Young Guns Hit the Trading Floor

Fresh-faced yet experienced graduates are entering investment firms in strong numbers. And this crop of bright young things is bringing new skills and placing new demands on the buyside.

While many young people dream of jobs at Google and Snapchat-or starting the next Web 2.0 giant-there are still plenty of smart, ambitious twentysomethings looking to be analysts, investment bankers and traders inside asset management firms and hedge funds. This spring, Varun Tomar receives his master’s in financial engineering from the University of California at Berkeley, and he already has a job lined up. The 26-year-old, whose family relocated to the U.S. from New Delhi, India, in 2005, will pack his bags and move to Chicago. He begins his new career as a quantitative trader on the currency and U.S. Treasury desk at Sun Trading, a quant hedge fund with offices on South Wacker Drive.

As an undergrad computer engineering student at University of Michigan, Tomar became well versed in C++ programming and then went to work at Spot Trading writing algos and watching them go live. Tomar worked at the Chicago prop trading firm for three and a half years, up until January 2013, before starting his graduate work. Now, he looks forward to being the person creating the trading strategy, maximizing his P&L and putting those younger quants-his former self-to work on his own terms.

If you want an idea of the current job market, always ask someone who has been looking for work. According to Tomar, there are four areas of expertise in high demand: econometrics, statistics, machine learning and programming. He felt that his three and a half years at Spot Trading gave him the exposure to the industry and helped him clarify his goal: being the driving force behind the trading models and strategies for high-speed trading algos.

“At 23, 24 years old, when I was working at Spot Trading, I would write algos in my spare time for my own personal investing in the currency markets,” Tomar told Traders. With this degree of ambition, he was not going to settle for merely maintaining his budding career. He looked to Berkeley’s financial engineering program to expand his understanding of trading strategies, he said. “When I was at Berkeley, there were students from all over the world, Ph.D’s, physicists, even professors, who had come back to school for a master’s in financial engineering. This is the culmination of a lifelong ambition for me.”

Tomar is not alone. According to new findings by market research firm Tabb Group, the buyside is hiring quants, especially those with “sell-side levels of sophistication.” In the first part of the firm’s three-part annual survey titled “U.S. Institutional Equity Trading 2014: Bellwethers of the Buy Side,” director of research Adam Sussman and his team at Tabb Group interviewed 108 heads of U.S. equity trading desks at traditional asset managers with an aggregate of equity commissions of nearly $2.5 billion in 2013. According to Sussman, buyside firms are looking for quants to fill roles in several points in the trading process, from portfolio manager alpha modeling to venue analysis and internal routing optimization.

In the report, Sussman writes that the investment community is concerned by an “absence of quantitative skills among most firms,” with one-fifth of respondents calling this a major weakness for asset management shops.

A NEW BUYSIDE BREED

Wall Street watchers have noticed a sea change as well. This spring, recruiting for new talent has started earlier than in the past, particularly to fill coveted private equity and hedge fund positions. These candidates are being poached from the ranks of young banking analysts to work inside sexier technology firms that are more likely to offer massages and ping-pong tables instead of grueling 80-hour workweeks. According to recruiters and new hires Traders spoke with, the allure of a better life-work balance appears to be working.

Just ask Anthony Keizner, a British-born Harvard MBA who for three years has run the hedge fund practice at Glocap, a recruiting firm focused on investment management. Glocap has placed candidates at 30 of the 40 largest U.S. hedge funds since its founding in 1997. Keizner sees the dichotomy between young people’s perception of Wall Street and jobs inside the hottest technology firms. “Even though people understand that banking is a route to finance, and finance is an incredible industry that employs huge numbers of people and creates enormous value, from a young person’s perspective, all you have to do is compare ‘The Social Network’ to ‘The Wolf of Wall Street,'” he told Traders.

And the endless headlines about insider trading and Ponzi schemes like those perpetrated by Bernie Madoff have not gone unnoticed. “Being an overnight billionaire in the tech world speaks to intelligence, while being an overnight billionaire in finance means an SEC investigation,” he said.

In response, some firms have even adopted the look and feel of tech start-ups, shaking off the dark-suited stereotype for something more appealing to their target demographic. Two Sigma is an $18.5 billion hedge fund based in Manhattan that describes itself as a “technology firm” on its Google-like website, where photos feature casually clad workers lounging on beanbag chairs. There is not a tie to be seen. Likewise, in a recent profile on Marketplace, New York-based HFT firm Tower Research Capital’s Tribeca offices were described as “the world’s most well-decorated yoga studio, with all kinds of Asian statues and huge plants throughout the space. Like nearly everyone there, the boss is in jeans.”

Kelly Howard, senior vice president for marketing at Two Sigma, said the hedge fund competes directly with tech, but she feels that for candidates weighing finance versus technology, Two Sigma comes out ahead. “Most tech start-ups are focused on a sprint-like race to build an app or software product, which will allow them to become profitable and survive. We also have a breadth of challenges that are attractive to candidates who have varied interests, but don’t want to change companies in a year or two to work on something new,” she said.

As far as the loft-like space and relaxed vibe go, she said, “We didn’t set out to create a culture to intentionally attract prospects away from start-ups. Instead, our focus was on creating a great work environment.”

