Credit & Risk Management

Credit & Risk Management Market Commentary, Q3 2014

• Article by BRUIN Financial

Credit & Risk Management Market Commentary, Q3 2014

Market Overview
With reports that Financial Services firms have enjoyed the fastest growth since 2007, it is not surprising that volumes of roles continued to rise by 20% across Q3, despite the usual delay at this time of year due to summer holidays.

As predicted at the end of the last quarter, the momentum from the banks has continued beyond the usual steady flow generated from the buy-side within Risk Management. This may be largely credited to renewed confidence and increased profits within Investment Banking, but also seems driven by the threat of regulatory pressures. The Fundamental Review of the Trading Book under Basel III, for example, has generated a significant number of positions across the banks within Market Risk, which was not a prominent area of hire over the previous quarter.

Areas such as Credit and Operational Risk have remained steady within both Investment Banking and Asset Management, and the demand for niche skill-sets across the board has continued. The niche nature of the roles in Risk Management has in the past affected the pace of recruitment; prolonging the search but also leading clients to perform extensive benchmarking exercises which provided a somewhat skewed view of the market.

However Q3 has seen a significant increase in the time to hire from first interview to offers being made, particularly towards September. Whether this is due to looming year end budgets or the threat of competition, it has certainly been positive as clients are less likely to miss out on talent, vital in a candidate driven market.
In terms of the candidate pool, Q3 has remained much the same as the beginning of the year. The market remains driven by candidates who often have the opportunity to pick and choose between institutions, particularly at the senior end. However redundancies from large banks have encouraged further movement in the market, with candidates willing to move for the prospect of stability or promotion which they believe is no longer available to them.

Perhaps a sign of the times, we have found that candidates are reluctant to make a move on the basis of a total compensation promise and this has driven base salaries up across the quarter. Consequently we have seen a 15- 20% average uplift in salary for candidates making a move and up to 25% where a candidate possesses an extremely niche skill set. This is certainly something for clients to bear in mind across the next quarter.

Role Profiles

Credit Risk:
Across Q3, opportunities within Credit Risk have continued to flow and the momentum gained in H1 has certainly continued. In Q2, we saw a focus on Counterparty Credit Analysis (on both the buy and sell side) and this has remained, with a clear demand for candidates with experience across Emerging Markets, covering both corporates and Financial Institutions.
On the sell side, demand for candidates with regional coverage experience has diminished, with a more general focus on emerging markets as a whole and language skills less pertinent to roles. We have also seen an increase in opportunities for those covering Sovereign Country Risk from an Economist background with the appropriate skill sets. In terms of level, we have seen the highest volumes across the AVP to VP bands as teams across banks in particular start to grow in numbers.

Operational Risk:
The PRA’s focus on the structure of Operational Risk functions within the banks has encouraged movement, leading to redundancies at the more senior levels as departments are streamlined. Nevertheless opportunities for strong Operational Risk candidates have remained buoyant on both the buy and sell side at all levels, with the greatest volumes at VP level and above.
By comparison to Q2, we have seen a focus on First Line of Defence operational risk positions and are now seeing clients demand specific product knowledge as well as a strong background within Risk. Candidates with previous operations experience, who make the move over to the risk world remain preferable, with a new specification for strong academics.

Market Risk:
Whilst we reported candidate willingness to move within the Market Risk area in Q2, there was not particularly high volume of roles across the first half of the year. Q3 by contrast has seen a significant increase in opportunities across Market Risk, from the mid to top tier banks, as regulatory pressures have driven the requirement for further headcount. The roles have however become more analytical in nature. Clients have wanted to see candidates with strong and specific product knowledge coupled with strong analytical VaR skills as well as the capacity to undertake regulatory project work.

Investment Risk:
Whilst volumes have decreased slightly, Investment Risk remains a popular area of hire across Asset Management. Similar to Q2, the focus in terms of role profiles has certainly been a more quantitative skill set with expert product knowledge.

Quantitative Roles:
With regards to Quantitative roles, Market Risk Methodology has remained a prominent hiring for the banks and with a small candidate pool, competition for the best candidates remains high. Candidates with the required skill set for these roles are often reluctant to exchange ‘like for like’ and are usually focused on moving towards the Front Office, so the sell of the role itself and growth opportunities are increasingly important factors.
Role profiles have essentially mirrored those of the first half of the year: excellent mathematical academics, experience of historical stimulation of VaR as well as excellent written and verbal communication skills. Whilst there is not much flexibility on the high standards set for these opportunities, clients will act fast when a strong

Over the next and final quarter of 2014 we expect to see an increased appetite to hire across Risk Management as a whole. Typically we can expect pace to slow slightly nearer to December due to the Christmas holidays, however the momentum which has been building over Q2 and Q3 is certainly set to continue

Main areas of hire will be relatively similar to that of Q3 with a focus on Credit Risk within emerging markets, Market Risk Analytics to meet PRA deliverables by early 2015, and the ongoing upscaling of the Market Risk Methodology teams within the banks.

The challenges for Q4 will naturally be the reluctance of candidates to move before year end as bonus payments are due to be made in January, heightened by the narrow pool of Risk candidates within the market. It is therefore essential that clients and recruiters focus on the sell of the role and available uplift in base salary to compensate those willing to walk away from promised bonus payments.

Whilst recruitment across Risk Management will most likely remain regulatory driven to an extent, growth will also see firms begin to focus on competing for new customers and business, which will inevitably lead to increased headcount across the board. We also expect the need to utilise existing budgets before year end will encourage both volume and pace within the recruitment landscape, which will transpire in 2015.

Temporary & Contract Recruitment
Q3 of 2014 has seen steady levels of contract recruitment across both the buy and sell side, with Banking the busiest sector.

Whilst the motivation for most hires has been difficulties in obtaining sign-off for permanent headcount, these have largely focused in the Counterparty Risk and Quantitative Modelling areas. Minimum requirements for these roles have been strong VBA and SQL with 3-5 years’ experience in the designated area, either quantitative analytics (ideally with a PhD) or counterparty risk. Maternity covers and drawn out permanent hiring processes have provided the bulk of remaining IB recruitment.

The buy side has seen weeks of very little activity and then a sudden surge, most of which has been in the operational risk field. The message has remained consistent with H1 of this year; we require an experienced hire. With further pressure from the regulatory bodies on financial institutions the margin for error is ever smaller.

We anticipate November/early December to be very busy, as companies prepare themselves for any potential headcount losses in the New Year. On the banking side we expect to see more vacancies in both operational and market risk as the economy continues to pick up momentum. Asset management will bear the brunt of the regulators shift of focus and will increase available resource in the main facets of risk; investment, operational and risk change projects.

It is as important as ever to be competitive on rates in such a candidate driven market and have the ability to move quickly, as the institution with the fastest process normally secures the candidate.