Quant hedge funds and CTAs are fighting back in the battle for top talent as they seek to prise key staff away from Silicon Valley.
Managers and recruitment experts say the sheen has come off Silicon Valley opportunities in the last 12 months as a series of data scandals lessen the appeal of technology firms.
In the latest high-profile hire from Silicon Valley, $52bn New York-based quant fund Two Sigma brought in Mike Schuster, a former Google Brain employee who worked on Google’s Translate and Android Speech projects. Schuster will report to his former Google colleague Alfred Spector, now Two Sigma’s chief technology officer.
The largest quant funds are constantly recruiting for specialist positions through a variety of methods, from university schemes to internal and external recruiters. For example, in Q1 2018, Man AHL reviewed 1,109 CVs, conducted 235 interviews and made 25 offers, creating a hit rate of 2%.
Considering Man Group’s $24bn quant business only employs 150 staff in total, it shows how much time and effort is spent on recruiting.
For software developers and engineers, quant firms are directly competing with technology firms and Silicon Valley giants such as Google and Facebook, as well as other hedge funds, including some discretionary funds which are also turning to machine learning to support investment decision-making.
For researchers, quant firms are looking for talent with mathematical backgrounds, largely targeting university graduates or PhDs, while engineers mainly come from computer science fields.
However, firms are also looking beyond traditional talent pools for quantitative staff.
Experts say quant hedge funds have been given an edge over their rivals for talent in recent months for three key reasons.
First, the culture in Silicon Valley has typically been seen as more attractive to the top talent than the financial sector, with younger firms and founders. Yet that has begun to shift as data handling and privacy scandals rock firms such as Facebook and Uber and turn off potential recruits.
“Silicon Valley is taking so much heat right now that there is an increasing interest in Wall Street, especially as financial firms embrace new technology,” says Michael Moloney, vice-president of technology at recruitment firm GQR.
“There has been a massive uptick of interest in the space as the attraction of the golden children of Facebook and Google is being diluted somewhat by data and privacy issues.”
Second, Silicon Valley tech firms have traditionally been seen as offering more exciting career opportunities where developers can work on cutting edge, greenfield projects, often with huge budgets. But today companies such as Amazon and Google are among the biggest firms on the planet with thousands of developers and engineers.
“As some of the Silicon Valley tech businesses have become bloated with engineering staff and large project work, engineers increasingly feel detached from the core products,” says Moloney.
“Silicon Valley is starting to mimic the old investment banking world where the companies have become large enterprises and outside of some of the front office or product-focused work, there are a lot of engineers who feel under-utilised and under-challenged.
“Alternatively, in a fund, engineers can gain ownership over products and have much more autonomy to develop systems. It has created an environment where innovators are more interested in hedge funds today.”
And third, compensation has been regarded as higher at technology companies because early staff can get equity and potentially a lucrative windfall at an IPO payoff.
But again, experts say the growing size and maturity of technology firms provides fewer widespread opportunities for stock options or early stage investment in firms.
It means that quant funds can begin to compete again on basic salaries and bonuses in comparison with many technology firms.
“There is probably more potential for current income at quant asset managers today than at tech start-ups, and asset managers are increasingly offering equity, which is more valuable as these firms are going public and being sold,” says Lance Zinman, global co-chair of the financial services practice at Katten Muchin Rosenman.
“Asset managers can be very large but generally are not as large and established as Silicon Valley firms. Employees may have more opportunity to make a real difference right away at a quant asset manager as opposed to an established Silicon Valley firm, and this could lead to more compensation at an earlier stage.”
Leading quant firms around the world have a long history of ties with academia, often providing financial support for research initiatives. Some see such links as “indirect recruitment”.
All firms are searching for the best developers, engineers and researchers to feed and develop strategies around, particularly around machine leaning and AI.
Managers say finding staff to work on the latest machine learning technology is difficult to recruit for, with a heavy reliance on graduates.
“There is a very high demand for people with skills related to machine learning, AI and neural networks in the US, although there is less of a shortage in Europe,” says one quant fund executive.
The University of Oxford and Man Group launched the Oxford-Man Institute of Quantitative Finance in Oxford in 2007, the first collaboration of its kind.
It was re-focused on machine learning and data analytics two years ago. Last year, Man AHL started another association with Durham University relating to a data science course to find developers for its machine learning effort.
It also runs a formal internship programme for developers and engineers and has sponsored the British team at the European Girls’ Mathematical Olympiad since 2015 as a way of attracting young female talent through brand awareness.
“More and more we are looking to recruit from universities abroad, not just in the UK,” says Antoine Forterre, co-CEO of Man AHL.
“We have a very broad outreach and 35 different nationalities work here out of 150 staff with more than 45 languages spoken. We don’t care about the specifics of a university or a background, we just want the best people wherever we can find them.”
Cantab Capital Partners, now part of GAM, set up the Cantab Capital Institute for the Mathematics of Information, a data science research group, hosted within the mathematics faculty of the University of Cambridge.
Paris-based quant firm CFM has a research partnership with Imperial College London – CFM Imperial Institute of Quantitative Finance – which has just entered its fifth year, marked with the recent publication of a book on market microstructure – Trades, Quotes and Prices – which draws on some of the work of the partnership.
CFM chairman Jean-Philippe Bouchaud says the partnership has helped his firm, traditionally regarded as a French hedge fund, gain a lot more exposure in the UK and underscored its commitment to research and credibility in emerging fields such as market microstructure, machine learning and big data.
