Chief Executive of HedgeSPA Dr. Bernard Lee, was in the Wilmott Magazine Cover Story, “Life on Venus”.
The background for the article is the interview of Dr. Lee and five other financial industry hiring managers and senior professionals on the state of education in Asia. The article is addressing how graduates from regional programs in quantitative finance are meeting the hiring expectations of financial institutions and financial services firms that are actively recruiting in the region.
Find out what HedgeSPA CEO thinks of the topic here.
Lee is a believer that the wider adoption of quantitative finance in Asian institutions is just a matter of time, although how long that will take to come into effect is subject to a number of massive obstacles. But the overarching determinant is the power of the balance sheet. Lee doesn’t see it as a difference between occidental institutions having an elevated view of quantitative finance in comparison to Asian counterparts.
“It has little to do with Asian based as opposed to North American based or European based. Basically, the financial products are created based on 1. Investable wealth 2. Customer needs and 3. Balance sheets. For instance, there is not much of an interest rate derivatives market in Asia because most Asian governments have a limited need to borrow. From marginal players, Asia-based private banks become major players all of a sudden because of the perceived safety of their balance sheets to hoard cash by ultra-high net worth individuals. Sooner or later one may expect a similar sea change in the derivatives market and therefore the evolving roles of quants among Asian institutions.”
Why do we have all this interest in the Asian derivatives sector?
“Because some derivatives contracts are backed by Asian banks, and most of these Asian banks are to some extent backed by governments. So, with a government owned bank you are pretty much sure that, depending on the quality of the government, the government will back that bank no matter how poorly that bank is run. I think over time what you will see is that a lot of these things are going to be about balance sheets, whichever banks have a decent balance sheets eventually will be able to build up that kind of business.”
Bernard Lee draws the strands together. “I think the more practical issue is that more significant credit derivatives markets need underlying reference bonds, in most Asian countries, you do not have much of a reference bond market. So, that’s the core problem to begin with. Where there are bonds, typically, depending on jurisdiction, there tend to be a lot of issues as to who are holding the bonds and whether there is sufficient flow in the open market to facilitate active trading.
Bernard Lee, in his capacity at the Singapore Management University, is well placed to fill in the blanks. “With the exception of one or two programs which we have hired from,” Lee says wryly when reflecting on regional graduates, “what is typical is that there is still a tendency to approach financial modeling like physics; a lot of regional graduates have wonderful and exceptional mathematics skills. Now, let’s just say you have a typical trading problem starting from the input of data, through computing the data all the way to execution, that’s 100 percent of the problem. What we notice with a lot of the graduates that we have interviewed is that some of the regional programs have the tendency to focus on maybe only the 10 to 20 percent in the middle; what you might call the most mathematically interesting piece and they do go very deep into it. However, to most employers with a genuine need to hire, you just don’t want to hire someone who would have to be assisted by three different programmers – say, one handling the input data, and one handling scrubbing, and another on the trading interface. You only want one person who has strengths but with a little bit of balance. What we want is that balance.”
“Most importantly, how do you handle some of these situations when things are not entirely mechanical,” Lee continues, in his capacity as a hirer, “like for instance, in the absence of perfect data – which happens a lot when you are dealing with implied volatility when models are only a crude approximation of how volatility is actually traded. People have to be smarter, have to be aware of the limitations of models, or be able to perform modeling in the context of how the financial markets actually operate. Just to give you a scale of the size of our operations, we have several hundred applicants now, and we pretty much have the luxury of interviewing every strong candidate in town. Most of the time when we interview candidates we just give them real trading problems to solve. The kind of responses we’ve been getting are a little less than impressive; it’s just difficult to hire good people in Asia.”
Lee feels that this issue has much to do with a debate in academia that was very much alive in the 1990s, as to whether academic finance people should start doing something different from the sort of research going on in industry.
“By 2000, the field is driven by experts like Ken Singleton and Darrel Duffie, etc. All these guys are very successful, not only in academia, but also in the industry. From those programs, you end up teaching people who actually understand not just theory but how it is applied. I would say unfortunately, you don’t see similar bench strengths in Asia at all. It comes down to how people are being trained and who’s doing the training.”
The full story is available from the Wilmott subscriber site:
http://www.wilmott.com/magazine1205.cfm
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