The Rise of the Credit Risk Quant
Quantitative Analysts, Engineers or put simply ‘Quants’, have traditionally worked in the financial services industry. Quants adopt a complex combination of mathematical, statistical and programming techniques to research, understand, measure and predict the behaviour of financial markets and their vast array of underlying components. The demand for Quants has grown considerably in the last 5 years, especially with the advent of extreme data driven approaches to quantifying meaning in information that had traditionally been laying dormant for years. There has also been a noticeable shift in status in trading floor type environments towards Quants. In some Equities environments for example, you might find more Quants than your traditional ‘Trader’ and it’s a trend that has been gaining momentum with the proliferation of Quantitative Hedge Funds we have seen in the last few years. It’s all got very mathematical to say the least and Quants are no longer the hidden superstars of finance but have now been very much catapulted into full visibility of the glaring world.
Loosely speaking, the main types of Quants are:-
- Front Office Quants – traditionally providing traders with pricing and trading tools in addition to the complex underlying models that integrated trading/risk systems use for any given asset class. Within this silo, Algorithmic Trading Quants are in particular demand. These are Quants who offer pre-programmed instructions to automated electronic trading platforms.
- Risk Management Quants – not trading floor orientated and are involved in modelling (credit/market risk), validating models, stress testing, research and are more focused on risk management rather than trading strategies.
- Quantitative Developers (Quant Devs) – Quants that straddle the technology and quantitative departments within financial services firms who work on developing and maintaining the models for use with specific applications that may utilise them.
The rigours and demand for Front Office orientated Quants has traditionally meant that they have been better paid and there have regularly been initiatives and advancements that have kept them well and truly pre-occupied. This said, we have heard from many Front Office Quants who are tied down in larger Tier-1 banks and within a particular asset class, that the work can get quite monotonous, stressful and somewhat mundane after a while. On the Risk Management side, whilst there hasn’t been an initiative like the ‘Fundamental Review of the Trading Book’ (FRTB) to keep them as preoccupied as their high octane Front Office counterparts, there has been a steady change in how the IRB (Internals Ratings Based) approach to credit risk capital is managed. It is within this particular area that has led us to mobilise Europe’s elite Credit Risk Quant contract workforce across institutions European wide, with Quantribute fast becoming a name synonymous within Quantitative Credit Risk.
An example of where Quantribute has been instrumental in serving the Credit Risk Quant community was with the recent TRIM initiative by the ECB. The Targeted Review of Internal Models saw 200 on site investigations, in 65 institutions across 15 countries to review internal models as a result of their increasing complexity. The concerning variance between banks’ own internal calculations of how much capital they should be holding despite them having similar portfolios was the driver for TRIM. Here, the demand for freelance Credit Risk Quant professionals spiked significantly, with deadlines that had to be met despite a distinct lack of internal resources to fulfill the obligations at various financial institutions. We are proud to say that Quantribute successfully helped fill this niche resource void within a large number of banks and global consultancies. With the ongoing regulatory changes, new Definition of Default and IRB deadlines, the demand for Credit Risk Quants is predicted to continue to rise well into 2020 and beyond.
So, whilst it may be the Trading Quants that have been making the noise and grabbing the headlines over the last few years, we are certain 2020 will continue to see the rise of the Credit Risk Quant (as well as that of the rise of Skywalker!). It’s a space within the Quantitative stratosphere that is in demand, not as stressful as trading and requires individuals just as smart.
If you are a Credit Risk Quant or an employer of Credit Risk Quants and wish to engage with an expert recruitment partner who genuinely understands the space, Quantribute would be delighted to hear from you.
Here’s to 2020.