Role of the Quantitative Analyst

of Quantitative Hedge Fund Training

What is the Role of a Quantitative Analyst?

Put simply, the job of a Quantitative Analyst at a Quant Hedge Fund is to continuously improve the trading platform through any of the following:

  • Improving the trading architecture used to place trades;
  • Improving the signals used to evaluate trade ideas;
  • Reducing transaction costs and/or market impact;
  • Managing portfolio risk; or
  • Testing and deploying new trading strategies.

The descriptions below are representative of Quant Analyst postings; they are taken from company websites, and suggest that advanced coursework in mathematics, hard sciences (physics, engineering), economics and computer programming is essentially a requirement. The day-to-day work of a Quant Analyst will always involve quantitative research in some form, such as:

  • Reading academic literature to help ground trading strategies in theory;
  • Creating and testing a hypothesis for a given trading strategy;
  • Back-testing the strategy with existing data on an out-of-sample basis using actual transaction costs;
  • Programming and implementing the trading strategy;
  • Stress-testing the strategy to gauge environments in which the strategy may fail to perform; and
  • Creating a risk-management framework for implementing the strategy and proposing a systematic method for increasing or decreasing portfolio risk.

Representative Job Postings

Take a look of what some major Quant Hedge Funds are looking for in candidates, from sme representative job postings:

  • For employment at D.E. Shaw:  “The D. E. Shaw group offers opportunities for individuals of all backgrounds who display evidence of outstanding ability and have a track record of exceptional accomplishment. Our employees possess varying degrees of financial knowledge when they join the firm, but all share uncommon intelligence, analytical ability, and drive. As one of the world’s largest alternative investment managers, we offer a world-class technology infrastructure, a truly global presence, and numerous learning and employee development resources to facilitate the ongoing growth and internal mobility of staff. But we’re also small and nimble enough to remain deeply entrepreneurial, always looking for ways to enhance our reach with new strategies and fresh ways of applying world-class thinking and technology to the business of investment management.”
  • For a Quantitative Analyst role at D.E. Shaw:  “Quants at the D. E. Shaw group apply mathematical techniques and write software to develop, analyze, and implement statistical models for our computerized financial trading strategies. Keen insight and innovation are imperative for creating solutions for trading profitably in markets around the globe. Specific responsibilities range from examining trading data in an effort to increase profitability, decrease risk, and reduce transaction costs to conceiving new trading ideas and devising the simulations needed to test them. Successful quant candidates have traditionally been exceptionally talented students at the top of their respective math, physics, engineering, and computer science programs; a considerable number have also competed successfully in the United States and International Math Olympiads as well as the Putnam Competition. Members of our highly versatile technical staff possess the wide range of quantitative and programming abilities necessary to tackle challenging problems that are critical to the firm’s continued success.”
  • For a Senior Quantitative Analyst role at D.E. Shaw:  “The D. E. Shaw group is looking for exceptional senior quantitative analysts to join its systematic trading strategies in New York City. Candidates should have an outstanding academic and professional track record; a technical degree from a top-tier university; and a demonstrated history of developing successful quantitative models, preferably involving transaction cost analysis and/or high-frequency trading. Candidates should be innovative and analytical thinkers with strong communication skills, and should demonstrate proficiency with the numerical and statistical tools needed to develop robust signals from market data. We are looking for individuals who are enthusiastic about taking a hands-on approach and collaborating with top technical talent in a collegial, meritocratic work environment characterized by informality and intellectual rigor.”
  • For a research analyst role at Two Sigma: “Successful candidates will have a bachelor’s degree from a top university, intermediate programming skills (Java, C, or C++) and scripting knowledge (Unix or Perl), the ability to successfully tackle complex research projects, and exceptional analytical, organizational and communication skills. Candidates should possess a strong interest in finance in general, and in quantitative trading in particular. Although industry experience is preferred, we will certainly consider outstanding entry-level candidates.”
  • For a quantitative research analyst role at Two Sigma:  “We are seeking a talented quantitative research associate to join our tight-knit equity alpha-forecasting team. In this role, you will plan and coordinate the analytical and operational steps needed to establish a robust trading strategy, working alongside an integrated team of professionals across the company. Your responsibilities will include closely monitoring academic research (finance, accounting, and economics) and practitioner literature to create and refine investment ideas/strategies as well as manipulating, cleaning and analyzing large datasets with the intent to conduct bias-free simulations. In addition, you’ll be developing intuitions and ideas for predicting equity returns and communicating research progress and results on a regular basis.Successful candidates will have a bachelor’s or advanced degree in a quantitative subject from a top university and 1-3 years of experience in investment banking, equity research and/or quantitative investment research. Strong quantitative abilities and intermediate to strong programming skills (whether acquired academically or through hands-on experience) are also required. Ideal candidates will have some experience with corporate finance, accounting and trading, as well as prior exposure to European markets. Candidates must possess a strong interest in finance generally, and quantitative investing in particular, as well as a genuine interest in tackling large and complex datasets and projects. Successful candidates will be innately curious, resourceful, and well-organized and will have a demonstrable dedication to detail. Although industry experience is strongly preferred, we will also consider outstanding candidates looking to transition from post-doc or university-level faculty positions.”
  • For Research & Programming opportunities at Renaissance Technologies: “We are looking for highly trained professionals who are interested in applying advanced methods to the modeling of global financial markets. You would be joining a group of roughly one hundred fifty people, half of who have Ph.Ds. in scientific disciplines. We have a spectrum of opportunities for individuals with the right scientific and computing skills.  Experience in finance is not required. The ideal research candidate will have:
    • A Ph.D. in Computer Science, Mathematics, Physics, Statistics, or a related discipline
    • A demonstrated capacity to do first-class research
    • Computer programming skills
    • An intense interest in applying quantitative analysis to solve difficult problems

