Quants in investment banking need to realise that there are more opportunities available to them than they think. Jamie Walton, the former head of FX quants at Morgan Stanley, says investment banks are using quants in more diverse ways and PhDs going into finance need to learn how to exploit this.
"Quants in investment banking generally sit on one desk and focus on one asset class throughout their career," he says. "This is a missed opportunity. There's a gradual shift in how quants are being used in investment banks and they're becoming more transferable."
Specifically, he says, the traditional quant role of stochastic analysis and derivatives pricing is an area that's relatively saturated. Instead, quants are increasingly being used for data mining, electronic trading and even risk management and compliance jobs, he says.
"The regulator is pushing for electronic trading in the fixed income market. If you look at something like MiFID II - which is pushing for greater transparency - then it stands to reason that an e-trading model rather than a bi-lateral voice market will be more transparent," he says. "It's not just a technology problem, there's also a need to look at how banks' manage risk and optimise execution, and these are the sort of skills quants can bring to the table."
The quant skill-set is something that banks are realising the value of more and more, he says. "Quants can work in e-trading, structuring, compliance or traditional risk management areas where an understanding of the complexity of those risks is required. Quants are also more likely to become traders - it's not like traditional traders just need to learn how to code, or become more tech savvy. Quants have those skill-sets and understand the asset classes - they can do the trading."
Walton left Morgan Stanley earlier this year as part of the investment bank's cut backs in its fixed income division. He had led a team of 25 quants on Morgan Stanley's FX desk, which he built up from four people in 2009. Walton has been at the forefront of a large investment banks' use of quant talent, and knows the challenges they face. One of the problems right now is that not all PhDs have the skills banks are looking for.
"Investment banks have traditionally targeted French schools, but while the PhDs coming out are very good at stochastic calculus they don't have the new skills. Often, we looked to the likes of Cambridge and UCL to find people who had studied statistics or economics for the roles in e-trading," he says.
PhDs are not immune from the Millennial urge to pursue entrepreneurialism and banks are often missing out on graduates who choose to do their own thing from the outset. "This is a little naive," says Walton. "Investment banks are still really good training grounds, and if you spend a few years in a top job developing your skill-sets, you can always go on and do your own thing later on. Banks need to be savvier about understanding that talent is more mobile now."
Walton says that it's usually the softer skills that differentiate the quants who move up the ranks from those that stagnate. "You can put people in a room and they'll produce exceptional stuff, but good quants need to know how to work in a team, how to communicate well to people across the organisation and, ultimately, be able to handle stress. Maths and coding skills are a given," he says.
Since leaving Morgan Stanley, Walton has been involved in a couple of projects. One, through his new firm Quant Circle, is to try and develop the idea of using quants as contractors. So far, there's been a little reticence from both sides, he says. "Investment banks are very wary of letting quants view their intellectual property if they're not full-time members of staff. And I know a lot of good quants, but giving up their jobs to work on a consultancy basis has been as step too far for many."
The other is a fintech company, which will focus on market transparency and surveillance on the trading floor, using algorithms to uncover suspicious behaviour which will be tailored to specific asset classes. Right now, the company is in stealth mode.
Like many PhDs, particularly these days, Walton said that he hadn't even considered going into banking when he was studying. Instead, the idea was to go into a post-doctoral research role, something he realised would be very difficult in his final year at UCL. "Only one in four people make it into these jobs, and I discovered how hard it was late on. I hadn't done any internships at all and only thought about banking when a friend at Credit Suisse recommended it to me. I went for five interviews and received a few offers before ending up at UBS."
PhDs are wedded to the idea that they should stick close to academia rather than going into finance, but Walton believes that the two are not mutually exclusive. Throughout his time at Morgan Stanley, for example, he has been teaching at UCL for one afternoon a week, as well as spending time writing academic papers to "stay fresh" on the latest trends. Now, he's teaching a course on electronic trading at London Financial Studies.
"Don't think because you've accepted a job at a bank you're making a choice to leave academia," he says.