A proprietary software program dubbed COBRA hums along each night, delivering an email to portfolio managers in the morning, recommending allocations. If no changes are identified to the model, then no trades are made that day. On the fifth floor, where the firm’s quant researchers sit, the atmosphere is as still as a library’s.
“It’s less straightforward than equity research,” says Houweling. “It requires much more attention to detail.”
For instance, credit markets are plagued by byzantine corporate structures and multiple alphanumeric codes for a single security. Unlike stocks, bonds mature. Plus there’s a dearth of data relative to equities and more stringent liquidity screens.
The computing chops required are far more than just knowing how to make a pivot table in Excel, and the skills in demand go way beyond finance. “One strategist I recently placed had competing offers from Netflix, Google, Facebook and the hedge fund I eventually placed him with,” said Deepali Vyas, global co-head of FinTech at recruitment firm Korn Ferry in New York.
But that’s not to say that good, old-fashioned human judgment is obsolete, the type earned from thousands of hours spent on a trading floor.
At Robeco, humans still intervene in around 5% of its model’s investment decisions when they pick up on something it might have missed, cautions Houweling.
“You need the quant skills and you need the fixed-income skills,” he says. “If you’re not a fixed-income expert, you may miss out on a lot of these bond-specific things which are simply not there in stocks.”
This article was provided by Bloomberg News.