Comments on: The Future of a Finance Job http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/ Basab Pradhan's weblog about business and life in a 'flat world'. 6 AM Pacific is the best time for a global conference call. Tue, 06 Jan 2009 21:30:26 +0000 http://wordpress.org/?v=2.7 hourly 1 By: Bharat Rao http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15221 Bharat Rao Mon, 13 Oct 2008 12:37:50 +0000 http://6ampacific.com/?p=205#comment-15221 It seems to me that we've had an excess of algebra and calculus and not enough common sense scenario planning and basic controls. Sub-prime mortgages are supposed to be at the root of this. The delinquency rate is supposed to be 6% or thereabouts. Algebra and Calculus helped smart investment bankers construct CDOs where the super senior tranches were supposed to be super safe with AAA ratings. The concept is simple enough - the first delinquencies hit the lower tranches so the senior ones get hit only when the default rate is really high or so the theory goes. But did no one foresee that the senior tranches might lose their pristine ratings once lower tranches actually started losing? And that this would trigger a sell-off and a downward spiral? Or did the boring operations guys in back office see it only to get shouted down? See http://www.economist.com/finance/displaystory.cfm?story_id=11897037 More Complex math anyone? Sure - we'll continue to need that in niche areas. But hopefully demand for plain-speaking, forceful, common-sensical guys who look at the big picture and connect the dots will go up also. It seems to me that we’ve had an excess of algebra and calculus and not enough common sense scenario planning and basic controls. Sub-prime mortgages are supposed to be at the root of this. The delinquency rate is supposed to be 6% or thereabouts. Algebra and Calculus helped smart investment bankers construct CDOs where the super senior tranches were supposed to be super safe with AAA ratings. The concept is simple enough - the first delinquencies hit the lower tranches so the senior ones get hit only when the default rate is really high or so the theory goes. But did no one foresee that the senior tranches might lose their pristine ratings once lower tranches actually started losing? And that this would trigger a sell-off and a downward spiral? Or did the boring operations guys in back office see it only to get shouted down? See http://www.economist.com/finance/displaystory.cfm?story_id=11897037
More Complex math anyone? Sure - we’ll continue to need that in niche areas. But hopefully demand for plain-speaking, forceful, common-sensical guys who look at the big picture and connect the dots will go up also.

]]> By: Prakash http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15208 Prakash Sat, 11 Oct 2008 14:29:24 +0000 http://6ampacific.com/?p=205#comment-15208 Both deregulation and consolidation are likely to play a major role in changing high finance jobs. Professionals who can move out of their siloed areas expertise and think out of the box would benefit. Eg. If an Insurance company has got acquired by a bank, how can newly created synergies be exploited? Change management abilities would be sought after and risk management professionals would be in greater demand. Both deregulation and consolidation are likely to play a major role in changing high finance jobs. Professionals who can move out of their siloed areas expertise and think out of the box would benefit. Eg. If an Insurance company has got acquired by a bank, how can newly created synergies be exploited? Change management abilities would be sought after and risk management professionals would be in greater demand.

]]> By: Basab http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15195 Basab Thu, 09 Oct 2008 02:45:37 +0000 http://6ampacific.com/?p=205#comment-15195 Akhil, Our target user at Gridstone is anyone who does company research. There are lots of folks outside of capital markets who research public companies. In capital markets we have a differentiated strategy which we hope will help us win share even in these troubled times. In general, any company selling into Capital Markets will feel the pain. Correction - I should have said, will feel the pain more than other companies. After all, we are talking about a recession across developed markets. Everyone will feel the pain. Akhil,

Our target user at Gridstone is anyone who does company research. There are lots of folks outside of capital markets who research public companies. In capital markets we have a differentiated strategy which we hope will help us win share even in these troubled times.

In general, any company selling into Capital Markets will feel the pain. Correction - I should have said, will feel the pain more than other companies. After all, we are talking about a recession across developed markets. Everyone will feel the pain.

]]> By: Deepak Shenoy http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15193 Deepak Shenoy Wed, 08 Oct 2008 21:04:44 +0000 http://6ampacific.com/?p=205#comment-15193 Very true, Basab. A lot of stat-arb fundas just die in this kind of market - and we can see how that's hit the likes of Citadel. But those jobs are not going away - and neither is stat-arb or any kind of market-neutral strategy, because they still provide the "perception" of lower risk. While prop books die and leverage dwindles, the MBAs are going to take anything they get. So I'm likely to see reports on how the put-call parity in rangebound markets statistically tends towards the mean unless it crosses the 2-SD level. Or something like that which is phenomenally awe-inspiring, and someone is going to pay for it or give someone their portfolio to go earn the megabucks. It's going to be fun, the next two years. If we get a good bond market, convertibility and exchange traded credit derivatives, there will be a lot of MBA jobs. Very true, Basab. A lot of stat-arb fundas just die in this kind of market - and we can see how that’s hit the likes of Citadel. But those jobs are not going away - and neither is stat-arb or any kind of market-neutral strategy, because they still provide the “perception” of lower risk.

While prop books die and leverage dwindles, the MBAs are going to take anything they get. So I’m likely to see reports on how the put-call parity in rangebound markets statistically tends towards the mean unless it crosses the 2-SD level. Or something like that which is phenomenally awe-inspiring, and someone is going to pay for it or give someone their portfolio to go earn the megabucks.