    The ideal programming candidate will have:

    • Strong analytical and programming skills
    • An In depth knowledge of software development in a C++ Unix environment”

  • For employment at AlphaSimplex: “We believe that the most valuable asset of any business entity is its human capital. Therefore, we are committed to attracting and retaining the most talented and highly motivated individuals seeking a career in quantitative investment management. We are always prepared to recruit uniquely qualified individuals.  Most AlphaSimplex personnel have advanced degrees in statistics, mathematics, physics, operations research, or computer science. However, we are more interested in raw talent than in pedigree. We are particularly interested in individuals with graduate training in the following fields and who may be considering a career change (no prior experience in the financial industry is necessary):
    • Statistics
    • Electrical Engineering
    • Computer Science
    • Experimental Physics
    • Operations Research
    • Bioinformatics
    • Accounting
    • Cognitive Neurosciences”

  • For an SQL Server and C# Developer role at PanAgora:“The developer will work in a small team that builds research, implementation, attribution, and risk reporting systems, dedicated to the Multi-Asset business unit. Given the use of the software, our designs focus on speed, reliability, and the efficient processing of large data sets. Integration of vendor data is a recurring task, so familiarity with vendor databases and their related technologies is preferred. The group manages a variety of quantitative investment strategies; our applications and processes are data-centric. Our scope is global.

    The developer will have autonomy commensurate to his/her abilities. Knowledge of a spectrum of financial instruments is a must. Knowledge of quantitative and statistical techniques in portfolio construction and risk management is preferred. The successful candidate will be expected to complete the Series 3 examination.  Typical Responsibilities include:  Implementing (coding) the technical solutions using Microsoft SQL Server / Enterprise Manager, Microsoft Visual Studio 2010 and related technologies: WPF, EF, TFS, VSTO and Winforms. C# is preferred to VB.Net. Undergraduate degree in Computer Science, Engineering, Math or related field required. Requires 5+ years of professional SQL Server development experience.”

