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End of the road for quants

What’s a PhD with a bias towards quantitative finance to do? Banks have gone from screaming from the rooftops that they want quants, to whispering that they’re only interested in a select handful of them. This leaves a lot of people on the sidelines.

Quant recruiters (several of whom seem to have disappeared from the face of the earth) all agree that it’s fresh PhDs who are suffering most. “In this market, banks only want people who already know the models they’re pricing and can do the job straight away,” says one.

“It’s pretty ropy at the junior end,” agrees Leon Devereux at NJF Search. “Most banks have completely shut up shop for those kinds of hires.”

Senior quants are also suffering, with most desk head positions already full. The few jobs that exist are apparently for mid-ranking quants (2-4 years’ experience) and at houses no one’s heard of.

“If you’ve heard of the firm, they’re not hiring,” says Dominic Connor of P&D Quantitative Recruitment. “Most big banks have got hiring freezes.”

There is some quant hiring action though. Connor say there’s need for quants to work on ‘model validation’ in risk teams, although with fewer models being built there’s less of a need for this than in the past.

Consultancy firms like KPMG are also said to be selectively hiring quants with a view to winning mandates from the Treasury. According to one consultant, the government will have a substantial need for quant skills sometime in the near future.

“They are quietly laying the foundations to plans to build a bad bank, probably out of RBS,” he says. “They’re going to need people to price and manage all this stuff.”

Failing that, one recruiters says there are a few jobs in hedge funds. “There’s a need for PhDs to work on systematic strategies and algorithmic trading models,” he says. “But funds want people experienced with dealing with noisy high frequency data sets, rather than the physicists and stochastic calculus experts previously sought after by banks.”

Comments (50)

Comments
  1. Good riddance

  2. Burn in Hell.

  3. If any fresh PhD is looking for a position in finance now, I wouldn’t hire him/her. Why would anyone with a brain gamble with his own life for a position when the whole banking system is collapsing?

  4. Well, the market will pick up again

  5. The future is bleak for quants. A large share of investment bank profits in the recent years were “mark-to-model” profits. In structured credit, that profit is all but gone.

    The net result is that banks are going to shy away from mark-to-model businesses (viz structured credit, rates exotics, emerging markets exotics, etc). So quants there are in trouble.

    Similarly, banks are shying away from prop trading, where quants used to go too.

    The only bright spot is in systematic trading, where quants are basically software engineers and data analysts. Also, credit risk management is another focus, because some banks did not have an adequate infrastructure to manage counterparty risk and are trying to catch up. But that is a less “quanty” area, and compensation is much smaller.

    Banks now are going to focus on the most liquid stuff – FX, plain vanilla rates, vanilla equity derivatives, etc.

  6. Burn in Hull!

  7. Guys, I have come up with a new equity linked CDO which has little positive correlation to the underlying assets or even the equity. My PDEs are pretty accurate, it’s fundamentally sound……wanna buy it?

  8. Bern is Hell!

  9. Go copula yourself

  10. Bjorn in hell!

  11. good and bad banks need well qualified mathematically competent people to model and manage their risk not fly by night barrow boys

  12. That’s so harsh!

  13. Finally, back to basics. That trade looks good because my old mate told me so, ring a broker, place an order, ask broker for a good lunch, bring along friend who gave tip in first place. It is lovely when these things go full circle. They will reopen pits for trading soon!!!

    Self funded prop trader Reply
     
  14. The Quants & the get rich quick crooks and Morons who should have known better & Hired them are solely responsible for the Global Financial destruction we are witnessing.

    Banking is SOCIAL SCIENCE and not a modeller’s or punter’s game.

    The seeds of the Weapons of Mass Destruction were sown in the late 90’s when this change from solid Banking values to Gamblers & Conmen ( probability theory is more suited to the casinos of Las Vegas than holding a position of trust – which is what the essence of traditional Banking values is all about ) masquerading as Bankers was fast tracked and made all pervasive by the Investment banks & even the Commercial Banks who should have known better.

