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Hiring the Next Generation of Quants

To find quantitative skill sets, Wall Street firms are getting creative, including running trading contests and making acquisitions to secure talent.

As quantitative trading strategies continue to dominate the financial markets, in addition to hiring for trading positions, Wall Street firms find themselves in need of new skill sets. As a result, investment banks and hedge funds are experimenting with different tactics to secure the next generation of talent. Though all Wall Street firms recruit on the leading university campuses, the high demand for quantitative skill sets is pushing more and more firms to search for students in creative ways.

While some industry sources say quantitative skills always have been in short supply, others believe the market of available talent will rise to meet the demand. But everyone agrees that over the past five years, with the shift toward complex derivatives models, the criteria for hiring fresh talent have changed.

"There is definitely a demand for a new type of employee in commodities trading and futures trading - it's a numerical-based type of employee," says Thomas Plaut, managing director of FX Solutions, a Ridgefield, N.J.-based futures broker that offers a global retail foreign exchange (FX) trading platform. In Plaut's view, there's a structural shift occurring in financial markets toward quantitative trading, and current Wall Street employees may not be able to adapt.

"No matter how hard the people are trying to retrain themselves that work in capital markets, they just don't have the time and talents to go back to Harvard and get a Ph.D. in astrophysics," Plaut asserts. "Generally, the new people are coming from the hard sciences - physics and mathematics and computer science."

Engineering Success

While firms have leaned heavily on wooing talent from academic institutions over the past 10 years, many are shifting their strategies. "As a general rule, [Wall Street firms] go to academia, almost always an Ivy League school with a Ph.D. in finance" to find talent, says one industry veteran who has served as a senior technology executive at several leading hedge funds. But finance majors don't always provide the answers. For example, firms may want to hire a petroleum engineer - a true engineer - for energy trading, notes the source, who requested anonymity.

Christiane Mandell, global head of foreign exchange for Bank of America, says financial institutions are seeking graduates from the nation's 10 or 12 financial engineering programs, rather than tapping MBA/finance majors. She relates that over the last few years, BofA has been hiring more people with math and physics backgrounds than it had in the past.

"An MBA does not cut it because operating in today's markets requires more quantitative skills than a typical MBA can offer," contends Linda Kreitzman, director of the Masters in Financial Engineering (MFE) program at the Haas School of Business at the University of California at Berkeley. "Trading is getting more complex, especially in structured products," she adds, citing as examples fixed income, mortgage-backed securities and asset-backed securities, as well as credit and equity derivatives and volatility trading.

Launched in 2001 with seed money raised from, among others, Goldman Sachs and Morgan Stanley, the one-year MFE program admits 60 students per year, according to Kreitzman, who notes that the university built a wireless lab with Bloomberg and Reuters machines, "where students can do their exercises and their homework." "The program's typical student has an advanced degree in a quantitative field and 5 years work experience," Kreitzman relates.

Last fall, half of the program's students completed three-month internships on Wall Street, while others were placed in London, Tokyo and the Netherlands. "MFEs are better prepared than MBAs for trading and desk quant positions because of the depth offered by our rigorous curriculum," Kreitzman continues. "The ideal financial engineer needs to have very good programming [such as C++, Matlab or VB], a strong knowledge of mathematics for pricing models, and also a strong knowledge of economic concepts and finance," she asserts.

This year, Lehman Brothers made offers to eight MFE graduates for full-time positions in whole loan trading, prime brokerage and the quantitative research department within global client services as well as in quantitative credit strategy. "Clearly, the MFE programs are a result of the demand for quants," says Kreitzman, who predicts there will be more demand for financial engineering in the future.

To keep up with the latest trends - such as banks hiring energy traders to trade commodities - the MFE program may offer a certificate (or concentration) in energy trading through its Center for Executive Education, notes Kreitzman. This could be offered to professionals who already are working but want to specialize, as well as to alumni and current students, she conveys.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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