Managing quant minds

We live in the era of the algorithm. Complex mathematical models now price and execute an increasing array of complicated financial securities. Quantitative analysts, responsible for building and maintaining these models, are now relied upon not only generate profits, but to help companies reduce and manage their risk. It’s a challenging line of work, and consequently quants can often command hefty salaries.

Those within quant leadership roles need to be able to justify that investment, building a story of why an executive committee should invest in building a quant team. Pricing and product development are not alone reason enough.

That’s the view of Manlio Trovato, Head of Quantitative Research at Lloyds Banking Group, who was at QuantMinds International, to talk about how best to manage quant minds.

Those outside of the quant world – such as the members of the executive committee – want to know the why of quants, argued Trovato. “We all know what it is that we do, but we need to make sure everyone understands the why. That’s the question that goes right to the heart of things from a management perspective,” he stated.

So he set about providing an answer.

Quants exist to provide reliable, consistent and fair pricing, to respond to and delight clients with expanded offerings and value-added services. They exist to support the bank and their colleagues, they support the regulatory side with compliant pricing, capital, collateral requirements, risk calculations and robust platforms.

They also empower clients and colleagues alike through automation, automating those processes and tasks which can be model-driven. Quants are also a centre of service that unlock the potential of technology, working with colleagues to come up with new ideas. They seize on innovations to improve and outsmart the market.

The quant journey is ever evolving. From initial thinking about pricing theory, to new trends in both model and product sophistications, the role has evolved even further and with a much broader scope.

The key then, for the quant manager, is to map every quant project to the needs of the business. For instance, mapping how FRTB projects, that are changing the way systems work and how business units work, rotate around a model and system capability in which quants are crucial in implementing.

Quants also build pricing models and maintain them, and these are required in order for clients to see prices and to interact with the institution. There is a need to be able to innovate for clients.

Looking ahead

The quant journey is ever evolving. From initial thinking about pricing theory, to new trends in both model and product sophistications, the role has evolved even further and with a much broader scope.

An increased regulatory landscape has driven quants into a higher regulatory focus, and this in turn has pushed quant groups to go across business units, as well as to review and revisit the tech stack.

In the future, argued Trovato, quants will spend even more time in safety and risk management, and delve even deeper into automation. In fact, quant and technology will become analogous: “I do see a lot more focus on professional software engineering and management of delivery, and a lot more quant tech synergies,” he said.

In addition, Trovato saw a much less siloed approach to pricing / XVA specialists and less add-on tools, prototype delivery and less of a siloed approach between the modeller, the quant and the tech side.

Compliance, sustainability and managing complexity of automation and added value using analytical insight would continue to drive the future of quants.

What drives quants?

It’s crucial that a manager understands what motivates quants, he argued.

“You can only get the best out of people when you understand what drives them.”

“Quants are passionate. Passionate about maths, finance, technology, problem solving, research and they are passionate to learn.

Quants will be built into the fabric of the organisation, they won’t be a unicorn group, but will become a whole FinQuan Tech package.

“They are now very much integrated into the financial world, working with traders, finance, risk and compliance, they have learned to understand it and work with it.” Quants are also passionate about technology, and exploring new options with it, he added.

The job of the manager was to unlock that quant value. “They cost a lot, we want to get the best.”

“My view is the unlocking is tied to a concept of a cross-skill and cross-team or group, removing the overlap and duplication.”

Ultimately, the quant profile is going to contain a much broader skillset, encompassing proper software engineers to project managers. “You need someone to manage the delivery of technical quant solutions, and they have to have some insight in what we’re doing conceptually in an organisation”

On the part of the organisation, there had to be a realisation that the solutions that quants deliver are part of a bigger picture. “There is a lot of value in looking at the whole picture, a bit like the way that quants started looking at pricing models and expanding that to other services,” he explained.

Ultimately, concluded Trovato, quants will be built into the fabric of the organisation, they won’t be a unicorn group, but will become a whole FinQuan Tech package.