What’s next for alternative data? Can it be (or was it ever) a persistent source of alpha for active management? This short read from BI (paywall) provides a snapshot of the budding alt data industry as we head in 2020. Find our analysis, below.
From BI, the takeaways are 1) yes, alternative data has been a source of alpha to some but 2) that’s melting away, at least from the most commonly used sector data (consumer/retail, credit-card and payments data, etc.), 3) while trends fresh include investment in-house data teams from the industry’s more sophisticated players, broad-based interest in differentiated data-sets, and uptake from PE (and maybe Corporates, too).
Something to watch – watch trends in hiring for in-house alternative data teams, from specialists in data sourcing & strategy to data engineering and investment analysts with specialized training in the analysis of alt data-sets (often sector-based). Is the broader population of active managers investing capital in people and infrastructure? Are the more sophisticated early entrants continuing to hire, pausing, or shrinking their teams? What are there differences between discretionary and systematic managers?
At TLG, we recruit data professionals for active managers and we’ve learned a few important lessons. Active managers – even systematic managers who invest more in their tech stack – struggle with infrastructure, data quality, people, and cost. Absent relevant infrastructure, Quants with well-rounded tech skills are often left to do the heavy lifting involved in acquiring and cleaning alternative data – on top of their existing duties. “Get the quant to do it” is still a thing. Where talented data engineering and data science teams exist, many companies have struggled to integrate them with the business in a meaningful way, and are left fending off FAANGs and start-ups with compelling opportunities. A few serious efforts to train fundamental investment analysts in data science skills have ended with a thud. And all of the above costs a pretty penny.
Yet as struggles in active management continue, the industry must innovate. Look for continued investment in data architecture and growth in both vender-based solutions and in-house solutions which seek to provide insights to a broad-set investors.
Have a story to share or a relevant recruitment need? Reach out to Tom Hudson at firstname.lastname@example.org.