Buyside trading desks are showing considerable interest in hiring skilled algorithm and quant researchers. What is driving this trend, and what skill set do these in-demand professionals require?
Why are buyside firms looking to recruit?
Hedge funds and other buyside firms are facing pressure to cut their fees. For example, London-based Brevan Howard, which runs a $14.5bn flagship fund, recently announced that it would waive its management fee from this December. A 20% performance fee will still apply.
This fee-cutting drive means one thing: funds need to be more efficient to deliver returns. This is where algorithm and quantitative researchers come into the picture: they create systems to help investment managers make smart decisions that deliver healthy returns, with accompanying healthy percentage fees.
In the hedge fund world, only around one third (35%) of funds tracked by Preqin continue to use a traditional ‘2 and 20’ fee structure – 2% management fee, 20% performance fee. Both of these fees have been dropping, with some companies opting to waive some fee types altogether.
Why volatility is translating into lower fees
The market is facing a good deal of volatility at the moment, with global events such as the US Presidential election and the Brexit vote in the UK causing uncertainty and concern. The market can fluctuate unexpectedly from day to day or month to month, causing nervousness among investors.
In this environment, the buyside companies that can offer the best products are those that can best assess risk within the market. Developing strategies to analyze and manage risk means funds can still provide attractive returns and competitive rates.
The power of data
According to a recent report by Tabb Group, hedge funds are now investing in extending the scope of their analytics capabilities from conventional transaction cost analysis to routing logic for ATS’s and monthly data and summary statistics.
Many trading desks are ill-equipped to manage this additional functionality, with a small number of well paid, highly experienced quantitative analysts rather than a team of quants with varied levels of skill and experience. Firms are scrambling to hire more quants to help boost their abilities in this area.
Tasks being taken on by algorithm and quant researchers
The new professionals being hired by buyside firms are tackling a number of different areas for their employers. Firstly, internal processes are a major focus. While external performance is often scrutinized closely, internal processes can also be inherently wasteful, but tend to receive much less attention. Process improvement involves looking at issues such as post-trade processing, workflow efficiency and trading costs.
Automation is also a major trend. Firms are automating more elements of their trading practices, meaning that less involvement from managers is required so cost reductions can be achieved. Technology projects to consolidate order management systems are also a major feature of the sector.
Which skills are in demand?
Buyside firms are keen to recruit enthusiastic candidates with a relevant qualification, such as an advanced degree in physics or mathematics. Candidates should have experience in general asset management, particularly on the buyside within an internal execution or proprietary trading team. For example, experience of working on a trading desk which generates large revenues, or is responsible for trading efforts of the firm, is much in demand.
Skills in C++, Python, and market microstructure algorithms are also essential for candidates looking to work in this field. Specifically working with strategies around VWAP, TCA, Pre-trade, Post-trade, etc are seen as valuable skills as these strategies require not only the quantitative + programming skills, but also the qualitative market microstructure knowledge of why securities move the way they do. There is scope to move into the buyside from the sellside if candidates wish to do so and have the right attitude and experience.
To learn more about this trend and how it might affect you over the coming months, please reach out to Selby Jennings for an informal discussion.
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