High numbers of students are signing up to study quantitative finance, as demand for these roles far outstrips supply, especially in the investment industry. There is a vast talent gap in quant finance, and a number of business schools have created MSc courses in part to fill that gap.
Options exist at the UK’s Alliance Manchester Business School, which offers the MSc in Quantitative Finance, in addition to the Master of Financial Engineering Program at Berkeley Haas School of Business in California.
On the career side, the demand has tended to come from the developers of exotic investment vehicles such as structured products. But following the 2008 financial crisis, there was a wave of interest from regulators and risk managers trying to get their heads around complex new products.
More recently, the demand has typically come from asset managers who are interested in how artificial intelligence and machine learning can aid investment strategies.
But quantitative methods collectively refer to any mathematical tools used in the analysis of the observed data, points out Seok Young Hong, director of the MSc in Quantitative Finance at Lancaster University Management School in the UK.
“They help us make logical inference on the underlying uncertainty behind the data,” he says. “Considering the heavily uncertain nature inherent in finance, quantitative methods, including the AI tools and machine learning, can play a crucially important role.”
The Lancaster MSc aims to equip students with a wide range of analytical, technical and programming skills relevant to the analysis of financial data. It is a one-year, full-time program designed for students with no finance or economics background.
“We welcome applications from those with a strong background in quantitative subjects,” says Young Hong. “Familiarity at undergraduate level with topics such as probability and statistics, calculus and linear algebra is highly desirable. We do not require students to have any prior formal academic training in economics and finance.”
The demand for the course has been high, with Lancaster attracting highly quantitative applicants who wish to pursue a career in banking or finance. The career prospects for students are very bright indeed, Young Hong says. “Recent graduates moved on to work in the finance industry, at companies including UBS, Credit Suisse and First Derivative Plc,” he adds. “Many graduates also continued on to study for a PhD, as the course provides an excellent foundation for research degrees.”
Students completing quantitative finance masters can expect to earn up to $120,000 a year working for top US hedge funds, according to business school research. And those with PhD credentials are able to command $200,000 salaries.
A number of universities work with hedge funds which donate money to specific quant programs and in turn benefit from recruiting the best graduates.
Man Group, the world’s biggest listed hedge fund manager, works with the University of Oxford, which offers the MSc in Mathematical and Computational Finance program. Meanwhile, the Swiss asset manager GAM Holding has close links to the University of Cambridge, whose Judge Business School puts on a wider Master of Finance course that includes quantitative methods.
“AI and machine learning are a prime toolkit for modern asset management firms, and are starting to penetrate the entire investment process, ranging from fundamental research to investment strategy development, risk management and client advisory,” says Matthias Fengler, director of the Master’s program in Quantitative Economics and Finance at University of St Gallen.
The Swiss school has responded to this development by both offering classes with a pure methodological point of view, like statistics, but also applied courses that have a dedicated focus on AI, such as Optimal Policy Design for Economists or Quantitative Asset Management.
But the one-year, full-time degree program at St Gallen offers high-quality education in economics, econometrics and quantitative methods, albiet with a strong focus on finance. “Quantitative Asset Management is definitely in high demand but we aim at keeping classes not too big to prevent learning outcomes from suffering,” says Fengler. “We are glad that we can offer a large variety of classes. This helps students specialize according to their interests.”
A good background in mathematics and statistics is essential. “Beyond that, prospective students can convince me by writing a thrilling motivation letter or by sharing evidence of an impactful practical experience that they have had,” Fengler says.
Upon graduation, the career prospects are excellent. “This is not only due to the continued demand from the banking, investment, and insurance industry, but also because more and more big corporates are starting to realize the potential of data analytics,” says Fengler.