Trading is a young man’s game. At UBS, most people on the trading floor are under 30, and this is making CEO Andrea Orcel nervous. All the central figures spectacular recent scandals – rogue traders, flash crashes, Libor fixing – have been men in the comparatively early stages of their career.
There’s a logic to this; while the investment banking divisions of large firms are hierarchical, trading floors are relatively flat meritocracies. Traders are judged on performance and – as the proliferation of trading games in the recruitment process demonstrates – experience isn’t necessarily an indication of ability.
“There’s a clear hierarchy in investment banking and it takes years before you get enough experience and client contact to become an originator,” said one investment banking MD who also works in career coaching. “In trading, though, it’s all about performance, so a talented younger guy can really make their mark early on, and usually see the senior people as competition.”
Professor Joe Herbert, emeritus professor of neuroscience at Cambridge University, says that trading floors are “man-made jungles” designed by humans and well-suited to young men with high levels of testosterone. In a study into the effect of trading on hormone levels, he spent 10 days on an investment bank’s trading floor. Of 220 traders: “There were four women, and I didn’t see one person over 40,” he says.
“It’s a natural environment for young men with high testosterone levels who crave high risk activities that require swift decision-making abilities under stressful scenarios,” Herbert adds. “As you get older, you lose the ability to think on your feet, and ongoing stress increases the risk of burnout. Experience mitigates this to an extent, but arguably not enough.”
Investment banks should be worried by the lack of experience on the trading floor, believes David Hesketh, an ex-Merrill Lynch structured products trader who now runs Trading Hub.
“Traders are very well paid and operate under huge stresses which means they often retire in their mid-thirties. As a result, a lot of institutional and market knowledge is regularly lost by investment banks,” he says.
While there's an argument that experience means knowledge of various market cycles, the early years of a traders' career could be the most formative. Another trading coach, who advises hedge funds about who they should hire and how to get the best out of their traders, said that the main reason people don’t last into their 30s is because “they have grown up with a particular set of markets”.
“Patterns of market momentum, such as we saw in the late 1990s and very early 2000s have given way to less trending markets as capital has become concentrated in a smaller set of liquid assets,” he said. “The struggle is not age per se, but the difficulty of unlearning markets once they have been learnt. It’s the same reason many businesses cannot survive changing consumer climates.”
Kweku Adeboli, Tom Hayes and Navinder Singh Sarao certainly weren’t short of confidence. In the absence of experienced seniors, young men are occupying management roles. Joshua Bertman is a partner at Brevan Howard in the U.S. at the tender age of 31; Manuel Stotz runs a portfolio at THS partners – having worked at Goldman Sachs’ internal hedge fund – and is just 30, while 30-year-old Andrew Silverman is a managing director and star bond trader at Goldman Sachs.
“In the study we had one guy who was earning £12m and another who was earning £12k,” says Herbert. “This doesn’t mean it’s going to last. That stress of knowing that your run could end is the sort of pressure you don’t want to be exposed to for too long.”
Ziad Awad, a former Goldman Sachs managing director who now runs his own M&A boutique Awad Advisory, started his career as a fixed income trader. After seven years, as he was approaching 30, his manager advised him to start considering alternatives.
“Being a trader is like being a footballer – you don’t meet many who stay in the job well into their 30s as people tend to burn out,” he said. “My boss asked me what I wanted to do when I was close to 30. Did I want to stay as a trader? Did I want a bigger job on the bond trading desk? Did I want to join his team in derivatives trading or do something on the capital markets side?”
Trading floors are getting smaller anyway, so most people have to think about expanding their skill-sets as the market evolves. However, there are ways out of trading as you approach your 30s.
“As the management tree thins out very quickly for traders, you tend to find that the older traders make a choice to enjoy the fruits of their labour rather than continuing to work in a very stressful environment,” says Hesketh. This, of course, assumes that they have enough money to retire.
If you're a trader who wants to get out, Awad advises looking internally and persuading your managers to offer alternative career paths within the bank. He initially transitioned across to debt syndication, before eventually switching to debt capital markets and finally taking a broader advisory role at Bank of America Merrill Lynch.
However, Awad says that most people stick closer to their roots. “In my peer group, which were some of the best traders of our generation at Goldman, most are now investing money for third-parties, either hedge funds or fund managers, or shifted into capital markets. Others have done something completely different and left financial services altogether,” he said.
The obvious option, assuming you don’t have the star quality to start your own firm, is to join a hedge fund. As we’ve mentioned previously, BlueCrest Capital Management, BlueMountain Capital Management and Millennium Partners have all been poaching investment banks’ prop traders. Most recently, David Sabotka, who was head of global fixed income, currencies and commodities at Bank of America Merrill Lynch until November last year, joined hedge fund Capula Investment Management.
Not everyone can move to hedge funds and the buy-side. “Those on the sell-side who generate original ideas for the buy-side clients they cover and who demonstrate superior knowledge of markets and the capacity for independent thought will find interest among hedge fund PMs looking to add to their teams,” said the hedge fund trading coach. “Having a very specific skill that can add to a PM’s business - such as deep experience with options or extensive product knowledge in a certain world region or asset class, is also very helpful to making the move.”
Within asset management firms, there also appears to be respect for older workers. One analyst working for a large asset manager in the City, who is not authorised to speak to the media, suggests that portfolio managers’ experience of market cycles is something that serves them well.
“It’s frustrating, but you become a better trader and investor over time. You get to the point where you think you’re doing well, but then something bad happens and the more experienced guys’ depth of knowledge and experience puts you to shame. It’s demoralising.”