Web of Alternate Data For Business

Narendra Srivatsa, GoForwardGroup, LLC

What is Alternative Data? How is the adoption of this dataset providing value? To develop an understanding of this, one needs to realize the many advantages of using Alternative Data and what it can mean for your business. You need to define “invaluable” and look at your data center for what you have available.

What is Alternative Data

Alternative data as used in Finance is data that provides additional insight or “alpha” to the investment process. It is generally data that comes from outside of traditional resources like corporate filings, presentations, brochures etc. In other applications, one could view alternative data as that provides additional insight not got from conventional data.

Some of the significant benefits of Alternative Data are:

1) Value
Alternative Data has found an increasing adoption in the investment management market as people are looking for that nugget on the “Buy” side to provide competitive advantage. Additionally, the spending on Alternative Data does not come from their research budgets which allows competing avenues to exist.

2) Unstructured Data
This area is growing with many of the data users going after unstructured data which is part of the Alternative Data universe. 

3) Volume and Cost
Most data available has come about in the last 2 years with Alternative Data providing the bulk of it. Alternative Data can be lower cost and provides unique insights.

4) The 80/20 rule
One of the biggest costs is in data cleansing and it takes the longest time with about 80% or more of your effort in the process. The data analytics development part is the easiest and takes less than 20% of the total effort. In this sense the cost of the data when it is already curated becomes key and Alternative Data can offer benefits here as it could be customized to your use case.

It is easy to see why the growing emphasis in Alternative Data as they fulfill a clear unmet need and can be cost effective.

 Some examples of alternative data include:

· Geolocation (foot traffic)

· Tracking information on flights and shipping

· Tracking information on key execs travel

· Aerial imagery

· Social media

· Online browsing

· Product Reviews

· Price trackers

· Supply and logistics data

· ………………………..

Generally, this type of information is acquired through web scraping or web harvesting by the user themselves or their suppliers, followed by curation based on how the data is being used. Many smaller firms got into this space and did well. Now, major data user and provider organizations like S&P, Moody’s (with their recent purchase of Quandl), Bloomberg and others have entered this space as providers and users.  Alternatively, there are several companies like JP Morgan and others who use their own resources to develop capabilities in this arena for their use.  There is also increasing spend in this area demonstrating that companies are seeing value and do not want to be left behind.

Let us examine some example use cases of Alternative Data:

Potential Acquisition Example

Rumors of a potential acquisition or acquisitive interest can get validated by tracking the movements of C level executives from the acquirer or to be acquired company. This information can be picked up from flight information (tail numbers of private jets and their flight paths) or similar information. This can potentially give an investment manager an edge in buying ahead of the news.

Commodities Pricing Example

Commodities pricing can be very volatile and even a 5% movement can cause huge impact. Companies hedge these risks by betting with a portfolio of spot and futures positions. When there are instances of not being able to see pricing visibility of the futures contracts, they look for alternative data as from companies like MetalSignals on available supply and inventory to predict pricing. This will also provide them insights into competitive pressures in the market based on geography etc.

MetalSignals is a web app that provides satellite-imagery based data, trends, and analysis for global Aluminum, Copper, and Zinc production and storage. The data trends and analysis is based on changes in daily, weekly, monthly, and year-over-year growth in metal concentrate and finished product stored outside at hundreds of individual smelters and storage facilities. MetalSignals also rolls up the production and storage data for each location “by type” (e.g. aluminum smelters, zinc storage) to generate trends and signals that are predictive of exchange metal price and inventory. Users can create their own custom favorites lists of selected locations and groups of locations, automatically generate alerts and signals for periods of significant change and generate shareable PDF report summaries. There are similar providers for other commodities.

What is the Spend in Alternative Data

Various sources estimate that current spending in 2017 on alternative data is about 4% of the approximate $9.5 billion attributable to buy-side spending on investment research and market data.  This total is projected to reach well over $1.2 billion by 2021. This spend is also a different line item spending than their budgets for research and the buyers of this data have traditionally not been buyers of investment research. Ultimately, what this means is that data providers who offer research, or research providers who also offer data have a potentially larger number of clients and larger potential budget to fund the purchase of their products or services.

All this is changing with research firms increasing their spending on alternative data and alternative data firms spending more on research which can change the dynamics in the marketplace for providers. They will compete for an ever-shrinking market opportunity and alternative data will compete for spending resources within their organizations. 

Is it not time for you to decisively act to go forward? Perhaps the nugget below might help you decide

Interesting nugget on the amount of data generated daily by 2025: 

An average person is believed to blink about 28,800 times a day. In that same time, it is estimated by IDC that over 463 EB (that is 1 followed by 18 zero’s) of data is generated daily by 2025. To put it in perspective, over 16 petabytes of data is generated every time we blink. This is more than the data that most data provider companies have in their repository today. The market is just seeing exploding growth!!!  Much of this data is what we now call Alternative Data. We certainly can help you in a number of ways.

If you have any questions or need help, the author can be reached at nrsrivatsa@goforwardgroup.com

About the author: Narendra Srivatsa is now an independent consultant who comes with rich industry experience with a career across multiple verticals from his roles at International Paper, Cortegra, BMS, Regeneron and Verisk Analytics.   He is an accomplished business leader who executed strategic growth in different verticals.  He is a market-driven execution expert to make sense of complex and disparate sets of quantitative data and derive meaningful decisions and business strategies from them to exceed business objectives consistently. Narendra has a Ph.D in Chemical Engineering from SUNY at Buffalo and his bachelors in Chemical Engineering was from I.I.T. Madras, India.