Risk Management?
- Thread starter Zeuge
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No, risk managers are not considered quants, though some risk management groups have quants which work within them. But generally when you think of a member of a risk management group, that person is not a quant. There are a few types of risk managers. First, there are market risk managers, which is what I assume most people in this forum would be concerned with, who assess trading desks' risks to changes in market conditions. This usually boils down to monitoring greeks and VaR and ensuring certain limits don't get breached (or if they do, making sure there's a good reason for it). There's also credit risk management, which monitors the bank's exposures to its various counterparties' (normally split up between hedge funds and different types of corporates and/or different ways the bank is exposed to certain corporates) default risks. Then there is operational risk management, which is concerned with managing threats to infrastructure, IT, and stuff like that. There's also groups that look at liquidity risk so forth, though that can be part of operational risk. These last two categories I know much less about than credit and market risk. In any case, if you work in credit and market risk, you're basically an independent eye over the risks the front office part of the bank is taking and you are supposed to step in if you see them taking a bit too much risk on behalf of the bank. The front office is paid based on the revenue they produce, which is sometimes in conflict with the bank's interest of not taking a massive amount of risk, which is why risk managers, whose compensation is not as directly linked to revenue (though of course it must still be in some sense), will make sure those guys don't get out of line. New regulations may be coming into play soon-ish to tie front office compensation to some capital cost weighted revenue number, but that's not around yet and that's another conversation topic.
Anyway, I'll just assume we're talking about market risk now. To be a market risk manager, you have to be generally quantitatively oriented, so a degree in something of a quantitative nature would help. This can just be undergraduate but for certain roles groups prefer masters degrees. The pay is pretty good by most standards, but is not near the potential level of pay of the front office. In return your life is less stressful.
Hallo Zeuge,
From my experience, programming and development of software should be conducted by programmers with the aid of the risk managers themselves. However, you'll quite often find your department on a tight budget and not permissive in getting the right kind of tools to quantitatively measure the risks you are monitoring. In these instances, the risk managers must be able to improvise and find ways to monitor, measure, and model risks. I find math and statistics to be very central to what we do as risk managers, followed by programming.
From my experience, programming and development of software should be conducted by programmers with the aid of the risk managers themselves. However, you'll quite often find your department on a tight budget and not permissive in getting the right kind of tools to quantitatively measure the risks you are monitoring. In these instances, the risk managers must be able to improvise and find ways to monitor, measure, and model risks. I find math and statistics to be very central to what we do as risk managers, followed by programming.
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That totally depends on where you are working and what role you are in. All I can really speak to is what the average market risk manager in an investment bank might do on a day to day basis as that's all I've seen myself. You generally cover a handful of trading books' all from the same asset class. So if you are an FX market risk manager, you'll look at the spot books, forward books, and options books (from vanilla to exotic to really weird stuff). If you're an equities market risk manager, you'll look at different types of cash equities trading, like merger arbitrage and plain old market making, as well as derivatives books. You get the idea. Anyway you'll get in in the morning and upload the books you look at, run the greeks, run the VaR (these will be automated of course already) and make sure they are within trading limits. You'll probably also have a meeting where all the market risk managers from every asset class get together and report all of their main greek at VaR numbers. Whenever the trading desk needs to execute a trade in enormous size or a trade with odd risk (like some bespoke structure a client wants that isn't a commonly traded derivative), you'll be asked to provide a sign off on it. Whenever a trader wants to come up with a new product, you'll have to cast an independent eye on it (maybe do things like backtest, run regressions, etc.) and make sure you don't feel the risk in it is excessive. You might want to come up with some of your own ways to view risk and make your own reports for stuff for which you don't feel summary greeks and VaR really capture the risk. Anyhow, the answer to your question is, it is not a heavily programming oriented field in general, but it is definitely mathematical. However, having the ability to program helps (VBA mostly if you're working in a position as described above), but definitely not needed at an expert level unless you're looking to be a market risk quant which is not quite the same job.
