Three useful things to know about quantitative analysts

Today's successful quantitative analysts require good communication skills, a curious mind, and a willingness to learn, says Macquarie Bank Quantitative Strategist Dr Jason Scally

Financial markets are increasingly complex. For today’s quantitative analysts, whose job is to understand and predict how financial markets perform, this is an exciting challenge that requires an ever-evolving set of skills and specialisations.

According to Dr Jason Scally, a Quantitative Strategist at Macquarie Bank, quantitative analysts are now specialist experts who have migrated into the front office. Speaking to UNSW Business School’s Dr Natalie Yoon-na Oh, Senior Lecturer in the School of Banking and Finance, Dr Scally explained the new demands of quantitative analysts, the skills they need to be successful, and the role of university education in preparing job-ready graduates.

Last year, Dr Scally and Dr Oh worked together on designing and running a course focused on industry research with an integrated learning component for UNSW Business School students. Students had the opportunity to work with a mentor in Dr Oh’s course Research Integrated Learning (I-RIL) as part of the Bachelor of Commerce. One student, Mitchell McMahon gained a spot in Macquarie Bank’s quantitatively focused equities team, where Dr Scally mentored him.

“In 2021, the student we were paired with helped us to identify a causal link between movements in US (E-Mini) Futures changes and conditional expectations of movements during the early Australian trading session," said Dr Scally. "Assigning a conditional distribution of expected price movements allows us to adjust how we skew an order's volume over the day. This results in order price improvement – and critically – allows us to meet our regulatory best-ex requirements." The specific research produced by Mr McMahon is currently progressing through the bank's processes, and Dr Scally said it is expected to be in production execution algorithms soon.

1. Quantitative analysts need good communication skills

“Financial markets are becoming increasingly complex as time goes on. The way things are connected and the responses we record are becoming even more difficult to determine. Where that leaves quant is slightly more fragmented as time goes on," said Dr Scally. “So, whereas before, we may have had generalists or desk quants, that would have done a bit of everything, now what we seeing specialist quants.”

Does this mean there are no places for generalists in finance? Not necessarily, said Dr Scally. “Small trading houses and small to medium fund managers will still need someone who can do a little bit of everything. But increasingly, it's going to be very difficult for those people to compete with someone focused on a particular target area, know a little more about that area than, and can apply their skills slightly more effectively,” he explained.

Budding quant analysts need to hone a new set of skills to keep up with this increased pace of change, so what skills should a quantitative analyst have? While they need a firm grasp of elementary math, Dr Scally said other skills (such as good communication) are more critical. “There’s no need to be intimidated. There are some specialised functions requiring quants to do some heavy stochastics maths and calculus… but that’s only a subset of quants,” he said.

“You don’t have to be great at matrix algebra; you just need to understand that there is matrix algebra, this is what it looks like when you come across it, this is the output that it uses, and this is why we need to use matrix algebra. You still can be a great quant without a really solid grasp of all the traditional ‘quanty’ subjects.”

But, as quant analysts move from the middle office into the front office, he said it is becoming increasingly important for quants to be able to ‘sell’ their skills and research and explain the importance of their findings to an audience that might not have the same numerical background.

2. The best quantitative analysts are great researchers

Speaking about his own experience at university, Dr Scally said the number one lesson was learning and practising how to apply scientific processes and reasoning to solve a complex problem. “I was coming up with questions, expectations, hypotheses and supporting research questions, and I was slowly stepping through those across my very large project,” he said.

Upon entering the industry, these skills became crucial as the problem-solving process essentially remained the same, but with shorter timeframes. “Often the problems [in the industry] are short, sharp and immediate. You've got a small number of days, someone who's waiting for this, or something is broken, we need it fixed… the problems are much shorter in duration and generally much more urgent,” said Dr Scally.

“But what you're doing is applying the same scientific process, the same scientific method; you start off by defining a problem, what levers are available, what the hypothesis is that you're trying to solve, and what techniques you're going to apply to this problem, what the outcome is going to look like, and how you're going to feed that into the model that is going to benefit from these findings and insights."

3. Quant analysts are curious people at heart

Despite this, Dr Scally said there is still a gap between the knowledge that is acquired, for example, the foundations that students learn at university, and the practical skills that are required in the workplace. But he acknowledged that this gap was closing thanks to programs like the I-RIL one run by Dr Oh at UNSW Business School.

“Academics tended to have an idea about how models and findings can be applied, whereas practitioners have tended to really be ruled by other priorities. But I do feel as though that gap – pleasantly – is narrowing as time goes on,” he said. “If we look back on the experience with the student that we worked with last year… they met all of our expectations and taught us a few things along the way,” he said.

While he says the aim of the partnership with UNSW was to give something back to the community, Macquarie Bank also gained new insights as a result. "Thinking and ideas that have been around for a while, which people are still applying are quickly becoming outdated," he said. 

“We want to bring in as much diversity, fresh ideas and fresh perspectives, but that doesn’t mean we’ll only talk to people who know something about finance. Some of the exciting solutions to problems have come from very diverse areas. That idea of taking something historical and making some assumptions about the future and giving ourselves a bit of wiggle room for all of the things that can happen in the future, that’s not unique to finance – it exists absolutely everywhere.”

In comparing what is learned in industry versus academia, is one world better than the other? “The academic and the practical world often feel as though they have an ocean between them. But really, someone who has a foot in both camps, and an understanding of the strengths and the weaknesses and limitations that exist in both, is probably in the best place. Both of those spheres are going to come together and produce something that is much greater than the sum of both of those parts,” he said.

Dr Jason Scally is a Quantitative Strategist at Macquarie Bank. Dr Natalie Yoon-na Oh is a Senior Lecturer in the School of Banking & Finance at UNSW Business School. For more information, please contact Dr Oh directly.