The citing of “alternative facts” by the Trump administration might be galling to the press and to Trump detractors, but “alternative data” are in high demand from asset managers.
Of course, what money managers are looking for is not alternatives to quantifying crowd sizes or counter-narratives to unflattering media coverage, rather sources of data that go beyond the traditional releases from such official sources as governmental agencies or regulators.
And that demand is overwhelming. Eight-in-10 asset managers or hedge funds inquired by Greenwich Associates for the report titled Alternative Data for Alpha insisted that they would like to have much greater access to alternative sources than the traditional sources the currently have.
But what exactly qualifies as alt data? Based on the responses from investors, a wide variety of metrics could serve as such, if leveraged properly--from satellite imagery of traffic flows, crop growth, cargo ship movements, etc., to sentiment analysis of social media posts. Asset managers with the ken to gather from seemingly random Facebook or Twitter posts what products people are dissatisfied with, or what new service excites early adopters, would represent a new breed of investment guru.
So, what stops professional investors from getting what they want? A number of factors, apparently. For example, firm-level constrains like internal procurement processes that are too cumbersome. Or the fact that management in most firms is older and not entirely convinced about the usefulness of social media platforms as sources no matter how much younger staffers rave about them.
Yet the single most important of all obstacles is the prohibitively high fees–or so asset managers say–charged by providers of alt data. But, question, if you stand to make millions of dollars from such information, is its cost really prohibitively high?…