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Some general warnings I feel anyone considering a job in market risk should know about working in market risk. When the trading desks are making tons of money, you will not be credited with generating that revenue stream. (Having that money sloshing around will of course make it easier for the bank to pay you, so you are always hoping the bank makes money anyway). Rather, you will probably just be looked at as something constantly blocking the way for the desks to continue printing money, as you'll always be taking your time looking at the risks of new trades before approving them, or telling traders they have to cut down on some of the risks they are running that they believe will make even more money. On the other hand, when the desks lose a bunch of money, you'll be on the short list of people to blame, because after all it was your job all along to assess the risks of the books. The management of the bank wants you to be around, but the front office would generally prefer you weren't. (At the end of the day, your function is to support the traders' revenue generation, so they look at you as another mouth to feed out of the PnL while you do something they're expected to do anyway.) Also mind what I've said about pay above - good by most standards, but not anywhere near sales/trading pay. The job is in return less stressful and you are less likely to be fired at any given moment, but if the bank starts hemorrhaging money you are under pressure and you're not untouchable. But, hey, that's life. I guess just bear those negatives in mind when considering a job in market risk along with the good things.
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In addition to the salary being stunted compared to front office, the career growth potential will be as well. Some risk managers find it very hard to get into trading oriented roles (if that is their ultimate goal) because after that first job they're forever labeled a risk manager. The upside is that risk is less risky.
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This is a broad generalization.
When most people fantasize about sales and trading comp they are considering a biased survivorship sampling coupled with significant fish tales.
I've seen the grass on both sides of the wall...
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That's true. Many fish have to die to feed one shark.
DominiConnor
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There are indeed quants in risk management, some very good ones as it happens, though the average is worrying and the variance frankly terrifying.
There is a political legacy because of how risk groups have evolved at many banks and many heads of risk are not even vaguely competent to do their jobs. Would you hire a graduate in German to manage the risk of a tiny bank that you'd never heard of ?
The head of risk who oversaw the situation where a rouge trader lost 2.3 billion at UBS recently was just such a person.
So that's consistent with most of what financeguy says, badly paid people whose work is often really mundane work where a politically adept droid with no understanding of the work is in charge.
There is a political legacy because of how risk groups have evolved at many banks and many heads of risk are not even vaguely competent to do their jobs. Would you hire a graduate in German to manage the risk of a tiny bank that you'd never heard of ?
The head of risk who oversaw the situation where a rouge trader lost 2.3 billion at UBS recently was just such a person.
So that's consistent with most of what financeguy says, badly paid people whose work is often really mundane work where a politically adept droid with no understanding of the work is in charge.
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I'm a quant in risk management, but I didn't realize that the non-quants in my group are called "risk managers".
Maybe I should update my title on my CV to say more than "Market & Credit Risk Management"? Or maybe it doesn't make a difference, since anyone who reads the content of the CV will realize I mean quant.
Maybe I should update my title on my CV to say more than "Market & Credit Risk Management"? Or maybe it doesn't make a difference, since anyone who reads the content of the CV will realize I mean quant.
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No, this is fact. There are few things that I will claim as indisputable fact and this is one of them. There are many merits to working in risk management, such as the decent hours, lower level of stress, better work/life balance, being the good guy making sure the revenue producers don't take on risk that could sink a bank and hurt an economy, etc. But to count compensation being on par with that of the front office would be lying to yourself. Obviously there is survivorship bias to the comp in the front office: you're in the hot seat, you're paid to produce revenue, those that are paid more are expected to produce more and if you don't, you're out. That comes with any job with a high salary. If you paired up each risk manager with a salesperson/trader with the same amount of experience, I would guarantee the front office employee earns more almost every time.
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How long have you spent working in the front office?
How many years have you worked directly in institutional sales? in trading?
In sales you eat what you kill - since 2008 many "species" are on the endangered list or extinct.
The broad majority of prop traders (outside of the bulge and HF crew) have no draw or salary. The attrition rate is high. Very high.
The front office is romanticized for reasons that escape me, much like vampires...
I never made the argument that the high end salaries are on par. The highest paid salesman and trader will make multiples of what the highest paid risk manager will.
I would argue, however, that the lowest paid risk manager makes more than the lowest paid salesman or trader and I would postulate that the same could be said for the mean.
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Risk management looks more stable. S&T positions are hard to survive. The desk I worked at just laid off 7 S&T persons.
Another interesting things I note is S&T employee in bank seems to have higher title than risk management side if they have the same experience. The percentage of MD/ED in front office is higher than that of middle office.
