The rapid digital transformation of global businesses and industries has deepened a shortage of specialized technology talent to spearhead their growth strategy. The commodity sector is not immune to this challenge. With a growing number of new entrants in commodities trading, candidates have a greater negotiation clout against increased demand from trading businesses who, more than ever, need to sophisticate their trading capabilities as markets are facing unprecedented geopolitical risks, among others.
The lack of key talent with industry exposure such as technical leads and developers is the result of years of underinvestment in skilled tech talent. Such talent is mostly needed by trading businesses for the purpose of systems architecture redesign, development and project management. Those with a knowledge of Python language remain favoured as it is largely used for scripting and modelling of analytics, along with the development of trading systems.
This, in turn, has created a smaller yet more prized talent pool for hedge funds, banks and trading houses to choose from. This discrepancy has worsened because of more demand from new entrants in the traditional commodity trading space. Commodities trading has become more lucrative due to rising inflation and high prices filtering into futures market, driving renewed interest from financial players to capture the benefits of price volatility after years of exodus from this assets class, as explored in a previous HC Insider article.
More recently, the volatility has been exacerbated by the Russia-Ukraine war and sanctions against Russia, a major commodity producer. This is affecting commodity markets further, adding to structural supply tightness seen for many commodities over the past years. In response to these supply chain disruptions, many businesses, including national oil companies, have been developing and/or sophisticating their trading desks to optimize the efficiency of their physical asset portfolio on a short-term basis.
Lots of new entrants and existing participants who are growing in the market are taking the best tech talent under the hands of traditional commodity traders.
New entrants
Increased investment in digitalization and innovation to bolster efficiency and commercial trading performance has also paved the way for a new class of specialized companies to enter the commodities’ trading space. These range from consultancies serving trading businesses, blockchain tech firms, crypto market makers or even hedge funds looking to build their own in-house trading systems.
As a prime example, crypto specialist and expert in digital asset & commodity trading GSR has grown exponentially over the past months through an ambitious hiring strategy. The company has grown from 40 employees at the start of 2021 to over 200 currently. In January 2022, GSR Markets announced that it had appointed John MacDonald as Chief Technology Officers (CTO). MacDonald joined from Citadel Securities, where he had worked for five years as Managing Director and CTO.
“Lots of new entrants and existing participants who are growing in the market are taking the best tech talent under the hands of traditional commodity traders. We are seeing a wave of hedge funds, like Balyasny, Millenium, Citadel and Squarepoint, upscaling their existing commercial and technology teams to capitalize on the current bullish sentiment in the market,” said William White, Associate at HC Group’s Technology and Innovation Practice.
“We have also observed that these new entrants and the established commodity blockchain firms are increasing the sophistication of their offering by integrating much greater industry expertise. This has often taken the form of Product Managers and Tech Leads who possess strong domain knowledge from established industry players,” he said. “Increasingly, the compensation packages we are seeing from these organizations are above traditional market levels,” White added.
It is increasingly common to see these recruitment processes end up in fierce bidding wars that are driving up offered salaries to attract specialist technology talent. An unexpected yet noticeable trend is the impact of increased participation from small consultancies. With low overheads and OPEX compared with other major consultancies, some boutique consultancies have been in a better position to outbid bigger peers. “As companies are keen to avoid losing these prized individuals, we are also observing that counteroffers are equally rising to combat this interest,” White said.
Changing culture
Against this tight talent pool, compensations standards as well as the entire negotiations and hiring process are changing. Beyond just wage rises, tech talent employers have been feeling the impact of increased demands from employees for more flexible work and location terms.
Even before the global pandemic, this change in culture has been long in the making, as business and industries have embraced digitalization at different paces since the mid-2010s and talent grew increasingly scarce. But clearly, it has been exacerbated by the way COVID-induced lockdowns changed working lives and accelerated the shift to hybrid working.
“Employers are increasingly requiring that new, front-office tech joiners come with the ability to be fully embedded and integrated with other front-office members, from traders, analysts and operators to finance, legal and risk teams. Not just for the purpose of support, but to optimize the operational and commercial performance of the front-office desk,” White said.
But growing aspirations to work remotely mean these expectations have been difficult to match. Adequate flexibility and work-life balance have become key currencies during negotiations. Since the coronavirus pandemic, many consultancies for instance have changed their approach by moving away from stringent expectations from their employees to travel to clients’ offices and be onsite within typical working hours. “Often the first question candidates ask when discussing an opportunity with a new company is what their work-from-home policy is,” White commented.
Often the first question candidates ask when discussing an opportunity with a new company is what their work-from-home policy is.
Fierce competition in commodities
Candidates are unquestionably taking advantage of the current talent crunch to obtain suitable terms to work remotely, reduce work travel obligations and spend more time with family. But the balance can be hard to strike. On the flipside, despite the opportunity offered by some international companies to work remotely with colleagues across different continents, some candidates continue to favour companies in the same location and time zone as their colleagues and remain keen to work on a hybrid basis, combining onsite work with remote working.
In the face of so much competition to secure the right talent, employers are forced to make compromises, with some going as far as offering individuals the opportunity to work as a contractor when not in a position to fill a permanent position under initial terms.
The need for more flexible terms is likely to persist considering the current talent shortage. As companies are aiming for higher commercial and business performance from technological innovation, greater automation, and data & systems use, they will likely continue to expect more from their tech department and teams. This means continued demand for high calibre, specialized tech talent.
Commodities are no exception. The big push for innovation in new technologies has intensified competition across a wider range of commodity sectors at a time when the energy transition is highlighting increased correlation and convergence between some strategic industries. In a noticeable trend, it is no longer surprising to see energy trading houses who have been sophisticating their trading desks along with automating their front-, middle- and back-office processes now competing with the hedge funds to entice the best candidates. - FS
For queries related to HC Group’s Innovation & Technology activities and insights, please contact:
Richard Lee, Portfolio Director at HC Group’s Innovation and Technology Practice.
William White, Associate at HC Group’s Innovation and Technology Practice.