On occasion, we hear this in our conversations with investment managers: “I don’t need Alternative Data. My process works as is, so why change it?”

 

It is undeniable that data has changed investing, and recently the pace of change has been accelerating. More and more data sources are becoming available to a greater number of investors. New tech, including advancements in data extraction, management, and analytics are making even unstructured data accessible and monetizable for investors. Maiden Century has over 130 datasets ingested onto our platform currently with many more in the pipeline. Today, relying solely on traditional data sources may leave investors with missed opportunities to generate Alpha, stiffer competition, and an overall shrinking opportunity set. Your process may be great today, but any great process can become outdated, especially as the environment around it changes rapidly.

 

Adoption of Alternative Data is Significant and Growing Rapidly

 

Whether you add Alternative Data to your process or not, your peers are either using it already or planning on it. The adoption of Alternative Data is growing rapidly across different investment strategies from public equites to private markets and institutional investors. According to Greenwich Associates, 44% of institutional asset managers and hedge funds currently use Alternative Data in their portfolio construction, with 73% increasing their usage over the past two years. Another study highlights that 50% of institutional investors plan to expand their use of alternative datasets. Moreover, the global Alternative Data market is expected to grow at a compound annual growth rate (CAGR) of 40% from 2021 to 2028, indicating its rising importance and widespread acceptance with different kinds of investors across and various strategies. Market participants using Alternative Data are finding opportunities and capitalizing on them earlier, squeezing Alpha out of an already competitive marketplace.

 

Why use Alternative Data?

 

Don’t forget, Alternative Data is just data and you already use lot’s of data. The word “Alternative” refers to where it comes from, namely, non-traditional data sources. Rather than coming from a public company or an official government institution, this data comes from (mostly) private companies in the business of collecting data or those that happen to generate “data exhaust” as a byproduct of their normal business. This data can provide unique and timely insights into market trends, consumer behavior, and company performance. In short, Alternative Data is just like traditional data but comes from different sources and has a few key attributes that make it attractive to investors over, or in combination with, traditional sources.

 

1. Granularity: Compared to traditional market data, Alternative Data can be much more granular. For instance, transaction data can back into a publicly reported KPI by adding up all the captured consumer transactions from credit and debit cards. This can lead investors to insights into consumer behavior that is just not possible to get with traditional data. Read more about investment use cases of spending data.
2. Frequency: Alternative data can be daily frequency, compared to quarterly reporting of public KPIs and monthly reporting of key macro economic indicators.
3. Timeliness: Alternative Data can be made available on a few day’s lag, compared to weeks or even months for traditional data sources.
4. Uniqueness: There are many insights that can only be sourced from Alternative Data. One example is customer loyalty to a particular mobile app. Read more about App Data use cases.
5. There are several other benefits investors can get from Alternative Data like unique idea generation and Risk Management. Find out more

 

Challenges to Implementing Alternative Data in your Investment Process.

 

Nothing worthwhile is ever easy. Admittedly, there are real challenges to integrating Alternative Data, as the Greenwich Associates study we referenced earlier found that 88% of investors state that data integration is a key obstacle to using Alternative Data. We wrote an e-book on how investors can overcome this and other challenges like building trust in data. Find the e-book here.

 

Conclusion

 

It tempting to believe that your investment process is excellent and can hardly improve.  And yet, even the best managers adapt as the investment landscape evolves. Integrating Alternative Data into your process is not just beneficial but essential for staying competitive in this market.

 

And it does not need to be daunting to start. Many Alternative Datasets are FREE. In fact, Maiden Century has a whole dashboard dedicated to free datasets. Reach out and we can walk you through it.