Economy

Hedge Funds v. Silicon Valley, The Battle For Quant Talent

Talent is distributed around the globe, opportunity is not. Visit to a finance-sponsored 'datathon' to find the next generation of quantative wizards.

Taking notice at MIT
Taking notice at MIT
Nishant Kumar and Katia Porzecanski

CAMBRIDGE — On the warmest February day on record in Cambridge, about 60 students at the Massachusetts Institute of Technology opt to stay inside a dimly lit lobby, crunching data and churning out pages of analysis, rather than enjoy the sunny, summer-like Friday afternoon.

No, it isn't mid-term time. The students — handpicked from 400 applicants — are competing in a datathon hosted by the $26 billion hedge fund Citadel. Ken Griffin's firm is upping the ante in the industry's chase for data scientists and engineers, hosting 18 competitions at universities across the U.S., Britain and Ireland this year. The prize in the final data championship: $100,000.

"We need strong, analytical thinkers who can work through big, complex data sets," Justin Pinchback, head of talent strategy at Chicago-based Citadel, said in an interview during the MIT datathon. "If you limit yourself to one region or one school, you won't get as good a look at the entirety of the talent market, and that's what we're trying to do."

Hedge funds, which have long used fat pay checks to lure employees, are improvising with new approaches to recruit technologists amid fierce demand for them across the economy. Traditional hedge funds like Tudor Investment Corp. have been chasing quants as their lackluster performance and pressure on fees makes them less enticing places to work.

Google and Facebook

Even the most technologically advanced hedge funds like Two Sigma, whose Compass Cayman Fund has outperformed rivals for the last four years, vie for talent. They are up against sexy tech giants like Google, with its self-driving cars, and Facebook, which claims billions of users.

"The trouble is to find the people who are capable of innovating," Luke Ellis, chief executive officer at Man Group Plc, said at the Milken Institute's London summit in December. "They are not particularly driven by money, they have got lots of financially interesting offers and so you have to find other ways of trying to attract them."

The rivalry for talent in quantitative research, big data and analytics has never been more intense, according to John Hindley, a partner at recruitment firm Heidrick & Struggles. The traditional hedge fund fast-buck culture, which is anathema to the experimental ways of science, can make recruiting even harder. So hedge funds are wrapping themselves in academic robes and pitching their firms as research centers where teamwork is prized, complex problems are solved and papers are published.

There's fantastic osmosis

Omar Iqbal, head of human capital at London-based Winton Capital Management, likens the quantitative hedge fund to CERN, the nuclear research center in Switzerland.

"It's a bit like CERN where scientists worked together to discover the Higgs particle," Iqbal said about Winton, the $31.5 billion quantitative firm. "The reason that it was successful is because thousands of people came together and each person did their thing to a very, very high standard. Similarly, we think of Winton as a collective project."

Two Sigma, which was co-founded by David Siegel, a Ph.D. in computer science from MIT, has many trappings of a university. The $41 billion computer-driven firm, which produces scientific papers and encourages staff to teach classes, will soon actually move onto campus. In September, Two Sigma will take over "The Bridge," a space on the new Cornell Tech campus on Roosevelt Island in New York, where engineers and entrepreneurs with work.

AI focus

The hedge fund staff will collaborate with Cornell students and professors on machine learning and data science projects, creating a pipeline of academic talent to the firm. Job candidates will put on virtual-reality glasses to watch a video that explains how the hedge fund sees the world awash in data.

Two Sigma is following Man Group, which started the Oxford-Man research center on the university's campus in 2007 and revamped it in August to focus on artificial intelligence, creating a hunting ground for recruits.

"By having our employees able to sit in the same room, share the same coffee with the academics, we find that there's a fantastic osmosis," Ellis said. "It's very good for being able to recruit people, it's very good for getting new and innovative ideas, which we have been able to turn into the real world, practical, money generating things."

Igor Tulchinsky, the founder of WorldQuant, is pitching a perk that breaks the tradition of hedge-fund secrecy. The $5 billion firm is hiring at least 15 teams of quant managers for its Accelerator platform, offering them the right to keep their intellectual property. The quant hedge fund has also opened more than 20 offices in 15 countries, including emerging markets like Russia and Romania, to find engineers. Talent is distributed around the globe, Tulchinsky said at the Milken conference, "but opportunity is not."

At the Citadel datathon last month, teams of students were given multiple large and complex economic data sets and told to come up with a hypothesis and test it with advanced models. Students huddled over laptops for a grueling six hours as they strove to write a technical paper to impress judges and win. Bursts of laughter and chit-chat, flavored with Russian, Chinese and Israeli accents, punctuated the studious silence.

Twin interests

Yuqing Xie's team took second-place and will share in the $25,000 award for winners, who will have a chance to interview for a job at Citadel. Xie said the datathon brought together her twin interests in technology and finance.

"Data science and tech are the future, and everyone's trying to integrate them," said Xie, 24, who's getting a masters in financial engineering at MIT. "Citadel is doing a very good job of combining both and that's exactly the combination I'm interested in."

Eric Munsing, a Ph.D. candidate in civil engineering at the University of California at Berkeley, was part of the winning team at Citadel's first datathon in January. He said the event drew many students with a passion for the complicated computational problems of data science who may not have even considered the possibility of a career in finance.

"The datathons are a really interesting way of opening people's eyes to alternative career paths," Munsing, 30, said. "For me it certainly does seem like an attractive potential path."

While his friends in the engineering department look to work at Google and Amazon, where they might focus on narrow technical issues like optimizing advertising, Munsing is drawn to the broader challenges of finance — how trends and people's emotions impact markets.

"I'm more interested in finding the most intellectually stimulating problems, and then seeing where that leads me," said Munsing.

Citadel will hold 16 more events this year at an array of schools, from the University of North Carolina to the University of Cambridge. The winners will compete again in a final face-off at the end of the year. Victors take home $100,000 in cash.

Citadel's motive for its extensive recruiting effort is made plain on its website. It lists some 90 job openings worldwide, from quant researchers to software engineers.

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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