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QUANTITATIVE F INANCE MARKET UPDATEin par tner sh ip wi th Wi lmott

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Oliver Cooke - Head of Quantitative Analytics, Price Testing and Valuations USA

oliver.cooke@selbyjennings.com

212 209 7324

James Martin - Head of Quantitative Research and Trading USA

james.martin@selbyjennings.com;

212 209 7312

I N T RO D U C T I O N

Operating as part of the Phaidon International group, Selby Jennings, is a multi-award winning global recruitment organisation

focused on servicing the financial industry. We regularly produce specialist market reports and Industry Insights to provide

our clients and candidates with niche market intelligence and support them within the recruitment process. In January

Selby Jennings’ Quantitative Analytics, Price Testing and Valuations and Quantitative Research and Trading USA Teams were

interviewed by Wilmott Magazine on Market Trends facing the Quantitative industry and the full interview is encolsed in

this document.

CONTRIBUTORS

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- What is the most important development with regard to recruitment in quantitative finance and how does

that relate to your company?_________________________________________________________________ 4

- What are the major drivers in recruitment for quantitative finance?____________________________________5

- In which recruitment areas do you see growth and which areas do you see shrinkage?_____________________6

- What is the most common feedback you receive from hirers with regard to their requirements?_____________7

- How do requirements compare between different geographies?______________________________________7

- Do you agree or disagree with the following statements based on your own experience of the market, and

what effect, if any, does this have on your plans?___________________________________________________8

- How are the following trends impacting on recruitment: ___________________________________________10

- Regulatory Requirements

- New Market Structures and Institutions

- High Frequency Trading

- What trends do you note in terms of pay and contracts?___________________________________________11

- What have been the most common searches from hirers over the last year?___________________________ 11

- How long, on average, does a candidate spend on a job search?_____________________________________ 12

- What other statistics can you provide that illustrate current market conditions?_________________________ 12

- What would you recommend to potential candidates in terms of skill sets that will be in demand and will

be best remunerated?______________________________________________________________________13

C O N T E N T S

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WHAT IS THE MOST IMPORTANT DEVELOPMENT WITH REGARD TO RECRUITMENT IN QUANTITATIVE FINANCE

AND HOW DOES THAT RELATE TO YOUR COMPANY?

As a result of the increasingly strict regulatory environment, demand for Front Office Quants to work in Risk Management

and Control focused positions within Investment Banks has increased.

Due to on-going pressure to cut costs there has been an increase in the number of Ph.D Graduate Level hires as well as an

increase in demand for highly technologically capable candidates (rather than just mathematically capable candidates).

For Quantitative Research and Trading the main development has been in relation to the performance of the bigger Hedge

Funds, where low investor confidence and high staff turnover has resulted in increased candidate demand for smaller and

mid-sized firms. As a business we have always maintained a high level of contact with Start Ups, Private Hedge Funds and less

main stream firms. As a result of this market shift we have been able to offer a much broader client base to our candidates.

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WHAT ARE THE MAJOR DRIVERS IN RECRUITMENT FOR QUANTITATIVE

FINANCE?

Withdrawal of investment from the Quantitative Hedge Fund space (over $1bn last

quarter) has resulted in large-scale staff reductions across Quant Groups in many Hedge

Funds. This, coupled with large-scale redundancies in Investment Banks has cultivated a

candidate heavy market, resulting in employers becoming even more specific about the

type of experience they require for each role.

In particular, this year has seen a resurgence in Quant Equity, with a number of leading

teams either planning to or already hiring in Global Quant Equity Investments. In

these cases, employers have often specifically stated their need for experienced Equity

candidates, and are unwilling to consider strong candidates with FX or Commodities

backgrounds and transferable asset class experience.

Likewise, the regulatory environment means that Risk Modelling, Counterparty Risk

and CVA experience are becoming essential skills.

Several smaller up and coming Prop Shops with large investor bases and Quant Groups

of typically two or three members have been successfully capitalising on this rich

candidate market. Banks have also been attracting Buy Side Candidates for Flow Desks,

by offering very competitive salaries.

In light of pressure to reduce costs, Investment Banks are hiring a higher proportion of

Ph.D Level Graduates onto bespoke training schemes. The best Ph.D candidates can

secure very large sign on bonuses and relocation packages from the best banks, and a

truly exceptional candidate can expect to receive two or three offers.

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IN WHICH RECRUITMENT AREAS DO YOU SEE GROWTH

AND WHICH AREAS DO YOU SEE SHRINKAGE?

Within Quantitative Analytics, Model Validation and Valuations, there

has been an increase in hiring within Software Vendors, Analytics

Houses and Clearing Houses. The compensation gap between

Investment Banks and Vendors has also decreased significantly in

comparison with 4 or 5 years ago. Therefore a move away from

Investment Banks has become increasingly popular for Quants

looking for the opportunity to work in a growing company with

better progression potential.

Within Quantitative Research and Trading, the largest growth areas

in 2013 have been Electronic and Automated Market Making,

especially within major US and Japanese Investment Banks in New

York.

