Where is the talent on Wall Street? According to Ram Ahluwalia, a former Senior Vice President at Bank of America-Merrill Lynch, you might not find it in familiar places.
"Increasingly, I see more talent flowing into the alternative investments space rather than traditional equity-only, long-only, or long fixed income buy-side firms," Ahluwalia told StreetID. "Passive investment management companies need to keep their costs lean so they can capture beta efficiently. There is also a new middle-ground between alpha and beta consisting of active beta alternatives, hedge fund replication techniques, and rules-based ETF strategies."
Ahluwalia, who is now a Principal at Winged Foot Capital, also spoke about the rise of high-frequency trading firms.
"There does seem to be an excess amount of firms in the high-frequency trading industry," he said. "I expect we will see more consolidation as the capex required to maintain a competitive latency advantage increases each year. I also expect smaller firms trading smarter and focusing on alpha rather than pure liquidity provision."
Further, Ahluwalia believes that schools are adjusting their programs to account for the "significant demand" for new talent. "There are many new quantitative finance programs and curriculum," he said. "As a result, the quality of candidates at the entry or graduate level is increasing over time. However, I think [that] seasoned talent is still scarce. If you want to develop expertise in a market, geography or product, that takes a lot of time. The cost of tuition of earning all those insights and performing all that proprietary research is very high."
Unfortunately, the sell side is still suffering the effects of Dodd-Frank and the Volcker rule. "[The] number-one [side effect] is that you have traditional sell side firms that are spinning off their prop desks or just shutting them down wholesale," said Ahluwalia. "That is leading to attrition and less hiring from that sector. On the other hand, you do have more growth in new trading firms, so that is creating some new demand."
"I will make a distinction between trading talent and other groups such as investment banking," Ahluwalia added. "Overall, much of the trading talent is leaving sell side firms and moving towards the buy side. Ten years ago there was a considerable amount of talent at the sell side firms. They did very well recruiting amongst our finest universities. Today I think it's a bit different. Their brands and business models are under pressure and public scrutiny.
"The talent pool is very bifurcated as well. On the one hand there's been a tremendous amount of growth of new graduates from financial engineering programs at Columbia, Baruch, Stanford, Carnegie Mellon, MIT, Princeton -- they all have these terrific programs that are turning out graduates with skills in matrix calculus, market microstructure, and optimization and so forth."
As impressive as that may be, Ahluwalia wants to remind everyone that they are only tools. "It's a useful set of tools," he said. "However, you need expertise to know how to put those tools to work to solve the right kinds of problems. There are also skills in other domains – genomics, data science, and computer science – that are also sources of talent."
Jesse Marrus is president of Street ID