2017 is the Year of Alternative Data

Alternative market data (satellite photos, sentiment analysis of news & big data, receipt information, and more) is beginning its moment of greater adoption and importance across Wall Street. Already this year Greenwich Associates published their Alternative Data for Alpha report finding that “The buy side today has access to data and information that would have been unheard of 20 years ago.” TABB Group also published a report indicating that over the next 5 years spending for alternative market data will double from a current $200 million annual spend rate. This data is becoming more available for a variety of reasons – greater computing power, new analysis techniques (machine learning, AI (machine analysis), NLP, etc.) and generally greater access to largely unexplored orĀ  under-applied sources of data. In Business Insider’s recent article, Wall Street is finding ways to make money off your every move, Rachel Levy discusses the growing use of online shopping receipts and GPS data from mobile phones as part of the growing trends in alternate market data. Alternate market data is not wholly new; what is new is the adoption of this data outside of the highly niche quantitative hedge fund space.

 

“This info (alternative data) helps investors figure out where to put their money and gives insight into, for instance, how stocks will perform” Rachel Levy

As mentioned by both Greenwich Associates and TABB Group the use of this data is expanding across the buy-side. While alternate market data will need to continue to evolve enabling a true alpha edge there is also the very real possibility that alternate market data will become a commodity data set necessary to remain competitive across the investment industry. As the use of this data grows we will also see the use cases migrate from trading to portfolio construction and risk management phases of the investment life-cycle. In meeting with our clients and prospects we see 2017 as the year that alternative market data becomes a critical topic when evaluating the data strategy for any hedge fund, asset manager and institutional investor. While this year is the year of vocal prominence for alternate market data; this is just the beginning. Discovery, evaluation and integration of valuable alpha driving data will become the minimum bar for market participants and continue accelerating past 2017. Don’t expect to 2017 to be first and last call to embrace and benefit from the beginning proliferation of alternate market data.