According to a report by Lowenstein Sandler LLP, alternative investors are increasingly utilizing alternative sources of data to gain an edge in their investments. Hedge funds have been using alternative data for over a decade, but adoption has increased recently due to the need to assess the real-time impact of the pandemic on the economy and company profits. Alternative data includes various sources such as credit card transactions, satellite imagery, social media monitoring, and tracking CEO movements. The report also highlights emerging sources of alternative data, such as mining online comments and using geolocation and biometric data. Consumer transactions remain the most popular form of data, although there has been a decrease compared to the previous year, while biometrics, scientific research, and satellite imagery have seen significant gains. Acquiring alternative data can be expensive, with firms spending between US$1 million and US$5 million annually, and most firms plan to increase their spending in the future. However, there are risks associated with using alternative data, including regulatory scrutiny and concerns about the cost and time of vetting vendors and extracting meaningful data.
| Signal | Change | 10y horizon | Driving force |
|---|---|---|---|
| Alternative investors using alternative data | Increased adoption of alternative data | Expanded use of alternative data in investment strategies | Need for real-time impact assessment and competitive edge |
| New sources of alternative data emerging | Diversification of alternative data sources | Increased use of online comments, geolocation, and biometric data | Desire for more comprehensive and nuanced insights |
| Shift in popularity of different types of alternative data | Changing preferences for alternative data sources | Decreased reliance on consumer transactions, increased use of biometrics, scientific research, and satellite imagery | Evolving understanding of valuable data sources |
| Increased spending on alternative data | Growing investment in alternative data | Higher budgets allocated to acquiring alternative data | Desire to gain a competitive advantage |
| Risks associated with using alternative data | Concerns about regulatory scrutiny and data quality | Greater emphasis on vendor vetting and data integrity | Need for compliance and reliable data sources |
| Regulatory scrutiny as a major concern | Increased focus on regulatory compliance | Heightened attention to regulatory practices and guidelines | Need to avoid legal and reputational risks |
| Survey of investment professionals | Insights into industry trends and practices | More data-driven decision-making in investment strategies | Desire for informed and competitive investment decisions |