Traditional data, such as market reports provided by Bloomberg and other data vendors, are no longer enough to provide the complete picture for asset managers. Alternative data that comes from sources as varied as mobile phone activity records, GPS surveys, drone patrols, satellite imagery, and the Internet of Things (IoT), are now just as important as they provide insights into economies and companies beyond the numbers on company reports.
UBS Data Chief Suvrat Bansal wrote this article about alternative data in waterstechnology:
The concept of alternative data initially started with companies trying to improve their own products and services. Examples include Facebook configuring content by its users’ likes and dislikes, and MasterCard analyzing transactions for fraud. These companies soon realized the commercial potential of the data they were collecting, and started selling it to interested buyers. This, in turn, gave rise to third-party providers who collect, process, and supply such data from multiple providers. Examples include credit-card transactions aggregated by Earnest, and satellite image processing provided by Orbital Insight. These developments haven’t been without controversies, and this evolution has raised many data privacy concerns, leading to new regulations restricting the acquisition or distribution of such information without consent.
As more asset management firms continue to explore the use of alternative data, we would like to suggest best practices and recommendations for developing a blueprint for implementation:
• Relevance: The application of these capabilities should differ by investment strategy, such as investment style, sector, region, and asset class, among others.
• Long-term thinking: Don’t rush it. Research processes and investment philosophies were not developed overnight—they result from decades of academic research and industry experience.
• Organization and Engagement Model: This is one of the most important aspects, which often gets overlooked. Developing all the scientific and engineering methods possible to utilize alternative data is not going to produce the intended results unless you begin to transform your research process through these insights.
• Talent: You may need skill sets that are not typically found within traditional asset management organizations.
• Data: Before you go on an alternative data buying spree, give serious consideration to all of the internal data you have at your disposal, including thousands of research documents, transactional activity, historical market data and other information.
• Platform: Leveraging such a wide variety of data and modeling capabilities will require a scalable and flexible platform.
