As firms venture into alternative data, a common question emerges: “Where should we start?” This blog is tailored to firms taking their initial steps into alternative data strategy, drawing from Eagle Alpha’s extensive experience and insights from working closely with buyside firms. We provide a roadmap for firms to navigate this complex but rewarding landscape by highlighting first steps, challenges that firms experience, and tips from early adopters.
For more information on how Eagle Alpha can assist with your alternative data strategy, contact us here: Eagle Alpha Contact.
The First Steps in Alternative Data Strategy
The first crucial step is to appoint a project lead to kickstart an alternative data strategy. This should be an internal candidate well-versed in the firm’s investment processes. Although this role does not require full-time commitment initially, it should be supported by a dedicated working group to ensure the strategy is effectively executed.
Next, it’s essential to establish a realistic budget early on to show commitment and to view this investment as a long-term initiative rather than a short-term expense. Alongside this, form an internal working group comprising members from operations, procurement, legal, compliance, and IT, and a senior management sponsor. This multi-disciplinary team will be responsible for setting up procedures and best practices for the data initiative.
An audit of existing processes is necessary to understand and document the current investment process, including the data and tools already in use. This helps identify any existing use of alternative data and pinpoint areas that are most receptive to initial focus. Based on this audit, funds can determine the best starting point. Finally, define clear success metrics to measure the contribution of alternative data to investment decisions, considering both the success of individual datasets and the overall data strategy.
Tips from Early Adopters
The most successful alternative data initiatives frequently stem from strong top-down leadership, highlighting the importance of support from senior executives like the CEO, COO, or CIO. This top-level endorsement ensures the alignment of the data strategy with the company’s broader objectives and secures the necessary resources for its execution. Equally critical is fostering team buy-in by sharing success stories and practical examples of data applications. Creating a supportive culture throughout the organization is essential for sustaining long-term success.
Starting with manageable datasets or dashboards and refining the process incrementally is a recommended approach. By running multiple small projects in parallel, firms can avoid the creation of silos and overly narrow use cases. Moreover, adopting a long-term perspective is vital, as building a robust data-driven culture takes time and persistence. Viewing the data initiative as a multi-year project helps in setting realistic expectations and maintaining momentum over the long haul.
Common Mistakes to Avoid
One significant challenge to avoid is skipping strategic steps and jumping directly into dataset acquisition without a clear plan, as this can lead to compliance risks and strategic missteps. Instead, it’s important to develop a comprehensive alternative data strategy before making any data purchases. Additionally, resist the urge to over-hire in the initial stages. Attempting to handle everything in-house can be a pitfall; leveraging outsourcing for both technical and strategic aspects can help scale operations more effectively.
Another common mistake is over-planning, which can lead to analysis paralysis. While planning is essential, maintaining flexibility and adapting the strategy as needed is crucial. Managing expectations is also key; understand that the payback period and impact of alternative data may take time and should be viewed as a tool to complement existing processes, not a silver bullet. Avoid focusing on a single dataset or research question, as over-reliance can hinder the development of a robust data strategy. Finally, persistence is vital. Many data trials may not lead to immediate purchases, but ongoing efforts will provide valuable insights and eventually yield successes.
Final Thoughts
Whether you are an established fund with a robust alternative data strategy in place or a firm just starting out, for more information on how Eagle Alpha can help you innovate and take the next step on your alternative data initiative, Book a demo today.
