How a job invented by Goldman Sachs took over the banking industry

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Strats jobs are eating the rest as banks automate

Blame J. Aron. The commodities trading firm which formerly housed Goldman Sachs' CEO Lloyd Blankfein was ground zero for a job that is coming to define the contemporary investment banking industry. - J. Aron gave birth to "the strat."

J. Aron's "strategies" team was in fact the progeny of Armen Avanessians, an electronic engineering graduate from MIT and Columbia. Avanessians arrived at J Aron from Bell Laboratories in 1985. He recognized the need for a collaboration between quants and technologists (or so the story goes), and the strats team was born.

Today, Avanessians is developing natural language processing (NLP) programs in his role as head of Goldman's Quantitative Investment Strategies (QIS) group. But his invention has gone from strength to strength. Thalia Chryssikou, Goldman's current co-head of global sales strats and structuring across fixed income currencies and commodities (FICC) and equities, said in January that strats now comprise 27% of the firm's securities division, up from 18% five years ago. Blankfein said in February that strats are a key hiring focus for 2018; Goldman is currently advertising around 100 strats vacancies globally.

It's not just GS though. In the past few years, strats have caught on elsewhere too. Deutsche Bank now has them. So does Morgan Stanley. So does J.P. Morgan. So does Credit Suisse. And wherever there are strats, there is strat hiring. Morgan Stanley, for example, currently has around 50 strat vacancies. Insiders say Deutsche Bank's strats team, set up by ex-GS strat Sam Wisnia, has gone from zero to over 100 in four years. "When Wisnia went to DB he hired 20 strats from Goldman Sachs," says one headhunter, speaking on condition of anonymity. "Deutsche Bank suddenly had its own strats group and other banks followed suite."

Even so, a strat at one bank is not the same as a strat at another. At Goldman Sachs, for example "strat" applies to anyone using technology to apply mathematical and statistical techniques to problems across the business: there are strats working with the GS Federation (back office) as well as strats working on Goldman's algorithmic trading systems. At Credit Suisse, the "core strats" team focuses on creating technology for the risk modelling group. At J.P. Morgan, there are business strats working on the bank's Athena risk pricing system set up by former Goldman technologists...

Natalie Basiratpour, a director at quant recruitment firm Octavius Finance, says strats were traditionally derivative pricing quants, but that the term has come to encompass the hottest area of finance: quant trading specialists, or developers who can actually implement algorithmic trading ideas. Another strat headhunter says "strat" has evolved to mean a highly commercial form of quant developer: "Strats implement the quant models into the system. They need to be able to talk to the developers and to have the commerciality to talk to the traders."

Strats themselves acknowledge the looseness of their moniker. A strat working in Morgan Stanley's trading business says his colleagues are far from uniform: "Some strats here prefer to do quant research, whereas others support particular trading desks and become more concerned with trading execution. There are others who work on analytics and portfolio optimization."

This vagueness makes it difficult to hire. Strats need excellent programming skills in languages like C++ and Python. They also typically need a deep understanding of stochastic modelling techniques used in finance.

As strats jobs proliferate, junior candidates especially are confused. Chryssikou said in January that Goldman is focused on hiring-in both graduates and experienced hires to its strats team, but the Morgan Stanley strat said students often don't understand the term. "We're finding it difficult to explain what a strat is when we hire graduates," he said, adding that it's also difficult to find someone with the right "hybrid" background. Famously, Goldman CFO Marty Chavez took both the statistics and the programming tests when he first applied to the firm. Few students today have similar breadth. "In grad school, you find a lot of students who've done either engineering or mathematical finance," says the strat at Morgan Stanley. "They either want to be a developer or to work on financial derivative - it's difficult to find a combination of the two."

Finding juniors isn't the only thing keeping strats up at night. At Deutsche Bank, where the strategic analytics team built by Wisnia is now led by David Wayne, a former FX trader who runs the whole of electronic trading, there are complaints that a rarefied, "strats culture," has been besmirched by "business analysts," who've added in layers of bureaucracy.

There are gripes too about pay. Headhunters say VP-level strats in London earn between £150k and £250k ($201k-$335k) in total compensation. "You're not going to get much more than £280k as a strat," says one. "- Unless you're a head of desk." While this might sound like plenty to anyone outside finance, strats have seen how much traders earn. "Risk takers have historically been overpaid for what they did," says one DB strat. If strats are to earn more, pay will need to be diverted from trading desks.

This may happen as strats roles themselves change. Goldman is now recruiting a "new generation" of strats. "The strats we hired 10 to 15 years ago typically specialized in modeling risk and pricing analytics," said Chryssikou in January. Today, she said Goldman's more interested in hiring strats who, "specialize in data management and analytics, including machine learning (ML), artificial intelligence (AI), program management and digital product design, in addition to quantitative sciences."

Having been at the forefront of the last revolution in finance, strats will therefore be at the forefront of the next. Aspiring finance professionals who don't yet understand the term might want to familiarize themselves. And existing pure quants and pure technologists might want to diversify their skill-sets. At Goldman Sachs and elsewhere, strats roles are the place to be.

Have a confidential story, tip, or comment you’d like to share? Contact: sbutcher@efinancialcareers.com

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