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Credit & Risk Management

CREDIT & RISK MANAGEMENT MARKET COMMENTARY, Q4 2016

• Article by BRUIN Financial

CREDIT & RISK MANAGEMENT MARKET COMMENTARY, Q4 2016

MARKET OVERVIEW

Following on from a steady Q3, job flow has unsurprisingly decreased overall in Q4 in Credit and Risk Management. This can partially be explained by the typical end of year slowdown around Christmas and professionals waiting for bonuses to be paid in the New Year, as well as uncertainty caused by the US Presidential Election and its potential future impact on Financial Services.

Areas of notable activity over the past quarter have been Quantitative Analytics in Investment Banking and Operational and Investment Risk on the buy-side, and this is likely to continue into the New Year and beyond.

As alluded to above, Q4 is a challenging time to recruit given that candidates will be waiting for the next compensation round before looking to move on. Given the lack of appetite from firms to compensate people for forfeiting their annual bonus, many are being forced to either postpone hiring process till Q1 of next year or come to agreements that they will wait for a prospective candidate to pick up their bonus before resigning.

Role Profiles

Market Risk

Market Risk Management saw an increase in the number of vacancies coming out externally in Q4, with a specific demand for exotic derivatives knowledge. Given the ever decreasing complexity of products due to increased regulation, there are fewer professionals with day-to-day experience managing the risk of these exotic products, making for a shallower candidate pool.

With the increased appetite for firms to move production functions to cost bases outside of London, Market Risk Reporting roles have been scarce in Q4 and it is unlikely that functions in this space will grow in London in future.

However, from a temporary perspective, opportunities are expected to arise in the first half of 2017 replacing professionals moving out of the space. Stress Testing remains an important focus for banks, and, given the complex and large data sets involved, firms are keen to amortise existing teams with mid/senior level hires who have hands on experience of the design and implementation of these tests.

Investment Risk

Much of the activity in Investment Risk in Q4 has been as a result of the organic growth of teams at the junior end of the spectrum. Particular demand has been for candidates with strong programming capabilities to help with multi-asset research.

Hiring at the senior end of the market has remained quiet, with most hiring taking place in the first half of the year. However if this trend is to be repeated it is fair to expect an increase in job flow at the senior end of the market in the first half of 2017.

Quantitative Analytics

Overall there has been a high demand for Market Risk Analytics candidates across the Investment Banking space in Q4. Candidates that have covered Non-Traded Market Risk models have been particularly highly sought after. Candidates have had to have covered Market Risk Models from either a design or validation perspective to secure these roles, with hiring managers having less appetite to train people into the roles given impending regulatory deadlines (FRTB being a prime example). Q4 has also seen a number of senior roles come to market in Model Validation and Governance, which have provoked significant interest from a candidate perspective. Firms are looking for candidates at this level to understand the technical content of the models and be able to advocate the strength and suitability of the models to numerous regulatory bodies. With the number of roles in this space currently, and the importance of having people in place in these functions, it is fair to anticipate that firms will look to backfill a number of positions in this space in the New Year, although given bonus considerations these are more likely to appear in Q2.

A general comment on Q4 for the quant space from an Investment Management perspective is that, following the most recent graduation round, the tendency has been to recruit at entry level with MSc/PhD candidates from high-ranking academic institutions. Those firms that have hired experienced professionals have mainly targeted VP/SVP candidates with Fixed Income asset class knowledge.

Operational Risk

From a Banking perspective, Operational Risk has been quieter than expected in Q4, but there have been roles coming to market across a wide range of seniorities particularly across the First Line of Defence. Product knowledge is becoming an essential skillset in these first line roles. A growing challenge going in to 2017 will be how Operational Risk functions interact with increasingly offshored, and in some cases in the infancy of becoming completely automated, Operations functions. The vast majority of roles in Operational Risk in Q4 have been in Investment Management at the Senior Associate/AVP level, which is where there is the greatest dearth of candidates with commensurate experience. One potential solution to the problem of a shallow candidate pool at this level could be to consider candidates from a sell-side background, however there is a historical reluctance for firms to go down this route.

Credit Risk

The appetite to hire professionals for work pertaining to IFRS9 has diminished somewhat in Q4, with many firms having completed their hiring in the previous quarters. However, with the impending 2018 deadline, we anticipate that there will be an increase in these roles from a temporary perspective to cover any last minute implementations that need to be made. The market for sell-side Credit Analysts has been quiet in Q4 but this will likely change in the New Year.

2016 Conclusions and Outlook for 2017

The geopolitically anomalous and tumultuous nature of 2016 has made Financial Services recruitment challenging over the last year. With the uncertainties created by Brexit; the lead up and immediate aftermath creating inertia in the job market, and the result of which still leaves a question mark over what the Financial Services landscape will look like in the UK after Article 50 is eventually triggered, recruitment has consequentially not been at the forefront of many firms’ minds. However, a number our clients are making positive noises about the hiring landscape for 2017, and the overall feeling is one of optimism for the coming year.

The Republican victory in the Unites States could possibly bring about a degree of deregulation (the party’s transition team have already spoken of pulling back Dodd-Frank and the Volcker Rule), which has the potential to precipitate new hiring requirements going forward. Conversely, an increase in regulations across Investment Management will likely bring with it an increased need for Risk professionals to manage this.

Overall we anticipate that 2017 will be a very busy year in Credit and Risk Management, and we are optimistic for the future.