand to respond until Thursday December 4th. You may, however, talk amongst yourselves.

Comments (29)

  1. QUESTION: The word on the street is that the structured credit market is dead. The traders on the other hand are pointing out that there is opportunity out there to pick up distressed debt. As a structured credit ops person, should I leap to another area and if so which, or hang in there?

  2. Confused: Couldn’t give a direct answer to this as I do not cover the operations sector. From a product persepctive Distressed Debt will be an interesting space in 2009 whereas Structured Credit will remain a difficult environment.

    Alex Tracey, Clifden Partners Reply
  3. Confused: You are right in saying there is opportunity , however banks have a herd mentality and until one bank gets in to this business the rest will not follow

    Jason Kennedy, Kennedy Associates Reply
  4. Confused: The macro conditions that investors currently care about most are in dichotomy with most payoffs engineered by the banks, systematically reducing business generation this year. Investors are reluctant to invest in products with risks they do not fully comprehend. Sales have therefore reduced in the traditional structured credit product spaces and activity is likely to be subdued in 2009. You are right in identifying activity further down the credit curve – distressed debt and illiquid asset desks are seeking out value in the market and if they get it right could stand to make a lot of money. My advice is if you have not been cut yet then stick in there – they obvious value you or are redirecting resources into such areas. However, you may consider if there are specialist teams being set up to cover the settlement and evaluation of risk exposure to certain institutional. counterparties. This will be an ongoing concern in 2009. Certainly, flow credit operations and other asset classes will give you less sleepless nights going forward.

    Russell Clarke, Mantis Partners Reply
  5. QUESTION: I was working as a quant for a BB, and then was hired to trade structured credit for another BB, only to be fired a couple months later with Lehman’s bankruptcy. Since then I have an offer from a startup hedge fund to work on and trade stat arb/high freq strategies. The only problem is the HF is outside NY/London.

  6. Ex-trader Joe: A bird in hand my friend … take the offer and continue looking for the ideal job.

    Jason Kennedy, Kennedy Associates Reply
  7. Ex-trader Joe: Hedge Funds are themselves in the middle of the market turmoil and it is clear that no more than 50% of them will survive. If you feel strongly that your HF will be a survivor then I would suggest taking this opportunity.

    Alex Tracey, Clifden Partners Reply
  8. Ex-trader Joe: Two very different experiences. It depends upon the longer term commitment by the HF and if you bring a model to the table. It could be a little while before your model trades well and indeed over the longer period the hedge fund could be more rewarding for you. A start up HF focusing on automated quant strats is more secure than some structured Credit HFs at present. Without knowing the underlings it is hard to take a view on the value of High Frequency strategy but it sounds like you have a lot of variables to consider, most of all the location. If the temperature is a balmy 30 degrees I would say go for it, get a tan and let the model do the work. However, the sell side market will come back and at present you may possibly have the right blend of trading savvy and quant skills that is in demand. Most structure credit activity is focused on the risk management of the books. It may seem less sexy than market making, but if you join a sell side structured trading desk as a technical trader, reduce risk and determine what parts of a book can be unwound and what the business has to manage over the longer term you could become a vital component for the business as the market plays out.

    Russell Clarke, Mantis Partners Reply
  9. QUESTION: With structured finance models having proved to be less than fit at providing proper risk pricing and valuations, what is the future for those who have worked on the quant and risk management side?

  10. KD: You need to evolve to a new business that is in vogue, like equity quant or high frequency quant

    Jason Kennedy, Kennedy Associates Reply
  11. KD: I don’t recruit within the quant or risk managment side but would imagine both would be busy in 2009 as it is clear banks need to invest more in this area following their writedowns.

    Alex Tracey, Clifden Associates Reply
  12. KD: The QA and Risk modelling suits of most committed structured credit houses have been overhauled in the last 8 months. It is important not to blur the lower standard of rating quant models with those in use by the banks to price and risk manage trades. They are worlds apart in their complexity and their application. It is right to say that certain copulas, intensity and stochastic recovery modelling techniques have proven less appropriate when the market dislocated itself, calling for a closer coalition of model output, market led prices and trader intuition. The result is that some houses have worked hard to deploy a suit of credit quant models that can calibrate a wider range of risk variables and map correlation issues better. Structured Credit books still have a lot of risk and value in them and the market has not seen a contraction in demand for strong modellers. The market however has changed. Structured derivatives products are in less demand but resource has been moved into centralising risk management for cross product initiative i.e reg capital trades, emerging markets and developing better utility function in banks – such as counterparty credit risk initiatives. It is my view that the only restriction to developing quant risk management and pricing technologies is budget. It is true to say that you may be viewed as more of a cost centre in the future but the essential role of providing risk pricing and valuations remains. It is likely that fewer sell side houses run complex risk and exotics business going forward. Product evolution across structured products will be a specialised focus of a few banks. However, an increase in the legislative risk framework and accountability, not to mention the need for more accurate pricing will encourage innovate and demand going forward. Risk is a big issue at present. Don’t panic, just don’t spend your bonus this year before you receive it.

