The Q1 2019 edition of the Market Commentary for Credit, Risk and Quantitative Analytics was due to be the first with the UK no longer in the European Union. It was to be written in the wake of a deal (or no deal) having been struck with the EU about our withdrawal, and future relationship with the trading block, and with clarity on how the UK positions itself on the world economic stage. Clearly this is not the case, and we will be exiting the first quarter in a similarly uncertain situation as 2018 drew to a close.
By now, the overwhelming majority of Financial Services firms have made their preparations for the various scenarios that could present themselves when the UK leaves, and any hiring/reallocation of resources that comes with them. However, the impasse in Westminster makes it very difficult to act on these plans. From a hiring perspective, we have seen this have a significant effect on the senior end of the market, with fewer external opportunities presenting themselves for senior candidates. Year on year across our areas of coverage, the number of mandates received at manager level or above fell by 15% in this quarter, as firms either promoted into these roles from within and backfilled at a more junior level, or put them on hold indefinitely.
From a variable compensation perspective, Q1 brought its usual mix of candidate reactions to receiving their bonuses. The general consensus was that standing still is the new moving forward in what is currently a challenging market. As is often the case, a lack of transparency on bonus criteria or reneging on previous agreements proved to be the biggest bones of contention for candidates. We continue to advise firms to make their variable comp structure as transparent as possible
From a sell side perspective, the bulk of Operational Risk hiring has been at junior VP level. Firms are looking to the external candidates to bring new ideas to the table on how operational risk should be measured and mitigated against, and also to bring experience which encompasses multiple lines of defence. Where this works well from a candidate perspective is it gives candidates who work within smaller firms the chance to take a step up in organisation size, and also candidates who are more junior in large organisations the chance to work in broader roles in smaller organisations. Given the top-heavy nature of many existing operational risk functions, and the appetite for firms to promote into roles vacated by senior leavers, there has been a dearth of more senior roles in the market in Q1, however this could change as bonuses begin to hit bank accounts over the coming weeks.
From a buy side perspective, we are seeing a number of our asset management clients looking to mirror the operational risk setups of banks. As such, we have seen high demand for candidates with experience rolling out risk and control self-assessments for firms. This in turn has given many banking candidates the long-awaited chance to move into buy-side firms, either internally into the banks’ asset management business or externally. Within the contract space, ops risk junior candidates at the analyst level with 2 years experience have been in demand, and at the senior end clients have been adding ops risk change professionals.
Cyber Security / Technology Risk
Cyber Security remains an area of high demand as firms continue to build out their functions. The contract market in this space is buoyant at the senior end, and in line with other verticals, we are seeing that candidates in this space are being asked to “dual-hat” across responsibilities, in this case BAU and Change based. One notable challenge we have faced this quarter has been around producing diverse shortlists for candidates at the mid-senior end of the market, as there is a dearth of available diverse candidates in this area.
Cyber Security and Technology Risk Consultant David Lewis attended an industry conference around the landscape of cyber crime and how this could affect financial services firms moving forward. One potential trend that we may see moving forward will be the alignment of cyber security teams and quant teams within firms, as firms tackle cyber sec issues with machine learning and artificial intelligence solutions.
The market for Investment Risk professionals in Q1 maintained a year-on-year buoyancy, with firms recognising the importance of a strong risk culture supporting portfolio managers and traders. Firms have started to split their Investment Risk responsibilities across first and second lines of defence, similar to Operational Risk functions. Senior Risk Managers at the level below ‘head of’ have been in most demand across all asset classes but predominantly Equity/MA have been busiest. The obstacle here is most candidates at this level are suitably established in their current organisation and therefore not looking to move unless the step up to ‘Head of’ is on offer. So attracting candidates to these roles has proved challenging, with clients rarely inclined to bring in exceptional candidates at the lower level wanting a step up in responsibility.
Fixed Income proved to be the most in demand product skill set, with roles across a range of seniorities commanding knowledge of products in this asset class. Hiring within the IB space in London has been mainly concentrated within the “Tier Two” banking institutions that are looking to strengthen functions, as the larger IBs have either been consolidating or looking at hiring in Europe.
One trend that has become apparent at the junior end is for Market Risk candidates to seek to move into more quantitative roles. Juniors in Market Risk teams tend to have more production-based responsibilities compared to their seniors who will be facing off to traders, and these candidates are falling back on their advanced numerical education, combined with independent learning of object-oriented programming, to explore roles in data science and quantitative research.
Quantitative Analytics / Research
On the sell side, hiring in the Quant Analytics space was mainly concentrated at the junior end of the market. Competition amongst candidates at this end of the seniority spectrum is strong, with firms tending to focus on core maths and programming skills, as well as desire and capacity to learn new concepts quickly, at interview, rather than specific asset class or model knowledge.
Hiring into the front office on the sell side was relatively quiet in Q1, with many banks looking to consolidate hiring completed in Q4. With the majority of firms having now paid bonus, it is anticipated that hiring appetite will increase in Q2 as firms look to replace those that move on.
From a buy side perspective, the Quant market remains buoyant, as ever-growing numbers of investment firms seek to take a more systematic approach to their craft. Candidates from quantitative strats/investments backgrounds are now being courted by firms who have traditionally been fully discretionary in approach, and this is only likely to continue moving into Q2 and beyond.
The credit space in Q1 has seen significant demand for leveraged finance and FIG professionals at the junior end of the market. IBs continue to see this as an area of growth. The majority of the hiring appetite elsewhere in the credit space has come from the Fintech sector, with firms looking for candidates who have experience in assessing credit worthiness of SMEs and individuals.
A noticeable trend is Q1 in the Credit space has been for candidates at the senior end of the market to say to us that the scope of their roles in London have been significantly curtailed due to restructuring. We have also seen an increase in the number of roles between analyst-manager levels within the UK regions. Whether these two things are interlinked is difficult to say, and it will be interesting to see if the trend continues into Q2.
It’s been a busy start to the year across Risk recruitment in Europe, particularly across the Investment Risk space. We have been working successfully across a lot of Investment Risk Analyst and Manager level positions focusing on alternatives and Private Equity and it appears those candidates are in high demand across the Luxembourg market especially, within Asset Management firms. We are seeing a lot of activity in other areas too such as Paris, Frankfurt and Belgium, often within either the Credit Risk or Operational Risk space at a Senior Manager level. Large Investment Banks in these regions are in high demand for candidates within the First Line of Defence and teams seem to be expanding significantly across this area and a lot of these types of roles come with travelling to other locations to meet with senior stakeholders.
One trend which has become more apparent in this quarter has been an increased tendency for candidates who don’t have any personal ties to Europe to ask if we have opportunities on the Continent. This is perhaps indicative of a scaling down of responsibilities within London roles, or alternatively a result of the uncertainty surrounding Brexit. Nevertheless, London’s loss could stand to be Europe’s gain moving forward.
DIVERSITY IN RISK
BRUIN recently hosted a breakfast seminar on the representation of BAME professionals (Black, Asian and Minority Ethnic Groups) in Financial Services, which generated some important and thought-provoking discussion. We were delighted to be joined by Richard Thompson, Head of Investment Risk at Merian Global Investors, as a panellist who shared some of his own experiences and insight into the challenges financial services need to overcome to ensure a more inclusive environment. Representing BRUIN, Tim Holbrough some strategies for sourcing diverse talent and what employers can do to remove barriers to workplace progression for ethnic minorities.
For more information on this seminar or similar events, please contact one of our consultants.