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Credit & Risk Management

Credit & Risk Management Market commentary, Q1 2015

• Article by BRUIN Financial

Credit & Risk Management Market commentary, Q1 2015

MARKET OVERVIEW

Despite slowed growth in Q4, uncertainty within the Eurozone, and the upcoming political election, 2015 has shown considerable promise for both the economy and the financial services sector. Growth predictions for UK GDP have increased to 2.7% and with the looming interest rate increase delayed to 2016 we can expect to see a continuation of market and investment activity.

The beginning of Q1 showed excellent promise for the Risk recruitment market, as the roles flooded in throughout January and February. Similar to Q4 of 2014, we saw the banks driving the hiring race and strong indications of larger budgets for Risk hires this year. Prominent areas of hire were Market Risk and the Quantitative space, continuing the trend seen in 2014.

Whilst the buy side has not demonstrated quite the appetite to hire as its counterpart, there have still been signs of growth. Roles within this space have been focused towards Investment Risk as teams expand but also the creation of stand alone Operational Risk roles, as pressures from the regulator force smaller houses to demonstrate more defined functions.

In addition to increasing volumes of roles, Q1 demonstrated a transformation within the candidate pool as candidates became very proactive when seeking new opportunities. As mentioned in our previous commentary, the January bonus period acted as far less of a deterrent than previous years, with candidates extremely receptive to initial conversations.

Despite this transformation, the Risk market still remains extremely candidate driven and the increase in volumes of roles has encouraged further competition within the market. As a consequence, candidates will often find themselves being approached regarding similar roles at numerous institutions at any one time. This almost places power within the candidates hands fuelling demand for higher salary uplifts (20-25%+). Moreover a need for clients to act quicker from point of receiving CVs to offer is now necessary to remain competitive.

Finally, Q1 also saw an increasing trend of counter offers within the recruitment market which has emphasized the real need for proactive candidate management amongst agencies. This again is a reflection of the competition in the market as businesses are extremely reluctant to lose headcount and initiate the hiring process for replacement candidates.

ROLE PROFILES

Market Risk

Q1 has demonstrated a significant growth across Market Risk. We have seen a real need for strong analytical skills surrounding VaR as well as regulatory measures such as IRC and Economic Capital. This has become a fiercely competitive area of hire due to a lack of candidates with such specific regulatory and technical skill sets, alongside the demand from many Investment Banking clients. The other main area of focus across Market Risk has been for product specialists; Interest Rates and Exotics product knowledge has been highly sought after for more Front Office Market Risk positions.

Investment Risk

Following on from a buoyant Q4, the number of roles within Investment Risk has continued to increase during Q1 with this being a main area of hire. We have seen a trend towards first line of defence Investment Risk teams and imbedded risk managers. Roles have remained specific to a particular asset class overall with a focus on Multi Asset Funds at many houses. Specific system skills have also been key, particularly across Equities focused positions.

Credit Risk

Credit Risk seems to be a steady area of hire and so far this quarter we have seen a number of roles across different sectors/specialisms.  Leveraged Finance has been one area of focus due to the increasing regulatory burden, with the PRA expected to follow in the footsteps of the US Fed this year to make changes to leveraged lending on the sell side.

In comparison to 2014, we have seen a decline in Emerging Market focused roles yet an increase in Country Risk positions where banks look for a strong Economist background teamed with adequate credit and modelling skills. Other more sporadic areas of hire have been Financial Institutions Credit Risk and multiple corporate sectors across the Ratings Agencies. Whilst the Ratings Agencies remain focused on language requisites. this has become less pertinent to roles within banks where concise report writing skills have become more of a priority.

Credit Research

Credit Research has certainly not reached the peaks anticipated in Q1, with fewer positions available in the market in general. The opportunities which came to market were at the more junior levels and more generalist in terms of sector coverage, even if biased towards the high yield space. The 2-3 years’ experience level has proven a significant challenge with regards to candidate attraction as many candidates are settled in their current institution at this point in their career and reluctant to leave behind both the time invested and steep learning curve which still lies ahead.

Operational Risk

Whilst we are aware that many of the Investment Banks have made redundancies at the very senior end of Operational Risk, that has opened the door to roles at the mid level (VP). The main volume of roles seen has been across the FLOD with knowledge of particular business areas or products favourable to each role.

On the buy side, we have seen a steady pace of Operational Risk roles. There has been a  trend towards stand alone Operational Risk roles where strength of character and a level of experience and gravitas within a business are pivotal.

Quant Risk

The Quant space saw significant increase in headcount across 2014 within the banks and this has seemed to continue throughout Q1 of this year. Whilst the volumes may be similar, the focus within Quantitative hiring has altered for 2015. We have subsequently seen a decline in hires across both Model Validation and Model Risk Audit which were prominent in 2014 and growth across other areas such as Market Risk Methodology at the AVP Level in particular, CVA/XVA Analytics and further Credit Risk Quant Analytics.

Market Risk Methodology in particular has been a main area of hire and due to the sheer lack of candidates in the market in this area, as such teams are relatively new, competition has been fierce between Banks and Agencies in sourcing candidates. As a result we have started to see some flexibility with regards to the level of experience of candidates and some consideration for those with impeccable Quantitative degrees from top Universities who have been working in a technical area such as Market Risk yet to ascertain a Quantitative role. This is also similar in the CVA space where flexibility in level has also been apparent.

TEMPORARY & CONTRACT ROLES

Market Risk
Having seen a steady flow of roles in this space over the past 6 months we can conclude that not only has there been additionally headcount hires but also movement across the top tier firms. Generally these have been at the senior AVP or VP level which suggests firms are still pushing for experienced hires which in turn is making the market very competitive.

Credit Risk
Hires have been more on the risk reporting side due to the understandable affinity for permanent hires across the rest of credit risk. These have been at the AVP level and the institutions have had to move quickly to secure candidates.

Quantitative Analytics
Roles in this space have been methodology focused with a view to find candidates at the subject matter expert level. There seems to have been a big push on SQL, Python and C++ programming skills.

Operational Risk
The highest volume area so far this year with a number of roles with varying points of focus from; FO, third party providers, operations control and IT security. With a large proportion of opportunities coming from the buy side most have desired asset management experience. This however has been in high demand across the board therefore many firms have been encouraged to widen the net to consider banking and audit backgrounds.

PREDICTIONS

We expect Q2 to prove a busy quarter and anticipate the main areas of hire on the Sell Side to be Market Risk and the Quantitative space. Investment Risk will continue to be a focus across our Investment Management clients. Whilst volumes are likely to be generated predominantly by the Investment Banks, with continuing pressures of MIFID II over Investment Management this year, we may see a larger focus on Risk hires throughout the Buy Side during the quarter.

We also predict a counter offers to continue as well as increasing competition within the market to attract the best candidates. This increased competition will no doubt, as witnessed in Q1, continue to drive higher salary uplifts although we do not expect this to exceed 25%-30%. The recruitment process has certainly started to move faster this year with clients aware of this competition and with specific hiring needs as very much the priority coming into the new year; we expect this to remain similar throughout not only Q2 but throughout the rest of the year.