Pros and Cons of Hiring a Quant Internally or Outsourcing

14th June 2023

In today's fast-paced and complex financial landscape, family offices face the challenge of effectively managing risk and maximising returns. One crucial decision they must make is whether to hire a quant internally or outsource this specialised role. Each option carries its own set of pros and cons, and family offices need to carefully evaluate their specific needs and budget to make an informed choice.

Hiring a quant internally offers several advantages. Firstly, it provides greater control over the hiring process and the final product. Family offices can meticulously tailor the recruitment process to identify candidates with the precise skills and experience required for their unique needs. This allows them to build a dedicated team of quants with a specific skill set, fostering a deep understanding of the office's operations and objectives.

Another advantage of hiring internally is the potential for better communication and collaboration. Having quants as part of the in-house team facilitates seamless interaction with other members of the risk management team. Quants can work closely with portfolio managers, compliance officers, and other key stakeholders, fostering a collaborative environment that promotes efficient risk analysis and decision-making.

However, there are downsides to hiring a quant internally. The process can be expensive, as it involves not only recruitment costs but also the training and development of the hired quants. Additionally, finding qualified quants can be a time-consuming task, especially given the demand for their specialised skills in the market. There is also the risk that internally hired quants may lack familiarity with the specific needs of the family office, requiring additional time and effort to align their expertise with the office's objectives.

On the other hand, outsourcing the quant role presents its own set of advantages. One of the main benefits is cost-effectiveness. Outsourcing can be more financially viable, as it eliminates the need to invest in recruiting and training quants internally. Instead, family offices can access a wider pool of qualified quants through third-party vendors, who are often equipped with the necessary expertise and experience.

Outsourcing also brings the advantage of tapping into the latest technologies and techniques. Quants working for external vendors are more likely to stay updated with industry advancements, enabling family offices to benefit from cutting-edge quantitative models and analytical tools. This can provide a competitive edge in managing risk and optimising investment strategies.

However, outsourcing is not without its drawbacks. One significant concern is the reduced control over the hiring process and the final product. Family offices must rely on the expertise and reputation of the chosen vendor, which may not align perfectly with their specific requirements. Moreover, building a close relationship with outsourced quants can be challenging, potentially hindering effective communication and collaboration. Overcoming geographical barriers and time sone differences can pose obstacles to seamless interaction between the family office and the outsourced team.

Ultimately, the decision of whether to hire a quant internally or outsource should be made on a case-by-case basis. Family offices need to evaluate their individual needs, budget, and risk appetite to determine the most suitable approach. In the case of the role described, outsourcing may be the preferable option. The role demands a deep understanding of quantitative finance, as well as proficiency in using Python libraries and tools. Finding a qualified quant with these specific skills, willing to work for a family office, can be challenging. Outsourcing to a reputable third-party vendor can provide access to a broader talent pool, ensuring the availability of qualified quants while potentially reducing costs.

When considering outsourcing, family offices should carefully assess the experience and expertise of potential vendors. A proven track record in providing quantitative solutions to family offices is essential. Additionally, effective communication and collaboration skills are crucial for seamless integration with the risk team. Family offices should seek vendors who can demonstrate their ability to work closely with the office, actively participating in the development of risk models and analytics.