With the increase in risk and compliance demands in the finance industry in Asia, being a front-office quant no longer holds the same appeal as it once did.
The front office has become increasingly caged by trading regulations in recent years, which has made it harder for banks to expand their revenue-generating operations. As a result, it’s becoming more difficult to shift well-qualified quants into front office quant roles. Not only are there fewer opportunities, but the rosy nuances of being sat alongside the traders have begun to lose their appeal because of the alarming number of recent trading scandals dominating the headlines.
Therefore, in lieu of dedicating their career to the front office – once the preferred career choice for many – quants are now shifting their attention to the middle office and entertaining working in risk management.
Over the last year, banks in Asia and globally have ramped up their quantitative capabilities in the middle office, in both the risk management and model validation functions. In Singapore, international and domestic banks alike have been hiring middle-office quants.
When we speak to quants to understand their long-term career motivations, job security is often given equal weight to salary. And as much as the front office may have many appealing “pull factors”, job security is not typically one of them.
On the flip side, the middle office is renowned for offering a better work-life balance, while the increasing importance of risk and compliance means quants are starting to see the impact they can have on the business by applying their skills in the middle office.
This year alone we have seen a number of cases where front office quants with over five years’ experience from top-tier banks – including Bank of America Merrill Lynch, BNY Mellon and BNP Paribas – have requested a career change into the middle office. These are their main motivations:
• The front office is “no longer what it used to be”.
• The front office rarely presents opportunities to build new models, unlike the growing middle office.
• Poor performance by trading desks has meant that front office bonuses are more volatile and now similar to those in the middle office.
However, in terms of overall compensation, front office quants are still better paid than their middle office counterparts for two man reasons. Firstly, banks still view the front office as profit generators for the business, thereby justifying their superior base salaries. Secondly, the front office is infamous for being a more demanding and challenging environment to work in.
Having said that, front office quant salaries are becoming increasingly volatile, with bonuses being slashed and base salaries stagnating year-on-year. And the stability offered by the middle office means many quants are being drawn to make a career change, even if it means a pay cut.
The demand to hire quants in the middle office has significantly increased, but this is not to say that it has become a “candidate-driven” market. Many banks in Asia and elsewhere remain notoriously particular about the niche skills they look for in quants. However, because of the increasing importance of risk management, hiring managers typically demonstrate slightly more flexibility on their requirements for middle office quants compared with front office ones.
I predict that the future for many quants will be in the middle office. While risk and compliance professionals continue to play an important role in ameliorating the safety of sell-side trading, quants should also consider the benefits of joining the middle office party.
Stephanie Siew is the head of quantitative finance at Huxley Associates in Singapore.