It’s going to be fun, the next two years. If we get a good bond market, convertibility and exchange traded credit derivatives, there will be a lot of MBA jobs.

]]> By: Brij Shah http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15192 Brij Shah Wed, 08 Oct 2008 14:43:27 +0000 http://6ampacific.com/?p=205#comment-15192 Hedge fund model will be definitely under pressure after the storm settles down. Money might start moving into traditional investment managers, the Fidelitys and PIMCOs of the world. Leverage ratios will have to come down at Hedge funds and they will have difficulty generating the out-sized returns and fees of the past. Hedge fund model will be definitely under pressure after the storm settles down. Money might start moving into traditional investment managers, the Fidelitys and PIMCOs of the world. Leverage ratios will have to come down at Hedge funds and they will have difficulty generating the out-sized returns and fees of the past.

]]> By: Akhil http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15191 Akhil Wed, 08 Oct 2008 11:47:43 +0000 http://6ampacific.com/?p=205#comment-15191 Would love to learn how all this impacts a business such as yours? Or any other that relied heavily on the high end finance space (IT services for that matter)? Impact on growth/bottomline/investor expectations? Rethink in strategy? Would love to learn how all this impacts a business such as yours? Or any other that relied heavily on the high end finance space (IT services for that matter)? Impact on growth/bottomline/investor expectations? Rethink in strategy?

]]> By: Krishna http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15174 Krishna Tue, 07 Oct 2008 01:50:41 +0000 http://6ampacific.com/?p=205#comment-15174 Basab, Why do you think Warren Buffet said "If Calculus or Algebra were required to be a great investor, I'd have to go back to delivering newspapers" ? The single biggest fallacy propagated by B-school curriculum is that the relative efficiency of markets are amenable to predictability thro algebraic models. Their redundancies (especially the emptiness of VAR calculations) have been exposed time and again and still those hollow theories continue to figure prominently in B-School syllabus, unmodified. How else do you think the word `toxicity' creeping into structured finance :-) Basab,

Why do you think Warren Buffet said “If Calculus or Algebra were required to be a great investor, I’d have to go back to delivering newspapers” ?

The single biggest fallacy propagated by B-school curriculum is that the relative efficiency of markets are amenable to predictability thro algebraic models. Their redundancies (especially the emptiness of VAR calculations) have been exposed time and again and still those hollow theories continue to figure prominently in B-School syllabus, unmodified.

How else do you think the word `toxicity’ creeping into structured finance :-)

]]> By: Christian Debt Consolidators http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15166 Christian Debt Consolidators Mon, 06 Oct 2008 17:12:29 +0000 http://6ampacific.com/?p=205#comment-15166 Are we going to bail out everyone now? These economists seem to know what the hell they are talking about, however not one of them predicted this mess. Are we going to bail out everyone now? These economists seem to know what the hell they are talking about, however not one of them predicted this mess.

]]> By: Basab http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15165 Basab Mon, 06 Oct 2008 16:14:38 +0000 http://6ampacific.com/?p=205#comment-15165 Krishna, "that calls for significant reduction in weightages for complex algebra and calculus" IMO that would be a mistake :-) Krishna,

“that calls for significant reduction in weightages for complex algebra and calculus”

IMO that would be a mistake :-)

]]> By: Krishna http://6ampacific.com/2008/10/05/the-future-of-a-finance-job/comment-page-1/#comment-15164 Krishna Mon, 06 Oct 2008 08:32:06 +0000 http://6ampacific.com/?p=205#comment-15164 Yes. Finance industry has long been putting up with too much mediocrity - just like tech sector of yesteryears when anyone who could spell `code' got a job. But those hoi polloi needn't worry for some time, up until Hank Paulson's bailout plan is executed. The irony is, Paulson will not be able to find *clean* asset managers to run this (the bailout auctions) that don't already have distressed assets on their own books; there's simply no one else to do it. Hiring people to fix the very problem they helped create will be an issue though. It makes room for B-School syllabus to be revised to include lessons from this era of hard knocks - that calls for significant reduction in weightages for complex algebra and calculus and load in more of common sense diktats like `never allow mismatches of long:short maturities or that of asset-liability'; never keep an asset off balance sheet if it is paid for out of recognized income, Leverage should be restricted to the extent of reasonable multiples of underlying asset etc...! I agree with you in the structural changes that will sweep Wall Street. Yes. Finance industry has long been putting up with too much mediocrity - just like tech sector of yesteryears when anyone who could spell `code’ got a job.

But those hoi polloi needn’t worry for some time, up until Hank Paulson’s bailout plan is executed. The irony is, Paulson will not be able to find *clean* asset managers to run this (the bailout auctions) that don’t already have distressed assets on their own books; there’s simply no one else to do it. Hiring people to fix the very problem they helped create will be an issue though.

It makes room for B-School syllabus to be revised to include lessons from this era of hard knocks - that calls for significant reduction in weightages for complex algebra and calculus and load in more of common sense diktats like `never allow mismatches of long:short maturities or that of asset-liability’; never keep an asset off balance sheet if it is paid for out of recognized income, Leverage should be restricted to the extent of reasonable multiples of underlying asset etc…!

I agree with you in the structural changes that will sweep Wall Street.

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