Another interesting things I note is S&T employee in bank seems to have higher title than risk management side if they have the same experience. The percentage of MD/ED in front office is higher than that of middle office.
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SimonZheng: Where exactly are you getting your information?
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I've been a trader at a global investment bank for just a few years. Before that I did a summer analyst stint in market risk management for a different bank. I'm not the most experienced person in finance, but I know my way around the trading floor.
I'm only talking about investment banks here, not chop shop trading houses or anything of the like with no salary or any of that nonsense - the kinds of places with both substantial trading divisions as well as risk management groups.
I would contend that both the mean and median salary of the salesman/trader is greater than that of the risk manager of comparable experience. (And as I said, that's fine, it doesn't make sales/trading a better job, it just highlights one of the tradeoffs you select when choosing a profession - less pay for more stability, less stress, and a better work/life balance.) We could argue back and forth all day I suppose though - any headhunters out there care to throw down actual numbers?
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Not sure about the higher percentage of MD/ED titles in front office. It always seemed to me that the distribution of titles was quite similar between risk management and front office.
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A cursory view...
http://www.glassdoor.com/Salaries/trading-analyst-salary-SRCH_KO0,15.htm
http://www.glassdoor.com/Salaries/risk-analyst-salary-SRCH_KO0,12.htm
http://www.glassdoor.com/Salaries/trading-associate-salary-SRCH_KO0,17.htm
http://www.glassdoor.com/Salaries/risk-management-associate-salary-SRCH_KO0,25.htm
http://www.glassdoor.com/Salaries/trading-analyst-salary-SRCH_KO0,15.htm
http://www.glassdoor.com/Salaries/risk-analyst-salary-SRCH_KO0,12.htm
http://www.glassdoor.com/Salaries/trading-associate-salary-SRCH_KO0,17.htm
http://www.glassdoor.com/Salaries/risk-management-associate-salary-SRCH_KO0,25.htm
DominiConnor
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Job title inflation is greater in front office
A risk person with front office experience will tend to get better career options and money.
Risk is on average more stable than trading and some of what we see in pay is survivorship bias and given that the better risk jobs are easier to get with front office experience and so pay is a path dependent issue.
But...
Be aware that there just ain't such a thing as a stable job.
Viewed afterwards some careers were clearly stable, but predicting which will be stable is beyond me and probably anyone else who is being honest with you.
The risk factors in risk careers include the bank not being there, or downsizing but also outsourcing and technology.
Is JPM going to outsource it's risk to an Indian subsidiary next year ?
Pretty damned unlikely.
But a career is decades which also allows for advances in technology and the current state of IT in risk is pretty poor, which means it's more likely that some of the vast number of reporting jobs in risk would be automated away.
A risk person with front office experience will tend to get better career options and money.
Risk is on average more stable than trading and some of what we see in pay is survivorship bias and given that the better risk jobs are easier to get with front office experience and so pay is a path dependent issue.
But...
Be aware that there just ain't such a thing as a stable job.
Viewed afterwards some careers were clearly stable, but predicting which will be stable is beyond me and probably anyone else who is being honest with you.
The risk factors in risk careers include the bank not being there, or downsizing but also outsourcing and technology.
Is JPM going to outsource it's risk to an Indian subsidiary next year ?
Pretty damned unlikely.
But a career is decades which also allows for advances in technology and the current state of IT in risk is pretty poor, which means it's more likely that some of the vast number of reporting jobs in risk would be automated away.
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These numbers don't include bonuses. The base salaries for analysts and associates are about the same between most divisions of the bank, but the front office positions receive much higher year end bonuses - even in bad years like the last three.
Just had a quick look at this glassdoor website, which seems pretty difficult to glean any real information from anyway, but here are some numbers I'm talking about. The averages shown look a bit low to me but I can see there are some weird data points (for example the 36k low end comp which is obviously wrong). In any case for a better indication of front office comp, though these seem more like 3rd year analyst numbers than 1st year associate (the averages not the outliers):
http://www.glassdoor.com/Salary/Cit...ilter.jobTitleExact=Sales+&+Trading+Associate
http://www.glassdoor.com/Salary/Credit-Suisse-Trading-Associate-Salaries-E3141_D_KO14,31.htm
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