    Bottom Line – Purge Banking of the Quants and restore the levers of Banking to the traditional Bankers.

  15. The revenge of mediocre IQ people!!

  16. At last some common sense.

    Sack them all they do not have a clue about economics principles or behaviour finance….

  17. U losers u don’ t know squat. Banking is all about having a punt and getting rich. Quants are gonna be back as long people wanna get rich.

  18. Is it true that you can get a PhD from some US universities by just sitting exams and wriing a disseratation?

  19. I imagine it would first be necessary to spell dissertation correctly for this to be viable.

  20. The level of ignorance is ridiculous. The market for Quants as well as everyone else has been influenced by the downturn. But fortunately, there are so many of you who have a phobia for mathemetics, numbers and anyone who is good with them. Your phobia is further compounded by the fact that they have PhD’s, which possibly means they are lot more intelligent than you’ll ever be.
    Robert Jones, who seems to be great at nothing else other than economics principles or behaviour finance, would know everything to do with supply and demand. He should therefore attest to the fact that, even in a modest economic climate, the demand for personnel comfortable with mathematical concepts of a medium level of complexity, will way outstrip supply.
    My conclusion is its not the ‘end of the road for quants’. In the space of 18 months, the banks go on their knees begging for quants again and bemoaning the lack of. Finance will become more complex. It will take PhDs with a track record of innovation to create well-designed, profit-making financial instruments within a tightly regulated environment. Credit derivatives was just the ‘beginning of the road for quants’

    And by the way, @FY, dream on.

  21. anonym , I got my PhD in finance from a cool university in Mississippi. It was amazin’! Just some exams a chilled out, not too taxin’ thesis and here I am…in hoity toity London working in a bank.

  22. Cheers Sarah,

    Been waiting for this for some time.

    All you doofus(es) out there, most aspects of banking and finance will get increasingly quant-“ified”: Risk, Trading, Modelling et al. All you general studies folks – history, geography etc will be purged. One lesson that is clear from this crisis is the need for better quant skills. I can see the day when nothing will get done without the seal of approval of the head quantitative risk manager.

    Wake up and smell the coffee.

    To the dude enquiring about getting a PhD from ‘some’ US universities just by writing a dissertation – the key word is ‘some’. You can as well get one from your laptop!

    Back to work folks.

    Mr. Frank White Reply
     
  23. Heard of one HF hirng in the text mining space….sound ludicrous but fun….

  24. @ Southerner, even the likes of you will be in demand in 18 months time. They’ll need quants to simulate models and accumulate data. You won’t necessarily require creativity!

  25. Half of the PhD working as Quants in a front-office job have been an utter waste of money. I really hope this crisis means the end to theoretical mathematicians detached from the real job working in banking

  26. Go copula yourself!! That’s a good one! Please keep the pun going!

  27. why so many PhD in Math/Engineering/Physics go to IB in the last decade ? dont they realise it’s way more than programming ? i’ve worked so many have no idea w/ principles of finance & simplest accounting

  28. “why so many PhD in Math/Engineering/Physics go to IB in the last decade ?”

    it’ll tell you why. One movie from the last decade gave you the reson why. The movie has the famous phrase:

    ” Show me the money….Show me money….Show me M-O-N-E-Y….show me the moneeeeeeeeeyyy!!!!”

  29. ah…it truly makes me laugh….what hope is there for the rest of us…especially us new grads with “just a bachelors”, if PhD’s are having difficulties. In a world full of pessimism, it’s becoming increasingly harder to keep that fire and ambition burning…but burn it shall in hopes that the people who made the mistakes in the first place will give a new generation of fresh, intelligent perspective the chance to rectify the mistakes. I guess that’s only going to happen until they’ve tried everything else and made more mistakes. Guide us with your experience but let the new thinking help us all get to where we want to *sighs*

  30. MilliAir – is finance what you really want to do? Why don’t you fulfill your what was your dream as a child rather than trying to be a investment banker. I can’t think of a single growing child saying…when i grow up I want sit in front of a computer all day and wear a nice suit / dress sometimes when I have to meet someone. Be inspired. Follow your passion and the riches will surely come.

