BNP Paribas capital management team disbanded

The small team of quants in BNP Paribas’ capital management unit for fixed income has disbanded. The team, which had more than its fair share of personal differences, nonetheless published 10 technical papers in Risk during a five-year period. These papers significantly advanced the field of credit portfolio risk management and won Risk ’s Quant of the Year laurel for one member of the team, Richard Martin, who has now quit the unit along with Kevin Thompson.

Originally headed by Angelo Arvanitis – now head of risk management at Egnatia Bank in Athens – the team’s function was to analyse the credit risk in Paribas' fixed-income portfolio, especially derivatives, and develop economic capital models for the division’s business managers. The team published its first Risk technical paper in 1998. When Arvanitis subsequently left the firm – partly due to experiencing disputes with his colleagues – Christopher Cloke-Browne took over as the head of fixed-income capital management, steering the team through its takeover by BNP in 2000.

Under Cloke-Browne, the team developed an increasingly sophisticated approach to credit portfolio risk management, which it showcased in a series of four Risk technical papers published in 2001. A key contribution was the analytical tool of saddle point methods, for which Martin won the Quant of the Year award in 2002.

Cloke-Browne left for Credit Suisse First Boston two years ago, where he applied some of the BNP Paribas team’s innovations to CreditPortfolio+, a portfolio risk analysis product sold to CSFB clients. The departure highlighted a problem for the BNP Paribas team: a perceived reputation among colleagues for being over-theoretical compounded by the lack of infrastructure for marketing its strategy and analytics to clients. Given the subsequent explosion of credit portfolio risk modelling, some believe the team’s real failing was that it was ahead of its time.

Meanwhile, the publications continued, with Martin – by now the team’s leader – joining forces with CSFB’s Tom Wilde to further develop his saddle point ideas in the context of Basel II. Finally, in a valedictory pair of papers co-authored in 2003 with Roland Ordovas, Thompson introduced Risk’s readership to the technique of credit ensemble methods.

Ironically, Martin’s new position is at CSFB, taking over the running of PortfolioRisk+ a year after Cloke-Browne’s departure to Dresdner Kleinwort Wasserstein. He reports to Surojit Ghosh, head of fixed-income research at the Swiss bank. Thompson’s new post is in the portfolio strategy group at Barclays Capital in London, reporting to Andrew Payne and Keith Ho, co-heads of portfolio strategy at the investment-banking unit of the UK’s Barclays Bank.

At BNP Paribas, the team’s old models will now be managed and developed by Marek Musiela, head of fixed-income quant research. But there are no plans to reconstitute the capital management team, said a BNP Paribas spokeswoman.