February 22nd, 2008, 1:47 am
while we are at this, here is one interesting explanation taken from Interview with Tim Grant (UBS) on Quantnet.orgWell there are two main themes here. The first what does the term quant actually mean? The second what roles actually exist in sales and trading on the modern trading floor today and what type of skills are required to execute them? Focusing on the first part for now, I think that there is generally a misunderstanding as to what a quant actually does and I think it harks back to the 80s and 90s and the age of the rocket scientist. The impressive characters were invariably PhDs who were transferring their experience in applied physical sciences or mathematics into the finance area. They tended to be segregated for the most part from the traditional sales and trading roles and theres some notion that theyd be hunched in front of a computer in a dark corner of the bank putting together intricate and intractable models to support the trading desk.The idea that a quant might actually speak to a client was almost laughable. Though obviously a caricature that image was rooted in reality. This issue now is that this particular reality no longer applies. The so called quants have come out of the dark rooms and are now running trading desks and managing and growing huge businesses and those sorts of quants actually dont exist to the same extent that they did. Im not saying we dont need highly qualified and gifted PhDs to build our models or in any way implying that our universe has become less quantitative. What Im saying is that people think that banks need lots of quants in the old-school framework and are labouring under the mistaken assumption that there is a significantly increased need for those people when there isnt. But also they assume that completing an MFE somehow qualifies you for that role when it doesnt. If you speak to prominent quants in our industry, some of whom have gone back into academia, they will all tell you that the landscape for quants has changed dramatically and its not like it used to be (almost always relayed with a nostalgic tone!)To be a true quant in our business you still need to be highly academically literate and probably have a PhD (and be up against the stiffest competition ever), so what exactly is left for our MFE graduates? This brings me to my second theme regarding the roles that exist in sales and trading in todays reality (and I mean sales and trading specifically over investment banking/corporate finance). There are stereotypes that currently exist about what kind of personality and background a salesperson or trader has. The salesperson is a slick, fast talking relationship person who makes a living off wining and dining clients and having long business meetings on the golf course. They have market views, but when it comes to the quant aspects of finance, well, they leave that to the quants. Traders are loud mouthed and aggressive gun slinging risk takers with variable tempers and limited attention spans who trade on instinct (the masters of the universe that Michael Lewis describes in Liars Poker). Ive already covered the stereotyping surrounding quants. There also seems to be a belief that an MBA is the generally accepted pre-requisite for a position in sales and trading. Or perhaps also that playing varsity sports like football and lacrosse at certain schools is a guaranteed route to the trading desk (in British parlance the old boy network).Now lets be clear here: you not having these pre-requisites in any way shape or form exclude you from being incredibly effective on the trading floor. The times have changed. Just look across the range of complex assets that now trade on our trading floors. The level of financial engineering/modelling that has fueled the growth in trading volumes and the widespread use of derivatives across not only the institutional but also retail investment communities is incredible. Certainly simple building blocks of more complex instruments (e.g. interest rate swaps and credit default swaps) are now massively commoditised and this trend continues as the natural cycle of product evolution in financial markets weve seen for decades continues apace. The buy side investment community has had to become more comfortable with financial engineering in order to understand their more complex investments. In any given situation there are now a number of different ways to express the same view across different markets and that theme is becoming more prevalent Black and Scholes/Merton recognized in the 70s that credit and equities are somehow fundamentally related and now were really starting to see capital structure arbitrage move from being the preserve of specialist hedge funds to being a strategy for large established institutional players. So basically everything is becoming more complex with more variables and more intellectual bandwidth over and above the traditional sales and trading skillset is required to get the job done. Also investment banks in particular are much larger and more labyrinthine institutions than they were even 10 years ago such that the qualities of leadership and entrepreneurialism are more highly prized in terms of being able to drive and grow businesses.Note also that the traditional role silos of trader, salesperson, researcher and quant are no longer clear cut. There are a myriad of roles on the modern trading floor that blur the boundaries and that combine some or all of those individual elements. Salespeople need to be more quantitative than before as they need to be able to understand and sell the complex securities created by structuring desks (and in this day and age of regulatory and public scrutiny that need has only increased in its importance). Traders need to be able to think and act like salespeople. Structurers are often equal parts marketers. The true professional should be able to do anything well and be outstanding at their specialism.
Last edited by
AndyNguyen on February 21st, 2008, 11:00 pm, edited 1 time in total.