If you see yourself as quantitative finance’s answer to Superman, bravely stopping the likes of Soci?t? G?n?rale’s J?rôme Kerviel and saving billions – then a career in risk management may be for you. Although, to be honest, you are more likely to find yourself spending your days in a basement den surrounded by computers than receiving rapturous applause in the top office.
Risk management – assessing credit, market and operational risks for banks, financial institutions or credit agencies – is a middle office function. Professor Pablo Triana, director of the Centre for Advanced Finance at Madrid-based Instituto de Empresa, says: “Risk managers are not players, they are not deal makers, they are not making money for the banks. They are more like a cop monitoring those who are making the money.”
That is not to say that it isn’t a very important job, it’s just not that sexy, and as a result is less likely to appeal to MBA and masters of finance students who have their sights set on earning big money by wheeling and dealing. Professor Triana says that the best preparation for a future in risk management is probably a masters in quantitative finance. These are highly specialised technical courses, teaching computer science, probability theory and mathematics in preparation for a career modelling and analysing risks.
Tanaka Business School at Imperial College London offers one of the very few courses in risk management – its masters in risk management and financial engineering is very popular with people who want a future in risk management or other forms of quantitative work, including asset management. Most of those taking the course have a scientific background, usually in maths, physics or engineering. Dr Paolo Zaffaroni, the course director, says: “The banks and finance institutions have a big appetite for these people and worldwide there is a trend towards employing [more] quants in financial markets.”
The credit crunch, publicity about rogue traders and a new international legislation – Basel 2 – should put risk management higher on banks’ agendas, says John Hull, a professor of derivatives and risk management at Joseph L. Rotman School of Management at the University of Toronto. “I always tell my students the story of the risk manager... who kept telling the company that [it] had too much exposure to the sub-prime sector. He told his boss and his boss’s bosses, but they didn’t want to know, so he quit. He was proved right. I hope that the banks will now take risk management more seriously as a result of the crisis [and] not be quite so gung-ho.” He adds: “Kerviel is every risk manager’s nightmare; you have all the systems in place and then someone finds a way around them.”
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Although there is talk of a backlash against an overreliance on quantitative methods to predict human behaviour, Professor Alistair Milne, a lecturer in banking and finance at Cass Business School, London, says that risk managers are definitely in demand. “It is quite well paid and there is definitely a shortage, with credit rating agencies, commercial banks and, to a lesser extent, investment banks hiring.”
Next week: Banking