Old school A classroom at the Institut Henri Poincaré in Paris
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As with so many things French, Napoleon gets much of the credit and blame for this. It was Napoleon who set up the grandes écoles to train the nation's elite administrators in critical math and engineering skills. He was a pretty fair mathematician, not to mention an artilleryman by training. He surmised that the correct angle of cannon elevation counted for as much as, if not more than, skill with a saber. Ever since, two of the grandes écoles, the Ecole Normale Supérieure and the Ecole Polytechnique, have been cranking out many of the world's best mathematicians.
"I never said to myself that I wanted to do math research, but being good in math is the best way to get into the grandes écoles, and that's the entry stamp to French society," says Wendelin Werner, who won the Fields Medal in 2006 and now teaches at Normale Sup, as everybody calls the Ecole Normale Supérieure.
To Werner, it's all about being, well, Cartesian. "When you're young in France, you get graded all the time, and you experience figure-skating-judging trauma — you have no idea why you got the grades you got. You can be a brilliant philosophy student and get bad marks. Math is different. If you solve the problem, you solve the problem, so the smartest kids choose the discipline that seems the most fair."
And in their Cartesian way, some of the most gifted graduates of these grandes écoles take the lucrative exit to quantitative finance. "It's clear that we get very good students who could have made a solid career in pure math," says Gilles Pagès, director the Polytechnique master's program in probability and finance, perhaps the most prestigious financial-engineering master's in France. Each year, 70 to 100 Polytechnique students apply to his program, which selects about a fifth of them. Most graduates start as quantitative analysts in bank research, and by their third or fourth year out of the program, they're often structuring or trading exotic derivatives.
In a funny way, the French quants never leave the classroom. "In France we're suspicious of markets, and we believe that because we have mathematical models, we don't need to understand markets to make money," says Eugene Durenard, who studied math at Polytechnique and now runs a financial-consulting firm in Bermuda.
This attitude doesn't win the French quants any popularity contests. When the markets blew up in 2008, French black-box financial wizardry got something of a black eye. Former French Prime Minister Michel Rocard went so far as to charge math professors with "a crime against humanity." It didn't help that Fabrice Tourre, a 31-year-old Goldman Sachs vice president accused by the U.S. Securities and Exchange Commission of fraud in 2010, graduated from one of France's oldest and best-known engineering schools, the Ecole Centrale de Paris, with a bachelor's in mathematics.
Even Jacques Olivier, who runs the international-finance master's program at Hautes Etudes Commerciales, worries that too much math and too little economics can have dangerous consequences. "The crisis is due in part to all the people who know how to count marbles but have no idea what those marbles mean," he says. Others, like Natixis' Crouhy, feel different. "It's totally unfair to make the quants the scapegoat. People are criticizing the models and the quants, but the quants are hardly responsible for data that is b.s."
Responsible or not, the quants and the programs that train them are feeling the fallout from the crisis. "People are thinking twice before applying for a master's in finance," says Crouhy. Pagès says his financial-engineering program has seen a drop-off in applications, particularly from the grandes écoles, to about 65 a year.
And there are regulatory threats looming. France's top market regulator wants to impose speed limits on high-frequency trading, a form of quant finance that uses computer algorithms to trade in huge volumes at lightning speed. Thierry Francq, secretary general of France's market regulator, recently said, "You have some active retail investors who have quit the market because they feel very uncomfortable since they have no level playing field." Investors and banks are also shying away from exotic derivatives, says Pagès. "It will take a long time before they come back."
The challenge for French quants will be proving that their work benefits everyone, not just an elite few, before that comeback happens.