Alternative data is non-traditional data that is used in the investment process.

Eagle Alpha has defined alternative data across 24 categories.

 


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Alternative data is the next major change to the investment process

In our opinion, the last major change to the investment process was the introduction of expert networks in the late 1990s. There is mounting evidence that alternative data is the next major change.

Blackrock’s Scientific Active Equities Group stated, in a note entitled “The Evolution of Active Investing”, that the role of big data (or alternative data as we prefer to call it) is “underappreciated in the sense that its rise represents a watershed moment in the history of investment management…we believe that in order to generate sustained alpha, investors should embrace acquiring, analyzing and understanding the fast-growing universe of data. Those who are unable to do so run the risk of falling behind in a rapidly changing investment landscape”.

This view is supported by Goldman Sachs Asset Management in a note entitled “The Data Revolution: From Volume to Value”. It stated “we believe the Data Revolution is here to stay and that investors should recognise its potential to reshape the economic landscape. We believe the changes wrought by the Data Revolution will continue to apply across multiple industries – separating winners from losers, based on those who can best use data as an advantage – including in the world of investment management”.

Eighty percent of institutional investors want greater access to alternative data sources to help generate investment alpha. This statistic is based on a Greenwich Associates survey between October and November 2016. Greenwich Associates interviewed 69 US and European based chief investment officers, portfolio managers, traders and investment management firms with between $100 million and $1 trillion assets under management.

Crisil outlined in its May 2017 paper, “Big Data in Asset Management”, that asset managers are increasingly tapping into alternative data to generate alpha and that alternative data sources are expanding rapidly. A survey within the paper carried out by Crisil at its “Big Data in Asset Management” conference in New York showed that 70% of respondents rated Big Data as “Very Important” or “Somewhat Important” to the investment process.

In May 2017, JP Morgan identified alternative datasets at the core of the Big Data transformation in investment management because these “new sources of data can provide informational advantages. The advantage in alternative data according to JP Morgan is that new information can be uncovered that cannot be found in traditional data or instead the same information can be revealed at an earlier time.