FINDING THE NEXT BUYSIDE STAR

Keizner has years of experience matching young graduates with jobs inside hedge funds and private equity firms. He says he knows exactly what the firms are looking for, and it is not a pedigree. “They don’t care about ethnicity,” the headhunter told Traders. “My experience placing people on the buyside is that it is absolutely meritocratic. Raw intelligence is the one factor that is consistent. You have to have a knowledge of the market and be passionate about investing.”

Keizner told us that “for a balanced work environment and diversity of thinking, firms would definitely like to hire more women.” Although this may change as more women come up through the traditional banking ranks, the headhunter said the hiring pool is heavily skewed: 80 to 90 percent of the candidates he sees are men. Interestingly, Keizner reported little to no pressure on firms to equalize the working environment.

Given the importance of a background in investment banking for the eventual goal of moving to the buyside, college students often have a traditional finance-oriented major to get interviewed by a bank during their senior year. These analyst jobs are hard to get, and banks want to see a college GPA of 3.7 or higher, and will even look back to a candidate’s high school SAT scores before granting an interview.

Although most successful hires studied economics, finance or mathematics, Keizner said he has found jobs for history, political science and English majors. He added that those candidates also have some additional factor tying them to numbers and strategic thinking-such as a math Olympiad, trophies for chess or a stint as a professional poker player. “That indicates innate talent or quickness, an ability to see things the average person doesn’t see,” he said.

One resource job seekers have turned to is WallStreetOasis.com, a popular online forum among young Wall Street recruits. Former private equity strategist Patrick Curtis launched the site while getting an MBA at the Wharton School of the University of Pennsylvania. He told Traders he saw a need to help his colleagues navigate a “very opaque industry.”

Curtis reports that without a doubt, would-be traders from target Ivy and top-tier liberal arts schools such as Williams and Amherst can snag interviews despite not having a degree or a major in finance. Curtis says that “non-Ivy target schools, like University of Michigan and University of Virginia, also send plenty of recruits to Wall Street,” because they are known for strong programs in finance. Most of these do so via on-campus recruiting, a round of interviews held early each spring to snap up prospects.

Even without the Ivy or target-school degree, some grads find a way in. Large firms often have a pipeline for hiring recent graduates from smaller, less prestigious schools. According to a Goldman Sachs employee who requested not to be identified, Goldman Sachs has hired a number of graduates of Colgate University, a respected but hardly gilded liberal arts school in upstate New York. Perhaps those alumni networking cocktail parties have a purpose after all. Goldman Sachs did not return calls or e-mails for comment.

Curtis himself followed a familiar buyside path: After clocking in two years in investment banking, he transitioned to private equity. He then got his MBA at Wharton, noting that in private equity, the degree is the stamp required to get promoted, and is often seen as a way for sellside folks to more easily transition to the buyside. He said that this was less so in hedge funds, where a top performer will be valued for that, and even discouraged from leaving to get the degree.

According to Bina Kalola, head of strategic direct investments for global equities at Bank of America Merrill Lynch, successful candidates show their strengths comprehensively. “Initially, the technical stands out first: GPA, major and relevant course work show technical skills. Further experiences can show genuine interest in the finance profession and some understanding of the business, often demonstrated through summer internships, clubs, activities, trading competitions, personal trading. In addition, showing leadership and your personality through your activities is also very helpful.” Finally, she added, the ability to write and communicate effectively is critical.

Moreover, the best candidates have taken interview preparation to the next level, Kalola said. “I was recently impressed by a student at Columbia who had glossies of three trade ideas he created during his summer internship, demonstrating an understanding of the asset class, trading and importance of presentation,” she said.

And in today’s market, an MBA might not be the golden ticket it was in the 1990s. According to Howard, “Two Sigma hires both experienced candidates and recent college graduates at all educational levels. MBAs are not typically sought, as they generally have broad business acumen as opposed to a focus on engineering, math, statistics or computer science.” She added, “Generally, no matter what the degree or role, we only hire candidates that are proficient in coding.”

INTERNSHIPS SPEAK VOLUMES

No one could accuse today’s young traders of resting on their laurels. Xin Heng, another Berkeley MFE grad, holds his BA in physics from Nanjing University and a Ph.D in electrical engineering from Caltech. This spring he starts as a quant trader at Mellon Capital Management in San Francisco.

A two-month internship in 2011 at Citigroup provided him with what he called good exposure to the day-to-day work of an investment bank. Lacking a background in programming and data mining, Xin taught himself these skills. The most useful Berkeley classes, he said, were derivative pricing, econometrics and dynamic asset allocation.

Xin noted that while term “quant trader” remains constant, the skill set required of quants continues to evolve. “Sophisticated statistical methodologies and computer algorithms are the starting point for assisting traders with their work, but the use of ensemble learning and sequential particle filters are becoming more common than they were a few years ago,” he told Traders.

On the global macro desk at Mellon, Xin will trade global equities and index futures, and will eventually be rotated to fixed income, commodities and currency. The 34-year-old’s mostly 12-hour days will begin at 4 a.m.

“I start the day early and finish off early as well. It is a good balance between work and life,” he said.

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