    Just to give you an example – the singer James Blunt left the army to pursue his dream of music. He would have been happy on low income if it meant making the music he wanted to. He ended up making millions purely as a side effect, not as a primary goal.

    btw, I’m leaving the industry and I can tell you it feels so uplifting.

  31. What is your dream, Ben ?

  32. I want to work in the film industry.

  33. One thing I think we can all agree on is that James Blunt would have done everyone a favour if he’d stuck with the Army.

  34. …I’m considering switching to medicine! Can’t seem to find any details of the bonus for a doctor though, I assume its 100% of base????

  35. people attack quants like this because they are afraid. How would anyone do anything without a quant – how can you come up with a price or risk manage for anything more exotic than spot without modeling it?

    The comments above are nonsensical.

    I would consider myself a quant but a structurer not a developer type., but then virtually everyone around me (on my trading floor) is “quantitative” – traders, developers, risk, structurers, even parts of sales. This is pretty much the same elsewhere. for sure there are none in the areas such as m&a – but it is a much softer discipline in a bank.

    banks, if anything, will become more quantitative in content.

    so far the implied advice for the banking industry from this website is to fire all bosses and replace them with people from the army and then fire anyone who is quantitative. because some models were not so great – do away with modeling altogether!

    huh?

    this chat is getting silly

  36. i’ve said this would happen about a year ago, it was pretty obvious banks are going to cut down on structured stuff that got them in to this dire mess in the first place. The future is about traditional IB activities and the rule is if you dont understand it, dont do it. We will look back on all this exotic stuff 20yrs from now and laugh at how we actually invested in stuff the vast majority of financeers dont understand!

  37. WE WERE BLINDED BY THE IMPRESSIVE MATHS, WHICH STOPPED US FROM SEEING THE GIGANTIC BUBBLE!

    At the end of the day, trading, investing is betting. The difference between exotic products and vanilla products is that everyone understand the nature of the variable which affects the value in a vanilla product i.e.price. Where as in a exotic product, you have to guess (or “model”) the variable which determines the price/value. Which if you think about it is absolutley ludicrous. I’m sorry to all the quants on there, nobody in real power of a bank understands this stuff, they realise this now and you are probably going to be history going foward. I like to think of it as mean reversion.

  38. The level of the debate is so low …
    There will always be demand for GOOD quants, i.e. people who UNDERSTAND risk, correlation and portfolio modelling.
    I am sorry to say that this is not a job for everyone. Even if you have a solid understanding of economics, you will not be able (no offence, here) to deal with these issues and link them back to the way your institution operates. Time will tell, not it is just collective hysteria.

  39. 1 This is a case of jumping into wrong conclusions without analyzing data.

    Agreed nobody in financial sector is hiring quants right now.

    But I have NOT seen ads saying “Citi needs 314 MBA’s with no quantitive knowledge” either.

    They are NOT HIRING. PERIOD.

    2.The current crisis has many points of failures.

    True, you can blame some models (used across the board, even the rating agencies) modelling correlations incorrectly ETC. In fact, some of these products violated the market completeness requirements for true hedging required by the math theory.

    But, what about the thousands of sales people and portfolio managers (MBA types) who bought the structured products? The decision makers in various banks were MBA’s, and it all happened under their noses.

    Who was the BIGGER FOOL here?

    3. Facts –
    A) Financial sector will remain.
    B) Derivatives will remain
    C) It IS EASY for a maths/physics/quant finance post grad to read and understand a few books on pure economics, capital markets and finance.. and talk the talk like MBA’s
    D) It is NOT EASY for an MBA (without some quantitative maters) to read and understand stochastic calculus.

  40. So I guess, as a newly graduated quant, I should not feed too high hopes for Banking entrance, but best just change to a more safe sector.

