Recruiting Quants

The credit crisis aside, the growing demand for quants is not new. "Growth of quants in capital markets has been pretty much a secular uptrend," observes Paul Alapat, managing director and head of quantitative services at Amba Research, an investment research outsourcing firm in Bangalore that provides investment and analysis support services to capital markets firms on both the buy and sell sides. Alapat says the trend is five to eight years old and is driven by improvements in computing power, more reliable databases and the availability of more-complete data sets, for instance, in emerging markets.

Quants are coming into the capital markets or investment industry from academia, including faculty and fresh graduates who are qualified up to the doctoral level, according to Alapat, a former chief economist at Nomura and regional financial economist at Lehman Brothers. Investment banks generally look to hire candidates with Ph.D.s in finance, he says, because they have a quantitative background.

Chemical engineering is another popular area from which to recruit because chemical engineers do a fair amount of optimization work in their curricula, Alapat adds. "That said, this is a scarce field," he says. "You wouldn't see the majority of chemical engineers looking to jump into financial engineering."

In fact, the supply of quants is scarce, experts agree. Overseas students from Asia and Eastern Europe, Alapat notes, represent a disproportionate share of the supply of quantitative talent.

"People are starting to go offshore to find talent to India, China and Russia," FX Solutions' Plaut says. "A lot of that talent is U.S.-educated; they come here for degrees."

Those who come to the U.S. for the education often hear of others getting jobs on Wall Street or know alumni who have built successful careers on Wall Street, oberves Amba Research's Alapat. "Definitely, if you go to M.I.T., there are successful traders or research analysts" that are alumni, he says. "And then you hear of the compensation -- lots of people during the course of their studies reorient some of their ambitions."

Quants out of school just two or three years can make anywhere from $200,000 to more than $500,000 a year on Wall Street, "depending on their experience and how smart they are," notes INET Technologies' Long.

So, when quants get to The Street, on what sorts of projects are they working? Broadly speaking, quantitative analysts are working on "alpha-generation strategies that involve a lot of testing and validation work until they are comfortable that a certain strategy will produce returns over a certain benchmark," says Amba Research's Alapat. The second area is managing, measuring and monitoring risk, he adds. "If you take these two groups, you will cover the work that is done," Alapat asserts.

According to Hyde Park Global's Afshar, his firm mainly is interested in hiring computer scientists with strong mathematics backgrounds or mathematicians with strong computer science backgrounds. "Of course it helps to have somebody like me that has Wall Street experience so you are not completely in some sort of illusionary world," he says.

On the other hand, Afshar continues, it can be difficult to attract the top quants to finance. "We find it very difficult to hire the very best academics to join our field, to seduce them with Wall Street," says Afshar. "It's because money is not the primary motivating factor." Afshar says he finds that quants need to be "seduced by the technology, by the field, by the questions you suggest to them, by the idea that they are working at the epicenter."

So is the quant the top job on Wall Street? "It's the top entry job on Wall Street," according to FX Solutions' Plaut. "The top hedge fund advisers surround themselves with people who have these quantitative skills," he says. "If you look at Citadel and Renaissance [Technologies], both of those firms were started by people with significant quantitative skills and they've been extremely successful."

Instinet's Comerford says he looks for people who can span multiple dimensions. "Almost everyone has a strength in quantitative analysis, trading or technology, but everyone needs to be very strong in at least two" of these areas, he says.

Going forward, the demand for quants is bound to increase as the trend toward high-frequency trading and cross-asset class strategies creates the need for new models and algorithms. "On both sides of the aisle, the buy and sell sides, quants are becoming more important," FX Solutions' Plaut comments. "The cult of personality is really being replaced with the cult of the scientist -- the quiet person sitting behind his desk working on algorithms and trying to find efficiencies in the marketplace and efficiencies in the back-office processing of trades."