  • For employment at HBK: “HBK is seeking world-class individuals to join our technology, trading, analysis, and financial teams. Candidates come from a wide range of educational backgrounds, including economics, computer science, and mathematics. All successful candidates will possess a track record of academic excellence as well as: exceptional quantitative and analytical skills, excellent communication skills, the ability to work well in a team-oriented environment, and a strong interest in the financial markets.”
  • For a portfolio manager/researcher role at Acadian: “The Portfolio Manager/Researcher will spend most of their time in three areas: 1) Research involving long/short equity strategies, 2) Management of long/short equity portfolios, including improvements in the implementation of our forecasts of risk, return and portfolio construction, and 3) Marketing and client service, including presentations to Acadian’s global client base.  The Portfolio Manager/Researcher should have 5 or more years of experience conducting quantitative investment research and managing long/short equity portfolios. In addition, the position requires:
    • New ideas on how to add value in the context of a quantitative investment process
    • Expertise in some area related to equity investing, preferably in the mis-pricing of risk and return
    • Consistency with Acadian’s structured and disciplined investment philosophy
    • A willingness and ability to work in a collegial, result-focused environment
    • Knowledge of some analytical, statistics, programming or database tools; examples – Matlab, MySQL, SQL, SAS, R, Python”

  • For a generic trading position: “NYC Hedge Fund is seeking an IRD Trader with a quantitative background to assist in the daily running, analysis and execution of their Interest Rate Derivatives books. Previous 1-2 years related experience a must. Candidate must have a solid quantitative background with understanding of mathematical concepts. Must have strong communication skills, as client contact is required.  This is a great opportunity with a path toward being a trader working with his own book. Competitive base and discretionary bonus.”

Quant Analyst Compensation

Unlike with analyst and associate classes at investment banks, Hedge Funds have a compensation structure that is varied across the industry, with no homogeneity in base salaries (although base salaries at banks and private equity firms will clearly influence the base salaries at Hedge Funds, given a competitive hiring landscape for financial talent). As with investment banking, as one gains more experience, one’s compensation increasingly comes from a discretionary bonus, which is heavily influenced by the amount of incentive fees a fund earns. This, in turn, is tied (to a large degree) to the Hedge Fund’s overall annual return.   However, it is possible that federal regulations may limit the cash portion of bonuses that can be paid, resulting in higher (all-cash) base salaries at investment banks and commercial banks; this could cause Hedge Fund salaries to rise from current levels.  There is a move to increase the portion of year-end compensation that is deferred; moreover, more senior Hedge Fund employees may be required to invest a portion of their bonus back into the fund.

Surveyed estimates as of October 1, 2011 from Glocap, a Hedge Fund search firm, based on input from Glocap recruiters, fund managers and industry professionals showed the following:

  Base Bonus Total
25th Percentile $85k $90k $175k
Average $100k $130k $230k
75th Percentile $115k $170k $285k
2011 Anticipated Compensation for Level 1 Investment Professionals at Middle-Performing Hedge Funds*

*NOTE: Average fund return was 3.11% as of Q3 2010.

Glocap’s survey notes that while a firm’s investment performance has minimal impact on the base salaries it pays, funds that continually perform well tend to pay higher base salaries over time.  With regard to total compensation (base + bonus), fund performance and fund size are the most critical factors affecting overall compensation for more senior investment professionals; for more junior investment professionals, however, fund size is the primary determinant of compensation, with fund performance having less of an impact.

As with banking, compensation at Hedge Funds is role-specific; however, because there is little to no discretionary trading involved in those funds employing quantitative trading, the lines between “head trader” and “analyst” become more blurred. Thus at Quantitative Hedge Funds it’s quite possible for star  Quants to earn incomes that rival those of top-flight traders.

Consider this posting for a “Data Programming” role at Renaissance Technologies as an example:

“We are looking for bright, outstanding programmers who are interested in working in a stimulating and academic environment to implement and support software used in systematic trading. You would be joining a group of roughly one hundred fifty people, half of whom have Ph.Ds. in scientific disciplines. We have a spectrum of opportunities for individuals with the right skills and aptitude.

…Total expected first-year compensation will range between $125,000 and $250,000, depending on background and experience. …

The ideal candidate will have:

  • Bachelor’s, Master’s, or Ph.D. in Computer Science, Mathematics, or Physics
  • Excellent academic record
  • Strong analytical and programming skills
  • Experience with software development in a C++ Unix environment

We offer:

  • Extremely high compensation
  • On-the-job training in finance and technical trading
  • Intellectually vibrant work atmosphere
  • Beautiful offices and facilities on our Long Island campus”
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