Several banks and hedge funds have increased the value of the compensation packages that they are offering to entry-level quantitative PhD graduates to become quantitative traders specifically involved in automated trading.
In fact, some banks offer entry-level quants with PhDs from top universities base salaries as high as $125k and hedge funds offer up to $175k base salary. Exceptional entry-level PhD quants can receive total compensation packages, including sign-on bonuses, worth up to $400k, according to recruiting firm Options Group.
While electronic sales-traders are vulnerable for headcount reductions, candidates with the right skill set receive, on average, 15% to 20% increases in total compensation to switch firms, with an upper limit of 25%.
"Banks continue to invest in improving the quality and depth of their electronic platforms while enhancing their reporting and compliance," says Push Patel, managing partner at Options Group. "The forecasted increases in compensation reflect the high levels of competition among firms to retain and recruit these professionals."
Ben Hodzic, a director at recruitment firm Selby Jennings, confirmed that those compensation figures are accurate for PhD graduates in finance, economics and econometrics coming from an Ivy League university with a Bachelor’s or Master’s degree in a STEM field such as engineering, statistics and computer science.
Banks, hedge funds and proprietary trading firms are hiring quantitative researchers and quantitative developers to build and upgrade research platforms and work on optimization, while other quant candidates are tasked with contributing to alpha generation on a systematic trading desk, per Patel.
"Discretionary funds have also started to hire these entry-level candidates to create better screening mechanisms to help identify trading opportunities, utilizing data science instead of just pricing quants," he says. "Hiring entry-level quants are a part of larger programs to, in general, innovate for a wide variety of firms.
"Entry-level quants are not actually trading right out of school, but a few of them are involved in research that is applied to alpha generation," he says.
Maxwell Lennon, a VP of quant, tech and data (QTD) at recruitment firm GQR, says that PhD/Master’s graduates with STEM degrees are always in demand, but some of the best-performing programs he has seen for engineers are software management at Carnegie Mellon and computer science at MIT, as well as Oxford and Cambridge.
For quant researchers, they are usually coming from a mathematics or statistics background – the University of California, Berkeley, and Stanford for stats; MIT and Harvard for math.
Other quant feed schools include all Ivy League universities, Illinois Urbana, Michigan, NYU, Moscow Institute, ETH Zurich, Chicago Booth and the Indian Institute of Tech (IIT). Graduates from such schools go on to work as front-office pricing quants, quant traders, middle-office risk quants, software engineers, quant researchers, data scientists and, at Goldman Sachs, strats.
“Probably the greatest volume of quants that I see come from Master’s in financial engineering (MFE) programs at Cal-Berkeley and operations research at Columbia University. Lennon says. “An exceptional PhD graduate has a high GPA in math or stats and sometimes physics, but the hiring manager needs to prefer that, because there are some of teams that steer away from hiring physics grads considering their different approaches to solving problems.
“Other teams think they are the best, specifically for machine learning, but this is all a matter of opinion and a theory with a lot of detractors,” he says.
A PhD in a STEM field from a top 50 global university is the standard for being a desirable quant candidate, according to Options Group.
“Clients are looking for individuals who can be creative, technically hands on, most importantly, not theoretical,” Patel says. “Candidates from a top 50 global STEM program and an undergraduate degree with a high GPA are viewed more favorably than a mediocre undergrad and a strong PhD.
“Being ranked in the top 10% of the International Olympiads is also very desirable; however, what is key is the combination of being very quantitative and possessing sophisticated technical skills,” he says. “More recently, the demand to hire professionals with a background in artificial intelligence and machine learning is rising, and we expect this trend to continue.”
Finance PhD graduates from the University of Pennsylvania’s Wharton, the University of Chicago’s Booth, Harvard and a couple of other elite business schools are extremely sought-after for quantitative research, asset pricing, portfolio management/construction and strategy positions, per Hodzic.
“Within the finance field, there is heightened interest in research specific to asset-pricing techniques, as these are ever-evolving,” he says. “The schools listed here are great representations of where some of the original pricing models were founded, and have since been built upon using new modeling theory, statistics and programming to better fit the models and creates more optimized portfolios for clients.”
It’s not just banks that going after such candidates. An increase in data-driven strategies is ramping up the competition for talent, per Lennon. Hedge funds are also seeing this talent as rare, and are going above and beyond to pay a premium to secure them, per Hodzic.
“For candidates that have this [type of] PhD, a background or undergraduate degree in statistics or mathematics is seen as even stronger and worth paying a higher premium for,” he says. “These are small programs, so the best talent coming from each class is extremely selective and most of them are so well networked that they come out of school with three or more offers already in hand.
“This gives them a lot of leverage so other firms have to bid up to compete.”
Technology is evolving very quickly, and knowledge of new approaches and techniques and the ability to apply them are inherently a competitive advantage across many industries, per Patel.
“Every industry is involved in technology – from automobile manufacturers to pharmaceuticals to consumer and retail companies – so the financial industry is also competing with many other companies,” he says. “Part of it is simply a matter of supply and demand.”