Trading job market reflects changing times
As margins are squeezed, traders need to look at expanding their skillsets and geographical horizons
Trading operations require a number of elements to be successful, not all of them the most glamorous. Increasingly, efficient middle and back office systems, technology platforms and strong legal teams are as crucial as the front office to firms' success.
But the frontline traders and originators are still the most visible aspect of a trading team. And an examination of the trends in their recruitment environment offers considerable insight into the evolution of the oil trading market as a whole.
With that in mind, Petroleum Economist spoke to Jakob Bloch, CEO of UK-based headhunter Commodity, which, as well as being an oil trading search heavyweight, also surveys the wider talent market in its regular Inform newsletter.
PE: National oil companies (NOCs), particularly in the Middle East, are becoming more active in traded markets. Is that reflected in the demand for crude trading talent?
JB: Our tracking of 'people moves' does show a trend of this sort starting about 18 months ago and continuing to grow. Firms such as Adnoc and Aramco have evidently reflected on their asset strength and recognised an opportunity to trade rather than rely entirely on their more traditional marketer roles. But it is not confined to the Middle East; we anticipate the next growth will occur particularly in Singapore.
It is still early days, of course. The NOCs in general have yet to establish a consistent pattern of recruiting senior hires from the established trading houses. However, they have a clear desire to grow which will see them doing this level of recruitment more often. Should their risk appetite intensify, as the signs indicate, and provided they adopt the right hiring strategy to back it, they will certainly become a new force to be reckoned with in the oil trading arena.
PE: Some of these NOCs are based in untraditional trading locations and have cultures very far removed from the entrepreneurial environment of trading houses and the more trading-focused IOCs. Is that an issue when they are looking to recruit talent?
JB: You could say this was an issue that affected any NOC originating from a comparatively unexplored place as far as seasoned traders are concerned. Some of the organisations may have been operating for years, but it is only quite recently that the markets in which they're based have seen any real attempt to diversify by adding a trading culture.
There are companies—Socar is one—which have managed this change very quickly. Others based in the Far East have taken quite a bit longer by comparison, as have Japanese IOCs. Overall, although the diversification of teams has indeed started, it has not progressed as rapidly as the markets had predicted.
From my headhunter's perspective any relative slowness in adopting new cultures is usually caused more by companies than by people. Whether they are local or expatriate, most talent we speak to who have been in the markets a long time are not too intimidated by differing cultures. More often, it is the lack of an appetite for risk on the part of the prospective employer that deters talent from joining a non-traditional trading house. On the other hand, such outfits represent a very stable business for a trader to join who has become accustomed over the last few years to working for businesses with less certain paths. A recent salary survey that we ran at Commodity showed these companies as typically paying strong base salaries, but with less upside on the bonus.
PE: Asian crude buyers are getting more sophisticated and beefing up their trading arms. What impact has this had on the crude trading talent market?
JB: At the moment we are seeing some increased willingness among traders to move to buyers of Asian crude. My own view is that it is being driven at least partly by lower margins and decreasing rewards or opportunities at the traders' usual homes.
Having said that, the talent flow has yet to have a major impact on the traditional trading houses. What we have observed to date is a hiring trend focusing more on the mid-level trader. Senior crude traders still are based mostly at the major IOCs or the larger trading establishments.
It will be interesting to watch how this pans out in terms of geographic focus. Your question asks about Asian crude buyers, but this goes beyond Asia: some businesses are in the process of building a European desk, too.
PE: Pure traders have found their middleman role squeezed and had to evolve their business models. Has this been reflected in their appetite for hiring and the types of trader they have been recruiting?
JB: You are right, the need for trading houses to evolve has been evident for a while now. Their only decision is not whether to change, but in which direction. For some it means streamlining the existing team. Others want to create or switch around business units. Another choice coming to the fore focuses on regional talent to build up geographic trading expertise.
You ask me about appetites, and I would say trading houses as a whole have become more cautious in their hiring. Of course, the other aspect to consider here is the talent pool, both for size and for diversity. Whereas caution may be the watchword for the possible employer, the candidate today must be prepared to consider opportunities even if those are somehowoutside the box of the usual types.
Diversity also refers to age. Over the last three years or so there has been a marked exodus of the old guard, caused mainly by the weakened markets and by a realignment of trading strategies against the new economic climate. Whether that creates more chances for the younger generation to fill those roles will depend on how many of the departing people are replaced. Promotion from within could happen more regularly than in the past.
PE: With wafer-thin margins and less "cash cow" contracts, have you seen evidence of trading houses closing desks or even exiting regions or businesses entirely?
JB: Generally, no. We have seen streamlining of their businesses and, yes, hiring is not at the level of, say, five years ago. However, many of the tier one trading houses are now asset heavy. They have been able to react to the squeeze on margins by adjusting to cater for the changed conditions.
On the upside there is the element of know-how. In recent times, even the long-established trading houses have wanted to add more specialised talent in the shape of traders who have extensive reach and expertise in specific geographic areas. Think southeast Asia, think China, think Japan, although that list is far from complete. Then, as you referred to earlier, certain NOCs have raised their risk appetite and substantially expanded their crude trading teams.
There is also an argument, though, that asset-light, nimble organisations can still take advantage of the volatile markets. Freepoint, which has become one of the more aggressive hirers, is a case in point.
PE: Generally, has the type of trader hired evolved as players have had to become more sophisticated, both in contract optimisation and information management? Is the "relationship" trader at risk of extinction?
JB: It is a safe bet that the trader who fares best is the one most adaptive to modern technology. The current evolution in individual profiles and applications reflects that we are deep into the data age. Anyone capable of turning data into intelligent trades enjoys a definite edge in today's job market.
But I would be wary of predicting that certain old-school trading ways will become extinct. In my book there will always be a place for the relationship trader, even if this particular skillset may now translate better into a role in origination or indeed in management. As the profits of companies are squeezed and organisations' trading systems improve, the focus on value added becomes more important. Under those circumstances, a relationship trader will need more than ever to be able to demonstrate added value that boosts the P&L balance sheet for the company.
PE: Cargo tracking firms have become more credible and more part of the oil industry. Have they become competition with trading firms for analysis talent?
JB: It is a great question, not least because so few of us have had such firms on our own tracking radar until quite recently. The original track and trace systems have come so far and so fast in developing into full information services, sometimes it can be hard to keep up with their progress and their impact on the whole world of commodity markets.
In recruitment, yes, they compete to employ people from the talent pool of data-scientist analysts. But the competition they represent is not yet significant; only small numbers so far. Although tending to offer a more entrepreneurial environment of the sort that hardened traders really love, they find it difficult to lure away talent from trading houses who are able to pay significantly more on base and bonus.
Let us talk specifically about the oil trading market. I hope you would agree that, historically, its main players have been somewhat cautious about adopting new technology. That seemed especially true when markets were strong. But it has put those companies on the back foot now they must adapt to more challenging times. I think the advance of the cargo trackers owes much to this situation.