While not intended as a direct recruitment or marketing initiative, Bouchaud acknowledges the partnership can plant the seeds of a career in quant finance in the minds of students and when they come to apply for jobs years later, some will apply to CFM. Others some may end up working for CFM’s investors.
Swiss short-term trading firm Amplitude Capital this year set up a deep learning lab at the DFKI in Kaiserslautern, Germany, a leading research centre for artificial intelligence.
Amplitude Deep Learning is building a team of experts and data scientists from the DFKI to look to harness the value AI in systematic trading.
“It’s great to be plugged into academia for talent sourcing,” says Amplitude partner Heiko Zuehlke.
And US managers are not being left out either. During 2017, Citadel conducted 20 ‘Data Opens’ at US, UK, Canadian and Irish universities, employing recruitment methods learned from NASA and the NFL.
In 2018, the firm plans to host competitions in China and Europe as well. A typical datathon will consist of 100 of the best candidates working together to formulate a research question based on a complex data set. Winners split a $25,000 reward and get to compete for $100,000 in the final competition. Citadel was featured in LinkedIn’s Top Companies list partly due to the success of its university schemes.
US technology giants are also trying to attract the best developer and technology talent from universities too. Amazon has its European headquarters in Cambridge while Google also has a presence in the UK city to better access its graduates in an area now dubbed Silicon Fen.
“The competition is growing more and more fierce,” says one lawyer. “They all want to get them early and develop them.”
It may be a cliché to read about the latest firm trying to attract millennials with Kombucha on tap, or craft beer Fridays, but some quant funds really are trying to make themselves more appealing. Citadel has created an ‘after hours’ programme, which has included buy-outs of Hamilton performances in New York City and Chicago.
Two Sigma has based itself in the Manhattan tech hub of Soho in a building full of start-ups rather than the drier Midtown hub. Staff can enjoy a rooftop garden where the dress code is casual and skateboards have been spotted in the elevators.
Man AHL offers music lessons and specialist coffee tasting sessions in its London offices to staff during their lunch breaks, while GAM Systematic’s trendy Cantab office in Cambridge has pool tables, foosball and a relaxed dress code.
However, culture goes far beyond the superficial perks of a colourful office space as many want to know they are working for an ethical company with job security. Reputations can damage a firm’s ability to recruit as the recent travails of Silicon Valley may prove.
Steve Cohen’s Point72 Asset Management, which has a systematic investing arm Cubist, has reportedly frozen any recruitment beyond its initial batch, while it deals with a sexual harassment scandal at the firm.
In a lawsuit, former executive Lauren Bonner accused Point72 of making women feel “humiliated and ashamed” and specifically blamed president Doug Haynes, who subsequently resigned.
Alternatively, Citadel has garnered a reputation for ruthlessness in the sector. In February, founder Ken Griffin slashed more than 50 jobs at the firm’s new Greenwich fundamental equities unit, Aptigon Capital, less than 18 months after launching.
Some staff had only been with the firm for a few weeks. One senior hedge fund executive questioned how Citadel could continue to attract top talent when they could be axed within weeks of their appointment, although quants may be less susceptible to such investment performance-based cuts.
“We are a competitive and goals-orientated business but we have a very collegial approach that is attractive to potential hires,” says LJ Brock, chief people officer at Citadel.
Ultimately, quant firms are looking to create an environment where younger people want to work in a break from the perception of a stuffy suited investment bank or old-school hedge fund.
“Some firms want you to put your phone in a box before entering the office,” says Man AHL’s Forterre.
“We are the opposite, with an open floor plan, and want to be transparent, as ideas come out of good surroundings and encounters, not in a vacuum.
“Firstly, we want people that are eminently qualified. Secondly, we give them the freedom to do what they want. Thirdly, collaboration is very important.”
Another consideration when hiring and retaining staff is the employment and immigration rules in various countries around the world. The UK and US are suggesting they could restrict immigration, although few concrete proposals have been made.
Employment law varies from country to country, and even from state to state in the US, with a major impact on the ability to poach staff.
When hiring top talent, Restrictive covenants covering non-disclosure, non-solicitation and non-compete agreements are essential. It is relevant to firms protecting their talent as well as those looking to prise away employees from other managers.
New York state courts have been making it harder and harder to enforce non-compete and non-solicitation agreements in the global hedge fund capital. It is part of a broader trend in US states to make it harder for firms to keep low-paying staff in jobs and restrict freedom of employment.
In California, the technology capital of the US, non-compete agreements are even more difficult to enforce with extremely flexible labour laws.
Lawyers say agreements can still be enforced when core intellectual property is at stake but firms must be much clearer and more precise when writing agreements.
“We have seen agreements at quant firms become much more particular about the type of intellectual property being protected, such as algorithms, infrastructure and code,” says Katten’s Zinman.
“And we have seen more aggressive enforcement of restrictive covenants by firms whether or not the courts are moving in a different direction.”
Zinman adds: “Another method of protecting intellectual property is to use the carrot instead of the stick by making someone a partner and encouraging them to remain with the company.
“Also, it may be easier for firms to enforce restrictive covenants with respect to partners as opposed to less critical employees.”
The war for talent is tough, and specialist, highly qualified and cutting-edge developers and engineers are hard to come by.
The growing demand for AI and machine learning skills will continue to increase the competition for staff who can assess and develop new data techniques.
Quant firms will need to continue university partnerships, internships and staff attraction initiatives if they want to keep up with the next generation of talent. And hope that the big tech firms don’t decide to muscle in on their turf by launching their own AI/machine learning hedge funds.