In its recent publication, Casting the Net , the Alternative Investment Management Association (AIMA) published the results of its survey of 100 Hedge Fund managers with insights into how they use Alternative Data.

Questions ranged from the number of years the funds used Alternative Data to the use-cases and challenges they are facing when using the data.

Read the full report here: https://www.aima.org/educate/aima-research/casting-the-net.html

 

One striking observation was the gap in the number of datasets used between “Market leaders” and “Rest of the Market.” AIMA defined Market Leaders as those fund managers who have used Alternative Data for more than five years. Some may call them Early Adapters.

 

source: AIMA

 

Data from the responses shows that 54% of market leaders have seven or more datasets while that number is only 8% for the rest of the market. This means that early adopters of data have largely accepted the need to broaden their coverage and increase the number of datasets in use. In addition, the use-cases for Alternative Data differed as well, with Market Leaders more often using it for Alpha generation (69%) vs the rest of the market (44%). Managers using more data sets were also more likely to use Alternative Data for idea generation.

 

To us, this makes sense. Maiden Century sits between the world’s top investment managers and their most trusted data sources. Most of our clients are in the Market Leaders bucket, though many are in the process of transitioning there. The common theme? Managers add more datasets to increase coverage and improve forecast quality.

 

Our own research showed multiple benefits of having multiple datasets as inputs into your models, the foremost being the quality of forecasts. As managers add unique data sources as inputs to their model, the forecasts for KPIs get more accurate, remarkably so. In our analysis of thousands of predictions, the average forecast errors decreased by roughly four percentage points with the addition of eight new datasets.

 

 

 

 

One area where both the leaders and the rest of the pact clearly struggle is having the appropriate tech infrastructure to onboard and integrate the different types of Alternative Data available to investors. This has become the leading challenge as the number of sources and vendors has exploded in recent years.

 

 

This is why our clients find the IDEA platform so invaluable. Having the right infrastructure to add new datasets and scale their data operation is often as simple as finding the right partner.

 

Ready to chat? We’d love to hear from you!