After the last financial crisis, it seemed that quants might fall forever out of fashion. After all, it was their devilishly complex products - that seemed to mitigate risk but didn't - that spurred the crash. Nor did quant funds acquit themselves well when markets seriously panicked when the structured products had been found out. Ten years later, however, quants back on top. If you're not a quant, you're a strat. And if you're neither quant nor strat, you're a structurer.
Goldman Sachs chief executive Lloyd Blankfein outlined Goldman's big emphasis on hiring quants and strats (and engineers) in a presentation six months ago. Now, Stacy Selig, the head of Goldman Sachs securities division's Americas equity structuring group, has explained why it is that structurers are the thing all over again in 2018.
In a new Goldman Sachs 'briefing' presentation, Selig says demand for structurers and for the so-called "sales strats" who help construct products for clients is being driven by the increased complexity of the market. "We're in the midst of a multi-year change in market structure," says Selig. Whereas in the past investors relied upon macroeconomic factors to explain market moves, Selig says they're now looking at less fundamental issues and at so-called 'factor-based investing,' which means analyzing things like size, volatility, value and momentum as predictors of returns.
The shift has meant building new quantitative models to help identify exactly what's driving performance, says Selig. - In the past, an investor who owned Apple stock might just have hedged-out the market and sector beta relating to Apple. Now they want to hedge out factors like momentum too.
The upshot is that there's growing demand for quants and equity structurers to work on new models and products and that they have a far broader scope than before. The new structured solutions require, "a deep understanding of the other asset classes, such as currencies, interest rates, funding and credit," says Selig. They also need to take into consideration clients', "risk tolerance, tax, accounting, regulatory and jurisdictionally driven needs."
Across the Americas equity structuring group as a whole, Selig says there's therefore demand for, "people, systems, tools and overall technology infrastructure to help identify, explain, access or hedge these newer dimensions of risk and return."
Selig's comments help explain Goldman's interest in hiring equity derivatives professionals this year, and in the robust demand for equity derivatives expertise across the market. Credit Suisse said today that its equity derivatives team had an excellent second quarter as clients sought to hedge against market volatility.
Kevin Peacock, a London-based recruiter at the Sartre Group, says demand for structurers has been "steadily increasing" in 2018. "The focus of the modern structurer tends to be on minimising risk rather than maximising yield. This is why some new areas of business, such as Alternative Risk Premia, are flourishing," he adds.
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