High Frequency Trading has continued to grow, however trading

desks have been more focused on securing profitable strategies

than younger talent this year.

CTA Funds have struggled to retain their staff on the Investment

Management side, due to a lack of investor confidence. This

has however brought about an interesting rise in demand for

Quantitative Risk and Controlling Roles, in comparison to Front

Office Derivative Pricing/ Modelling Desk Quant positions, which

are in decline.

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WHAT IS THE MOST COMMON FEEDBACK YOU RECEIVE FROM HIRERS WITH REGARD TO THEIR REQUIREMENTS?

Given the candidate-heavy market, hiring managers are currently very specific about their requirements and often require a

long list of skills and experience for a candidate to possess before they even consider them.

Candidates with 1-4 years of experience are in highest demand, since the market tends to be top heavy in terms of seniority.

Furthermore, firms prefer to take on lower level candidates, who they can train in such a way that suits the firm, who tend

to have more realistic compensation expectations and who are often more up to date with the recent developments in the

industry.

Within Quantitative Research and Trading, requirements for 2013 have had a far greater focus on specific programming and

strategy experience. Employers are far less inclined to hire a candidate based on potential ability, but prefer to find ‘complete

packages’. This is not exactly a revelation but certainly has created a focus on candidates with 2-5 years of experience.

HOW DO REQUIREMENTS COMPARE BETWEEN DIFFERENT GEOGRAPHIES?

Certain functions such as Risk Control, Model Validation and Valuations have been outsourced outside of the major financial

hub of New York to locations such as Pittsburgh, Tampa, Jacksonville, Chicago, Dallas, Ohio and North Carolina. New York

and Chicago are the main areas of growth still within Quant Trading, with San Francisco maintaining a closer focus on Asset

Management and Quant Asset Allocation.

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DO YOU AGREE OR DISAGREE WITH THE FOLLOWING STATEMENTS

BASED ON YOUR OWN EXPERIENCE OF THE MARKET, AND WHAT

EFFECT, IF ANY, DOES THIS HAVE ON YOUR PLANS?

1. “There is a redeployment of Quant Personnel away from trading and

into Risk Management and Enterprise related functions.”

A large number of candidates have made this move over the last year

(predominantly at the end of 2012 to the beginning of 2013). It seems some

candidates who are out of work are reluctant to sit out of the market waiting

for the ideal position to come along, and in many cases take a well-paid job

in a Risk Function as an interim move.

However, the last five months of 2013 have seen a large increase in demand

across Quantitative Trading and more opportunities exist now than earlier

in the year.

2. “There is an increasing quantitative sophistication on the buyside.”

The calibre and technical ability of Quants working on the Buyside is not

wholly different to those working on the Sellside. However, since platforms

and technical processes within Hedge Funds and Trading Firms, tend to be

more advanced than in Investment Banks, a lack of such experience can be a

barrier to entry for Sellside candidates looking to join the Buyside.

On the other hand some Trading Groups and Investment Banks who pride

themselves on technical ability have identified a need to revamp their

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platforms in order to remain competitive. In order to do this, several are

focusing on attracting Quant Development candidates from the Buyside by

offering them highly competitive salaries.

3. “There is a simplification in instrument types that is moving emphasis

away from modeling to data management.”

There is more demand for all quants to be better technologists. Expert

level C++ is now the norm amongst quants and a genuine non-negotiable

requirement for Ph.D Graduates looking to be a Front Office Quant.

The focus has certainly moved away from Exotic Derivatives Modelling and

there is definitely more emphasis on Flow experience. Most rates teams are

very interested in skills with OIS discounting, Yield Curve building and CSA

4. “CVA will be an increasingly important activity for financial

institutions.”

Yes, CVA/Counterparty Risk is a key focus for many institutions. Candidates

with a skill set in this area are in high demand.

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HOW ARE THE FOLLOWING TRENDS IMPACTING ON RECRUITMENT:

Regulatory Requirements:

As a result of regulatory requirements there is an increasing demand on Quants to also be Risk Managers and Risk Model

Developers/Controllers. There are also a number of Clearing Houses who have been hiring world class Quantitative Talent

and compensating them comparatively to Investment Banks.

New Market Structures and Institutions:

There has been an increase in Clearing Houses, Analytics Houses and Software Vendors hiring top Quant Talent. Major

Consultancies have also been increasing the size of their Quantitative and Risk advisory groups.

High Frequency Trading:

High Frequency Trading is becoming more attractive as a means of diversification for Quantitative Investment Managers. As

a result several smaller funds are starting up High Frequency Trading Platforms in several US Cities such as San Francisco,

Boston and Philadelphia, and are seeking candidates who can blend Research/Trading skills with the ability to build up a

platform from scratch.

Enterprise Risk Requirements:

Enterprise Risk is an attractive area for Quants - some of the major developments in terms of modelling are happening here

and compensation is rising, as better talent moves towards it.

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WHAT TRENDS DO YOU NOTE IN TERMS OF PAY AND CONTRACTS?

