How Alex GB earned millions for charity within years by working in quant trading

Quantitative financial trading is one of the highest paying parts of the world’s highest paying industry. 25 to 30 year olds with outstanding maths skills can earn millions a year in an obscure set of ‘quant trading’ firms, where they program computers with predefined algorithms to trade very quickly and effectively.

This makes it an attractive workplace for people who want to ‘earn to give’, and we know several people who are able to donate over a million dollars a year to effective charities by working in quant trading. Who are these people? What is the job like? And is there a risk that their trading work directly harms the world?

To learn about all this I spoke at length with Alexander Gordon-Brown, who has worked as a quant trader in London for the last three and a half years and donated hundreds of thousands of pounds. We covered:

  • What quant traders do and how much they earn;
  • Whether their work is beneficial or harmful for the world;
  • How to figure out if you’re a good fit for quant trading, and if so how to break into the industry;
  • Whether Alex enjoys the work and finds it motivating, as well as what alternatives careers he considered;
  • What variety of positions are on offer in quant trading, and what the culture is like in the various firms;
  • How he decides where to donate, and whether he has persuaded his colleagues to join him in becoming major philanthropists.

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How much do hedge fund traders earn?

Hedge fund trading may be the highest paying job in the world, so to learn more, we spoke with a former manager at one of the world’s leading hedge funds. They gave us the following information, which allowed us to make a rough estimate of the typical earnings of hedge fund traders.

We also ran this document past several other people in the industry and asked them to point out mistakes.

We found that junior traders typically earn $300k – $3m per year, and it’s possible to reach these roles in 4 – 8 years. Senior portfolio managers can easily earn over $10m per year, though average earnings are probably lower. Read on for the details.

How do hedge funds make money and how is it shared among the employees?

Hedge funds trade in financial markets on behalf of clients in exchange for annual fees, and a cut of the profits. They’re similar to mutual funds but face fewer restrictions on what they can invest in, and can only be used by accredited investors.

The revenue of a hedge fund comes from the fees on the assets it manages. The typical fund charges a fee of 2% of assets under management per year, plus a performance fee. The performance fee is typically 20% of any returns it makes for the clients over and above the 2% base fee. So, if a fund makes 10% returns in a year, then the performance fee is 20% of (10% –

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Is wealth inequality so extreme that it’s OK to be a ruthless trader?

U.S._Distribution_of_Wealth,_2007Wealth inequality globally is incredibly high. Perversely, this can be an argument in favour of working in finance.

Many people are concerned that ‘earning to give’ in the financial industry is overall harmful for the world, even if you give away most of your income to outstanding charities.

To figure out if this is true, we have been researching the size of the harms, and benefits, caused by finance. (Though please note 80,000 Hours is not just about earning to give and in fact we think it’s the best path for only a small share of our readers.)

One of the concerns we’ve investigated is that certain parts of quantitative finance are a socially-useless competition between traders that only changes who gets some amount of income, not that someone gets it. I think this is the case, but the incredible amount of inequality in the world makes this argument against working in finance fairly weak.

If you are working in ‘low-latency arbitrage’, make a random clever trade on a stock exchange and beat some other trader to a profit by 1 millisecond, whose pocket is this money coming from? A poor African farmer? No, they have no wealth to take. A middle class American family? It’s possible, but most of their wealth, if they have any, is probably in their house or bank account.

We don’t have perfect figures here, but looking at reasonable estimates,

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80,000 Hours thinks that only a small proportion of people should earn to give long term

Norman Borlaug didn’t make millions, his research just saved millions of lives.

One of the most common misconceptions that we’ve encountered about 80,000 Hours is that we’re exclusively or predominantly focused on earning to give. This blog post is to say definitively that this is not the case. Moreover, the proportion of people for whom we think earning to give is the best option has gone down over time.

To get a sense of this, I surveyed the 80,000 Hours team on the following question: “At this point in time, and on the margin, what portion of altruistically motivated graduates from a good university, who are open to pursuing any career path, should aim to earn to give in the long term?” (Please note that this is just a straw poll used as a way of addressing the misconception stated; it doesn’t represent a definitive answer to this question).

Will: 15%
Ben: 20%
Rob: 10%
Roman: 15%

Instead, we think that most people should be doing things like politics, policy, high-value research, for-profit and non-profit entrepreneurship, and direct work for highly socially valuable organizations.

