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Analyzing Scientific Investments

How do financial services companies know which high-tech sectors are likely to pay off and which companies rest on a solid scientific base? Many of them employ a small coterie of scientists who combine strong analytical skills with deep scientific knowledge to advise on investments in science-based businesses. These scientifically trained financial analysts fulfill an important function: assessing the economic value and predicting the future performance of products, companies, and industries.

Unlike quantitative analysts--physicists and mathematicians who work on the mathematical models behind high-volume trading--financial analysts tend to move into high finance later in their careers and rely heavily on their intimate knowledge of a scientific field. Meet some financial analysts who have made that transition:

Noble Investments
Forging a scientific career is somewhat similar to forging a career as a financial analyst, as you are essentially building a personal franchise and reputation. --Stefan Hamill, Noble Investments

Stefan Hamill's intellectual curiosity led him to a Ph.D. at the Cambridge Centre for Protein Engineering just as biotech was becoming the latest buzzword and the tech boom was building steam. Later, that same curiosity led him down a new path, to a career as a financial analyst. "Today, I provide investment advice across the whole health care sector, including biotech, pharmaceutical, and services firms," says Hamill, who is now head of health care at Noble, a U.K.-based investment bank.

Hamill says his scientific background is central to his work. It allows him to judge the fundamentals of a health care business without being intimidated by the science. Also key: the ability to speak two languages--the language of finance and the language of science. "I have always found my strong quantitative skill set to be an advantage throughout my finance career and often find myself translating the language of science into the language of investment," he says.

Paul Cornelius, a corporate adviser for London-based FinnCap, is an engineer with a doctorate from the University of Wales. He did an apprenticeship at the U.K. government's Atomic Weapons Establishment. A stint at British Steel during the company's merger with Hoogovens in 1999 to form Corus provided his first exposure to the world of finance. He spent some time trading technology stocks during the dot-com boom, then applied for a job at an investment bank. Today, as research director for FinnCap, Cornelius examines business plans and emerging technologies to assess their viability in the market, prepares investment reports and financial models, and advises fund managers on whether to buy or sell stocks.

"I believe my background in science and engineering has helped me immeasurably, in both understanding the technical aspects of new technologies and from a mathematical perspective when analyzing capital markets and financial modeling," Cornelius explains. "Confidence when dealing with numbers is key, and the mathematical experience gained through my science degree and engineering work experience gives me an advantage over some of my peers."

Asked when he was 5 years old what he wanted to be when he grew up, Martin Hall answered "bank manager." Earning a doctorate and doing postdoc work in neurology proved to be just a detour en route to his current position as a corporate financier specializing in life sciences at Eden Financial, a multinational company that advises hedge funds and investment banks. Together, he says, he and a colleague were the first to devise a robust method for valuing biotech companies. "One of the key advantages was my knowledge of the clinical trial process and the regulatory processes, which enabled me to make judgment calls about the likelihood of a product in R&D making it to the market," says Hall. His method is still used by most analysts today.

After a 6-year course in biology in the Netherlands and a stint as a salesperson, Anne Marieke Ezendam moved into finance in 1998. She is now a portfolio manager specializing in biotech and pharma at Credit Suisse. "Science is a great background because it teaches you to ask questions," she says. "You also have to examine all the research in an area to see if a company and its product are viable, so you have to understand the subject."

Kevin Lapwood, who has a Ph.D. in combustion science, was a pioneer as a scientist in the finance industry. Lapwood jumped scientific ship in the 1980s after a lectureship at the University of Surrey in the U.K. because, he says, there were no jobs in industry and proposed changes in university contracts made an academic career less economically appealing. He found his past engineering experience, including a stint as head of research in the Fuels and Energy Research Group at the University of Surrey, useful in his work on the privatization of the U.K. utilities. "I even sold the power station where I had done some of my Ph.D.," he says.

From the bench to the big board

Hamill says the most important factor in moving from science to finance is desire: You really have to want to do it, as the transition requires a lot of time and commitment. Immerse yourself and read widely, Hamill advises, so you can understand the basics of share prices and company fundamentals. The Financial Times and The Economist are important periodicals. Useful books range from simple introductions such as Nassim Nicholas Taleb's Fooled By Randomness to more technical texts for braver souls. Aspiring analysts might even consider managing a small portfolio of shares, whether as an exercise or for real.

Credit Suisse
Anne Ezendam

In the research lab, put some energy into understanding the potential commercial aspects of what you are doing, Cornelius advises. Evaluate the technology in the lab for commercial potential. Consider whether the tools you're using--including mathematical techniques, programming languages, and so on--have applications in financial markets. Many job specifications within the financial market now list requirements for programming languages and other sector-specific experience, which can often prove a useful guide.

Indeed, many of the skills scientists pick up in the course of their training--social, programming, presentation, time management--are transferable to careers in finance. Another shared trait: the importance of social capital. "Forging a scientific career is somewhat similar to forging a career as a financial analyst, as you are essentially building a personal franchise and reputation," Hamill says.

Universities now offer a range of finance courses. There are also self-study courses such as those offered by the Chartered Financial Analyst Institute. Lapwood says he is much more likely now to interview a science or engineering graduate if they have an accountancy or business qualification.

Making the leap

Eventually, you'll need to acquire some direct financial experience. Getting involved in business networks and enterprise initiatives at your university can lead to the right connections. Younger scientists could also investigate internships in financial companies, whereas more seasoned researchers may want to consider consulting work.

Being older is not a disadvantage, some analysts say. "I would personally like to see far more mid-career researchers change to the business world, as the skills and experience they have are valuable in the financial markets," says Cornelius. Hall agrees. Having experience is a real advantage, he says, and it is not unreasonable to consider a career change after several years of research or industry experience.

But there can be some downsides in delaying the move. "We see a flow of mid-career candidates looking to make the transition," Hamill says. "The problem tends to be that with age comes higher expectation, yet the training and experience required take years to amass." Whatever your age, expect it to take some time, he advises. "If it's a complete change in direction mid-career, be prepared to spend several years learning the ropes alongside younger colleagues."

The impact of the credit crunch

The recent market turmoil has made the job market for wannabe financial analysts tougher. But even skeptics believe that a transition to a finance career remains possible for committed and competent scientists. The recent crisis is just part of the boom-and-bust cycle of finance, Lapwood says, although it means that the most likely way in now is through smaller companies, as most of the big banks are cutting back on entry-level personnel and finance companies rarely take a long view on hiring.

Because career transitions--like market recoveries--take time, right now, when others are bailing out, might just be a good time to get started. "I would urge students to prepare for the recovery … next year or the year after," Cornelius says.

Others are even more bullish. Hamill says businesses like his will always be on the lookout for talent--even if the positions available are fewer and more challenging--and will want to come out of the downturn with strong teams. Exceptional people with drive will find positions, he says, and the rewards are worth the effort. "In my experience, the investment world is a very varied and intellectually stimulating place," he says. "I will probably stay in this field for the remainder of my career."

Decisions, decisions. Analysts with scientific training guide billions in investments in science-based industry.

Images, top to bottom: Alicia Reeves, Noble Investments, Credit Suisse

Amarendra Swarup is a science writer in London.