  41. student…the real question is…why would a quant WANT to pick up a econ / accounting / corp fin textbook? The quants I know have made their choice and are quite happy with it. Broader economics / strategy etc is like a nice-to-know-in-my-spare-time type of thing for them. Not necessary for their job. They don’t WANT to know about MBA language. So the MBA grads fill their niche and the quants fill their niche.

  42. “In fact, some of these products violated the market completeness requirements for true hedging required by the math theory.”

    oh dear. You actually know nothing. The sentence above doesn’t really make sense.

    But anyway – which market is complete? In quantitative RM and pricing – techniques allow for incompleteness and discreteness ANYWAY – e.g. hedging frequency is not done continuously or is ever . You really think the tiny amount of quant stuff you have been taught on some fluffy finance course is what is actually used?

    This is a classic example of how the general public have this witchhunt on for quants – they simply do not understand anything to do otherwise

  43. “oh dear. You actually know nothing. The sentence above doesn’t really make sense”
    the sentence doesnt make sense to u, and i know nothing? try to read again, might help.. (hint..first try to find which side i am speaking for.. etc)

    “In quantitative RM and pricing – techniques allow for incompleteness and discreteness ANYWAY”

    not talking about incompleteness due to operational limitations (like continuos hedging), or such stuff.. I am talking about imcompleteness in terms of replication and hedging,which is where vanilla options are OK, CDO squared have issues.

    Dude u r missing the point…which was… bad application of maths in one odd case doesnt make maths bad..

    “You really think the tiny amount of quant stuff you have been taught on some fluffy finance course is what is actually used? ”
    been in industry 13 yrs.. doing a phD.. and not in finance.. lesson – Assumption is the mother of all muck ups..

    “classic example of how the general public have this witchhunt on for quants”
    again… try 2 figure out which side i was on.. (summary .. am for quants, against MBA’s)

  44. student,
    while I agree with some observations, but i also think “wiseoldman”is right in the sense, most quant’s arent really bothered about other stuff..

    Basically what we really need in the industry is some basic level of

    1. math.. stochastic calculus (Shreve, Kwok),
    2. some basic level of IT (Matlab, c++), and some basic level of
    3. finance knowledge… MBA/CFA level II..

  45. @FY: Thats all I had to do … BTW, your mother was my dissertation advisor.

    AgeOfDarwinism Reply
     
  46. Are there some chances for the fresh PhD quants to be hired on corp. fin/pure trading positions?

  47. Guys, you just don’t seem to get it. It’s not the case of “good quants vs bad MBAs”. It’s the case of what was going on in the industry in the 70s or 80s, or in defence in the early 90s, or in software engeneering in early 2000s – “we just don’t need that much people”. Only worse, as quants are practically useless in any other field, and as it is questioned whether we need complex OTC swaps we’re supposed to understand in the first place.

    Other than that, quite a few of modern wizards have a completely wrong background. Theoretical physics is applicable only in a very narrow scenario of stochastic calculus, which we currently know does not hold particularly well. I’m not sure we can fully price our vanilla options on a bunch of products on the markets. Instead, everyone was happily banging on “stochastic calculus”, even when it was clear that the more markets are going up in a bubble, the more it looks like a stochastic process.

    Industry needs to change, and stochastic calculus, theoretical physics and complex financial products will need to shrink down to size – to a very, very small size.

  48. 2cents:
    1.)
    When there is a profit everybody talks about how much money traders earned.

    When there is a loss everybody talks about how much money quants lost (i.e. how inaccurate models are).

    Bear in mind that decision is made by traders. These have upside and take big risk margins.

    2007-8 was about: “Lets win this deal !”
    Price was relevant, risk was important but irrelevant in this case.

    2.)
    Bosses started hiring quant devs rather than quants.

    Yes, there is distinction, quants are skilled in finance, programming and math.
    Quant devs are skilled in programming and some of them know a little bit of finance.

    There is a lot of work for both of them !

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