Investors are going back to basics, starting with their data
In the decade-long bull market, hedge funds chased an edge by paying up for rare data sets like satellite images of Walmart parking lots or subway ridership data in Madrid.
Now the market has turned, and investors are scrambling to get their hands on basic and boring numbers, such as minute-by-minute data of asset prices in the 1970s, when rates were last soaring and a recession loomed.
Years of pricing data, inflation trends, and position crowding — which measures how many investors are piling into the same trades — have become a hot commodity, hedge-fund executives said. Daryl Smith, the head of research at consultant Neudata, says there’s been “above-average interest” in “vanilla” datasets for several months now.
While some of this data is easy enough to find — there’s plenty of research on the dot-com stock boom — established managers with years of internal data have a distinct advantage right now. It’s why Renaissance Technologies’ decades of market intel is one of its most valuable resources, as the legendary quant firm’s co-founder Howard Morgan recently told my colleague Liz.
Newfangled datasets just don’t have the longevity to help. “The quant traders who started in the last couple of years, maybe they bought 10 years worth of data to back-test their models,” Morgan said. “It’s very skewed towards up markets.”
And alternative data — a catch-all industry term for any information that doesn’t come from traditional sources like securities filings — may not be worth the cost when investment firms are more aware of their bottom line.
Room for Disagreement
A small group of alternative data sets have proven their value and become requirements at top investment managers. The credit-card data from Yodlee and web-scraping intel from Yipit are now critical inputs, not luxuries, into Greenwich investment models.
Industry experts like Chris Petrescu think a return of volatility will create a need for more alternative data to get “multiple angles on your investment universe.” And recent research from IMARC Group expects the broader alternative data industry to grow by an average of 50% a year through 2028.
The View From Washington, D.C.
Alternative data has already been in the crosshairs as regulators and lawmakers embrace consumer data-privacy.
In 2020, three U.S. lawmakers called on the Federal Trade Commission to investigate Yodlee over whether it is even allowed to sell the consumer datasets it created. The agency obliged but the case was closed in November 2020 with no action, according to filings from Yodlee’s parent company.
- The markets’ shift was reflected at BattleFin’s annual alternative-data gathering in Miami two weeks ago. In 2022, the conference held a fireside chat with the CEO of a plane-tracking data provider. This year’s sessions focused on earnings data and inflation.