You'd be hard pressed to find a growth area in the front office of an investment bank right now. Figures from market intelligence firm Coalition suggest there were only two front office areas where revenues increased in the first half of 2016: G10 rates trading and futures and options trading; everything else was deteriorating faster than Britain's prospects for securing access to the single market whilst ensuring restrictions on immigration.
As revenues decline, however, a fundamental shift is taking place in the skills banks are looking for. Out are the old-fashioned process-oriented support roles. In are a new breed of quantitatively-powered roles underpinning everything from risk to HR.
"Today's stereotypical quant is working in model validation or risk analytics instead of the front office," says James Findlay, head of risk at recruitment firm Selby Jennings in London. "By comparison, there are fewer of the old-school trading quants."
Quant roles advertised on eFinancialCareers reflect the trend. In July and August (post the EU referendum), UK-based quant roles advertised on this site rose by 17% and 16% respectively. By comparison, compliance hiring was up just 5% and the number of generic risk management roles declined by 12%.
This might be because banks' spending on risk and regulation is peaking. In a recent note on UBS, Bernstein analyst Chirantan Barua, predicted that the Swiss bank's spending on risk and regulation will peak this year and slowly decline thereafter, as shown in the chart below.
Source: Bernstein research
As demand for risk and compliance professionals to work on anti-money laundering legislation and new systems flounders, demand for quantitative talent is being fueled by the massive demand for banks to validate risk models under Basel III and so-called Basel IV. At the same time, banks like Goldman Sachs (and, latterly, Deutsche Bank) are underpinning their entire operations with complex data tools intended to allocate capital and resources efficiently. Insiders say there are around 70 different "strats groups" (quant-based teams) at Goldman Sachs now; some work with front office trading businesses, but the real growth area is in supporting the back and middle office.
The new breed of back and middle office quant needs programming and mathematical skills, says Max Soslove, senior headhunter in quant analytics at recruitment firm GQR. Banks are hiring them to "update their infrastructure" and review their "quant model libraries", he adds.
Predictably, these infrastucture-related roles pay less than quantitative trading positions. A VP-level quant trader can expect to earn a base of £150k, plus a bonus of 100% or more says Findlay. By comparison, a VP level, a quant model validator can expect a base of £100k to £150k, plus a bonus of up to 30%.
The discrepancy is causing complaints among junior quants stuck in less well-paying roles. "I've been paid less than £90k for the past three years," complained one 27 year-old quant earlier this year. "I wanted to wait for the good times to return to banking, but I'm getting tired of hanging around."
Other quants could be inclined to agree, and with technology firms and corporates competing for number-crunchers banks might yet need to up their pay.