    Russell Clarke, Mantis Partners Reply
  13. “. It is important not to blur the lower standard of rating quant models with those in use by the banks to price and risk manage trades”

    Not quite true there. There are some differences in quality but not “world’s apart”. For example – Damiano Brigo is now at Fitch, one of leading quant guys around. some of leading credit quants are infact at fitch/s&p/moodys.

  14. “You need to evolve to a new business that is in vogue, like equity quant or high frequency quant”

    you really think there are lots of high frequency quant jobs around? don’t be silly! also the skills are dramatically different. if people are hiring better to get fresh postgrads

  15. QUESTION: What, in your opinion, will be the call for the maths/physics/quant types in the future in structured credit (and in the market as a whole if you can answer that too). As people seem to be scared (quite rightly) now of any product they don’t understand, can you see the market eventually turning and bringing these complex instruments back into trading, or have we seen the end of structured credit?

  16. Peter: This is not the end of structured credit but it is unlikely to be in much demand for another 18 months. When such juicy yields are on offer with vanilla products why would an investor want to buy a structured product. The demand for quants outside of risk management will be small until we see a full market recovery and narrowing of credit spreads.

    Alex Tracey. Clifden Partners Reply
  17. Peter: Stat arb is hot, recommend one moves into equities quant . this market works well with the high freq. products . one needs programming ability as well.

    Jason Kennedy, Kennedy Associates Reply
  18. QUESTION: Hello,

    I’ve worked for more than a year in a European IB as a securitisation analyst and I’d like to know my current career options, in case I need to start looking for a job elsewhere. This is my first IB experience since Uni and there are a few areas in finance that interest me, such as venture capital and equity research. Unfortunately, these are equity-related areas and they’re not structured finance.

    For someone with my background, what would be the main obstacles while trying move into any of these areas?

    Many thanks for your advice.



  19. John: The main obstacles to changing will be the number of candidates per role as well as lack of relevant experience. However, given this is such an early stage of your career if you are patient I am sure the right opportunity will present itself.

    Alex Tracey, Clifden Partners Reply
  20. John: If you are still employed, stick with it. No need to panic unless u have been chopped.

    Jason Kennedy, Kennedy Associates Reply
  21. QUESTION: Hi guys, until February this year I’d spent the past four years selling mortgage backed securities to institutional investors. I lost my job and have spent the nine months desperately trying to reinvent myself. As soon as potential employers see CMBS on my CV they run a mile. Any advice?

  22. Learn Mandarin!

    Alex Tracey, Clifden Partners Reply
  23. This is an open question, how are you trying to reinvent yourself? Don’t hide what you have done. U may need to take a step down to get in to a new business. If you are entrepreneurial , might be worth starting your own business outside finance.

    Jason Kennedy, Kennedy Associates Reply
  24. QUESTION: Just back from a Fitch Conference today at London, with their 2009-2010 outlook gloomy for structured credit & structured finance (of the “market will continue to remain shut” variety) How will distressed asset roles be justified in a 1Yr-2Yr horizon if new originations stop i.e. no more assets to trade – distressed or otherwise ?

  25. It is widely accepted that the only new structured credit and structured finance products next year will be for financial institutions to use as collateral to post with central banks etc. This will leave distressed buyers to focus on the secondary market.

    Alex Tracey , Clifden Partners Reply
  26. Distressed is a hot topic and you will find that a large number of HF and banks are seeking to do something in this area. The issue is timing , at this point it is a bit early to get in to, it will change next year. The other point is that the above industry has lost money in this space , so reluctant to jump in at this stage but the opportunity will be to big to mis

    Jason Kennedy, Kennedy Associates Reply
  27. QUESTION: Given the spectacular failures of CDO’s. What range of salaries and bonus do you think CDO structurers still employed with a bank will achieve over the next few years? Specifically at VP/ Director level? Is it worth hiding as a structurer or moving into another field and which fields have been recruiting structurers?

  28. I think that any CDO structurers should be grateful to be employed and not too worried about a bonus this year. There are limited options for CDO structurers to switch, particularly at the VP / Director level. I would recommend looking at either risk management or restructuring roles as the best career avenues.

    Alex Tracey, Clifden Partners Reply
  29. If u r lucky enough to have a job, base only, or as a token 10-20% of base as a bonus , recruitment is dead for the time being, stay away

    Jason Kennedy, Kennedy Associates Reply

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