Demand for new sources of data among institutional investors is driving double-digit growth in annual budgets for alternative data and putting new emphasis on internal data management capabilities., according to a new report – Alt Data for Investing: Not So Alternative Anymore by Coalition Greenwich.
Approximately 45% of the 25 asset managers and hedge funds canvassed, report their firms now use alt data in their investment process and portfolio construction.
Almost another quarter of the respondents say they plan to follow suit in the next 24 months.
The research found that spending levels on alt data are also on the rise. Of those deploying alt data, firmwide annual budgets in 2021 are $723,000, up 22% from $593,000 last year
It defines alternative data as unique, non-traditional data sources that can add valuable explanatory power to both quantitative and fundamental investment models.
The report notes that alternative data sources, alongside factors related to environmental, social and governance (ESG) investing, are increasing the data points used in the investment process. However, most investment managers today are not satisfied with how well alt data is incorporated into their investment decisions.
This is mainly due to alt data often being “unstructured,” drawing from text and other media that can be difficult to organise and interpret.
As a result, data management processes such as data acquisition, tracking and validation are becoming increasingly important to investors.
“In fact, many of the study respondents consider tools and techniques to harness alt data to be just as important as the data itself,” says David Easthope, Senior Analyst for Coalition Greenwich Market Structure & Technology and author of the report.
He adds, “With the hundreds of alt datasets available, it’s not exactly easy. Moreover, the number of data types seems to be growing exponentially.
While some data providers like Bloomberg, FactSet and Refinitiv are working to make the data easier to use, new and previously undiscovered datasets seem to arrive monthly.”
Easthope notes, “Alternative data does not stay alternative forever, so managers must be consistently on the lookout for new data sources to supply an edge, leading to a continuous evolution of the alt data ecosystem.
©Markets Media Europe 2021