Correlation between top degrees and a career in commodities
I am just a freshman so bear with me. I am interested in commodities trading. My aim would be to eventually get a FO role with one of the trading houses (Glencore, Vitol, Mercuria, etc).
I understand that commodities trading is a very hard sector to get into but I am not sure how this is demonstrated in terms of college recruiting.
Having done some research on linkedin (amongst others), I don’t get that these shops are filled with students from targets, with amazing resumes and so on. Comparing to areas like PE, BBs, MBB and so on, which are full of people with ivy/equivalent degrees, the commodities houses seem to only have very few such candidates (and are much more diverse in terms of non-targets).
To be clear, I am not suggesting that you are only a worthy candidate if you’ve gone to that kinda school or anything like that.
I simply want to get why this sector doesn’t seem to be popular amongst targets or why the big players don’t recruit that heavily from targets.
I think there' a few reasons. For one, I think it's kind of a well kept secret. I don't think your average banker, accountant, or consultant has any idea how mind-boggling the compensation can be. Secondly, there just aren't that many good seats. Since it's so "real world", there's just no reason to have the headcount for a bunch of entry level people that are generally unproductive. Third, there's a very high degree of personal risk, both in the actual trajectory or likelihood that you ever get a chance at trading, and if you do, that you're going to be any good at it. In reality, if you have a degree from Harvard, you just have insanely higher risk adjusted returns going with a career field that has well beaten paths for advancement. Not to say that you can excel in any career by going through the motions, but you can get to significantly higher comp levels in these other fields if you're "pretty good". In trading, you won't even get to a seat you can take risk in and will spend your career in well compensated but not equivalently lucrative roles to what you likely would have found yourself in on these other paths. Last, since you can generally consider the business proprietary, a firm level image/culture of polished gentility does not have the same impact on profitability and growth as compared to these other fields where it's almost paramount. In summary, where someone went to school has little to offer beyond suggestions at the individual level of intelligence and work ethic, which evidently the people doing the hiring feel they can deduce from areas other than the school.
I do think it's an interesting question and also wonder about the je ne sais quoi that makes traders think juniors have potential, and more than that, if maybe they catch less of this vibe from the stereotypical gunner that would generally gravitate towards finance. I think it's an unspoken risk aversion but this has several obvious holes in it.
I think it shows well how little a degree from one of those universities actually means. Physical commodity trading is a world of results. You don't have client order flow to hide behind that you got because you came from a good school and performed well in corporate finance. You can't rely on your oratory skills to impress people. You are not a polished salesman. All those soft traits that people from top universities tend to pick up on due to their social circles and help you excel in the banking/consulting world don't matter in the world of trading. I have seen guys managing large enough positions to have 30 million dollar PnL swings in a month that can't even tuck their shirt in or comb their hair..
At the end of the day one thing matters and that is your PnL. Some people are good at it and some people aren't and your ability to excel in a structured school environment is a weak indicator at best of how you will be at thinking creatively and coming up with unique ideas on your own. Physical trading rewards the creative risk takers.
Soft traits matter a lot in commodities! This is ultimately a relationship business and the gift of the gab (or oratory skills whatever you want to call it) will definitely put you at an advantage, particularly as you become more senior.
I agree that you live and die by your PnL but a successful PnL is the result of a a multitude of factors. This is arguably the only industry where you will need to be as comfortable negotiating complex structures with an Eton-schooled, Oxbridge-educated financier, arguing constantly with a GCSE-dropout on the chartering desk and humbly ass-kissing a government official operating a terminal/refinery.
Some of that skillset is taught through good education, others have it naturally, but all need to constantly develop it.
I would agree with that. My point wasn’t to say that those skills don’t help. My point was to say that there are people at trade shops that don’t have those traits and to me that says a lot.
You don’t find those people at all at the big banks in groups like investment banking but you can come across them at trade shops and it’s not to say that guy that can’t comb his hair doesn’t have the gift of gab either. I’m just saying that the fact that some of them exist at all shows that polish is not a prerequisite to employment like it seems to be for an investment banker at a high level.
The further point here, as I am sure you’re aware, is that trading truly is a meritocracy based on your knowledge of your market and your ability to put together the dots (sometimes that is through analysis, sometimes through rumors due to someone’s gift of gab, usually both) while banking at a high level is more a relationship based business that puts much more value on polish and knowing the right people to form those relationships. As a result, formal education becomes a much more important filter for hiring to figure out who has the potential to be a contributor to the firm’s bottom line one day since, let’s be honest, nothing about banking is as intellectually demanding as physical trading.
Agree with a lot of the above but will say that anyone who running a desk in commodities is very smart. Doesn't necessarily mean they went to a top target but they were probably good at something before getting hired.
Don't 100% agree that soft factors have zero impact in physical, you still need your counterparties to like you and spend time in person and on the phone in a lot of markets. It's a very unique negotiating skillset. Some people are consummate salesmen but the straight-shooter is at least as effective an approach.
And there are definitely people who never quite got to the top at the biggest shops because they pissed too many people off.
Thank you all for your help. As an aside, would you say that starting your career with a BB is less effective for long-term prospects in the sector? Not just in terms of doing a summer internship but actually starting out FT for a couple of years after school (on the basis that opening spots at commodities houses are not as available).
I don't mean only the S&T desks or the IB/O&G desks (as some mentioned already) but actually targeting the (few) banks that are still in commodities, such as GS or Citi. I appreciate the risk is the status of these desks as banks may continue exiting, but if this is a stepping stone anyway, would it not be a good foundation for jumping into a different shop after a few years?
in the phy space.. BP and Shell are your goldman sachs.... finish school and get a job there.. Vitol and Glencore will find you when they are ready... most kids dont want to put in the work for that seat.. they want a safe seat direct out of college.... banking, corp finance etc
I held off adding more for a little as I feel like I have a difference of opinion with a handful of folks in this thread. I generally like the analogy of majors being your BB's and trading houses being your exits but this doesn't hold up in all cases.
BP's program is the best in the US. The end. Period. BP, counter to what is being said here, hires people with the intention of having them trade and if they don't move into a trading seat, that person has effectively "failed" the program. The other programs bring talent into the organization that they are open to the idea of having trade one day.
Shell's US grads massively benefit from BP's reputation and Shell is still an amazing place to learn, but it is not BP and does not have the same DNA. What you will get at both are some of the best systems in the world and seats to learn in where you aren't necessarily thrown to the wolves. The difference is, at Shell, BP is one of the wolves you're able to bide your time on facing. Shell on the other hand, is not one of the wolves.
In the early stages of your career, they're equally good because you need to focus on learning operations and risk management and both are world class, but commercially, Shell traders are crutched by their refineries/production more than BP and can dummy in some PnL that they don't have to win in the market.
The reason these programs are generally more highly recommended is there are more seats, and particularly more seats that they can take "chances" on to find out if someone can take money out of the market. I tend to believe this is something people are either good at, or not good at, and you have a better chance of entering the race at a major, and a softer fall if you're not cut out for it.
ASU >> BP Trading Development Program. So can confirm Ivy degree needed