The misconception persists for a few reasons: when 80,000 Hours first launched, we led with the idea of earning to give very heavily as a marketing strategy; it was true that we used to believe that at least a large proportion of people should aim to earn to give long-term;

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How to get “elite” jobs: Dartmouth is not good enough

I just came across a study of what top-tier investment banks, law firms, and management consulting firms look for when recruiting. The author of the study interviewed over 100 recruiters at these firms to find out what criteria they used.1

The Chronicle of Higher Education summed up the results:

If you want to get a job at the very best law firm, investment bank, or consultancy:2

1. Go to Harvard, Yale, Princeton, or (maybe) Stanford. If you’re a business student, attending the Wharton School at the University of Pennsylvania will work, too, but don’t show up with a diploma from Dartmouth or MIT. No one cares about those places.
2. Don’t work your rear off for a 4.0. Better to graduate with 3.7 and a bunch of really awesome extracurriculars. And by “really awesome” I mean literally climbing Everest or winning an Olympic medal. Playing intramurals doesn’t cut it.

Here’s a chart showing the key signals that recruiters used to screen candidates.

How to get elite jobs
Graphic re-created from original figure in Rivera (2011)

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Case study: earning to give compared to medical research

Introduction

Ramit came to us with a simple question: should I try to train as a medic with the aim of doing biomedical research, or should I seek a high earning job in finance and pursue Earning to Give?

He’s currently doing both – working as a quantitative financial analyst giving away more than a third of his salary (he was an early stage funder of Give Directly) and taking pre-med courses part time, as well as other projects!

Ramit’s initial thought was that the biomedical research path would be better. Read on to find out how he came to change his mind, and came up with a new set of next steps.

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Case study: can I earn more in software or finance?

Software

Jessica is a software engineer at Google, who donates much of her income to GiveWell recommendations and 80,000 Hours. She plans to continue pursuing earning to give, and came to us wondering whether she might be able earn more using her skills; in particular by switching into finance or moving to Silicon Valley.

Summary of lessons learned

We found:

  • An engineer at Google can expect to earn about $150-$200 p.a. after 3 years of experience, which will then grow at 2-6% p.a. afterwards.
  • Google engineers are among the most highly paid engineers in big companies.
  • Google engineers do not appear to earn more in Silicon Valley compared to major East Coast cities, although software engineers on average earn more in the Valley.
  • She may be able to earn more by switching into finance, but we need to do more research.

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Case study: Working in the financial sector to promote a flourishing long-term future

Introduction

This post is a write up of an in-depth case study, exploring one person’s decision about where to work in the financial sector, from the perspective of helping the long-run future.

Key recommendations made

  • If you particularly care about long-run impacts, these are some of the interventions that have been pursued.
  • We rate cause prioritisation research and advocacy as high priority (to be explained in an upcoming post)
  • If you’re pursuing prioritisation research within finance and don’t want to pursue earning to give, then we recommend generally aiming to build career capital, building a community of people who support prioritisation, and promoting areas of social finance that seek to assess the social value of different projects. Though note that this is a judgement call.

What we learned

  • We prepared this list of ways that people are trying to improve the far future.
  • The direct impact of doing ‘impact investing’ (attempting to invest in socially beneficial companies) doesn’t seem high relative to donations to cost-effective charities, but the industry might be improvable, could produce useful research and could move more resources into altruistic causes (as we’ll explain in an upcoming report).
  • Impact investing seems like a reasonable area for someone looking to build career capital and promote prioritisation, though we don’t have much confidence in this.

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Why consider becoming a trader?

Introduction

The following is an article by 80,000 Hours member, Joe Mela, about (i) why he thinks trading can be better than other finance jobs (ii) what the work’s like (iii) who might especially suit it. Joe has over 5 years experience in trading, and was keen to share his perspective with other 80,000 Hours members on why this might be an especially promising career path.

Summary

In summary, Joe thinks:

If you have excellent quantitative skills, have yet to start your career, and are thinking of earning to give, you should consider going into a hedge fund or proprietary trading firm to trade stocks or other assets. You can reach a seven figure bonus within five years by working on interesting problems. You’ll work with really smart, focused people and have transferable skills if you choose to leave.

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Show me the harm

Does Earning to Give do more harm than good?

It is often claimed that philanthropists do more harm earning money than good making donations. We saw this idea raised many times during the recent press coverage of Earning to Give. Our response is that although the objection may be true for typical examples of philanthropy, when donors are giving effectively it’s difficult for the expected harm to outweigh the good done by the donations.

In this post, I make some very rough estimates of how harmful finance would have to be in order for it to outweigh the good done by the donations of someone Earning to Give to effective charities.

Bankerharm

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