The average increase in basic salary is currently between 10 to 15%. Aside from a few top

performing teams within Investment Banks, bonus levels in 2013 remained relatively similar

to 2012, with the majority of candidates feeling disappointment in this lower bonus level in

comparison to pre-2009 levels. Guaranteed bonuses are rare and only tend to be awarded to

Senior Level Professionals if they are moving in Q3 or Q4 and leaving behind an expected bonus.

2013 has shown a limited number of big pay increases within Quantitative Research and Trading,

with the very maximum increase in base salary being roughly 30%. Most firms have chosen

to offer ‘make whole’ bonuses, stock options, and sign on bonuses as a means of attracting

talent. With regards to contracts, non-compete disputes have been more prevalent, with Illinois

for example ruling non-complete clauses not applicable to those serving less than two years.

WHAT HAVE BEEN THE MOST COMMON SEARCHES FROM HIRERS OVER THE LAST

YEAR?

Within Front Office Quantitative Analytics, Ph.D Level Graduates and candidates with 1-4 years

of experience are in highest demand. Top Investment Banks are focusing on hiring quants to work

within Risk Management, whereas Software Vendors are looking for experienced quants to lend

Banking/Modelling expertise.

Within Quant Trading the most sought-after profiles are Quant Traders with 2-5 years of

experience in Alpha Research, and candidates with 3-6 years of experience in FX Electronic

Market Making.

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HOW LONG, ON AVERAGE, DOES A CANDIDATE SPEND ON A

JOB SEARCH?

It really depends on the candidate, their experience and how active

they are in the market. If a candidate is open minded, realistic about

compensation expectations and has an attractive background, we will

generally find them a good opportunity within a 2-3 month period

(including the interview process).

WHAT OTHER STATISTICS CAN YOU PROVIDE THAT ILLUSTRATE

CURRENT MARKET CONDITIONS?

In a survey carried out by Selby Jennings at the beginning of the year,

we found that globally professionals working in Risk Management/

Quant Analytics were most positive about economic conditions in their

country of work, with 26.2% answering that market sentiment and

confidence was improving. “Media interest in financial institutions has

resulted in a high level of scrutiny of conduct and a need for regulation;

this has caused a sustained push in demand for Risk Management

professionals explaining the positivity in this sector” – Matt Nicholson,

Head of Risk, Selby Jennings.

Likewise, Risk Management and Quant Analytics professionals were

very positive about Economic Conditions, with 18.6% believing that

economic conditions were better than the previous year.

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WHAT WOULD YOU RECOMMEND TO POTENTIAL

CANDIDATES IN TERMS OF SKILL SETS THAT WILL BE IN

DEMAND AND WILL BE BEST REMUNERATED?

For someone looking to enter quant finance, an excellent academic

background in Quantitative Disciplines, awards/scholarships and

qualifications from a good school and a high number of publications or

research projects are ideal credentials. Furthermore good experience

with C++ is 100% necessary. Be prepared to show you have a true

interest in finance and it’s not an afterthought, read the seminal books

and stay up to date with the latest developments in the market. Do

extra curricular courses in relevant subjects and get the qualifications

that prove you are driven to find a position within Quant Finance.

For an experienced individual, CVA and Counterparty Risk Modelling

experience, as well as a consistent work history within top groups will

earn the highest remuneration.

Quantitative Trading will always offer opportunities for those that have

the ability to determine statistical trends and technical skills to make

actionable strategies. We advise candidates to consider Automated/

Electronic Market Making within banks as a next step since this is

predicted to be a high growth area. In terms of skills, it is important to

research and keep to date with the latest programming developments

and languages before you begin your job search.

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A B O U T S E L B Y J E N N I N G S

Operating as part of the Phaidon International group, Selby Jennings, is a multi-award winning global recruitment organisation

focused on servicing the financial industry. By breaking down financial markets into individual niches and micro-specialisms,

Selby Jennings powers a knowledge-led model, delivering global solutions into local markets. Every consultant is an expert

in their field. Structuring our teams to mirror the demands of our clients and candidates, we identify, qualify and present the

highest calibre candidates, as well as identifying the best market opportunities for leading finance professionals. From our

offices in London, Singapore, New York and Zurich, we recruit beyond international boundaries, pro-actively sourcing the best

talent in the industry across contract and permanent hires.

Covering contract and permanent placements, our market coverage is as follows:

- Accounting & Finance

- Buy Side Sales & Marketing

- Capital Markets Structuring & Origination

- Commodities Sales & Trading

- Compliance

- Corporate Banking, Trade Finance & Structured Finance

- Economics & Strategy

- Equity Sales & Trading

- Financial Services Sales & Marketing

- Financial Technology

- Fixed Income Sales & Trading

- Fund Management

- Fundamental Research (Equity/Credit)

- FX Sales and Trading, and E Commerce Sales

- Investment Banking and Private Equity

- Quantitative Analytics & Price Testing

- Quantitative Research and Trading

- Risk Management

- Structuring

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