Shayanne Gal/Business Insider
Well-known data-sets have become table stakes, not a competitive advantage.
- The constantly changing alternative data space is set for more growth in 2020, according to one data platform, but the datasets, structure, and clients will be different.
- After primarily selling to hedge funds looking for any edge to beat the market, alternative data platform Adaptive Management thinks that corporations and private equity will jump into the space in 2020.
- More clients will likely choose to receive unstructured data feeds so they can manipulate the information as they see fit.
- Those shifts are happening because long-time alternative datasets - like credit card data and cell phone-tracked foot traffic at retailers - have already lost their edge because they've become so widespread.
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From a distance, alternative data's 2020 will look similar to the industry's 2019, at least according to one data platform.
There will be new vendors, each hawking a new and increasingly obscure dataset, and a growing pool of possible clients, who see data as the way to beat the market in the most efficient way possible.
But 2020 will be notable for a few reasons, according to Adaptive Management, an alternative data platform that hosts providers' offerings and connects them with interested buyers.
The platform, started by former Tiger Management portfolio manager Brad Schneider, also lets users search for specific stock tickers to find datasets that correspond to companies like Netflix and Facebook.
Hedge funds, long the alternative data space's target audience, will be joined by private equity and corporations next year, Adaptive thinks, deepening the potential pool of clients for young vendors that have found the space increasingly difficult.
Even well-known players, like geolocation data provider Thasos, have fallen on tough times.
Private equity's push into alternative data has been somewhat telegraphed already. Many of the biggest players, such as KKR and Blackstone, have poached data talent from other kinds of asset managers to lead their efforts.
A survey by AlternativeData.org found that while just over a quarter of private equity firms currently use alternative data, another 25% plan to in the near future.
"We're already seeing a huge spike in interest among PE firms. Many are moving to quickly adopt alt data as part of both their sourcing and due diligence processes," Adaptive wrote.
Corporates will be slower to enter the space, Adaptive predicts, but the industry is already prepping for the entry. At Battlefin's New York conference in June, there were separate panels and talks for corporations curious on how to use the information being sold by vendors.
And the type of data clients are looking for will change in both content and structure, Schneider's firm predicts.
"Generally we're seeing a second wave of data usage happening. Alpha from the most popular (consumer related) data sets is swiftly getting arbitraged away, forcing users to dig deeper and use that data in more creative ways; not everyone will have the time, patience or ability to do this," according to Adaptive.
Well-known data-sets have become table stakes, not a competitive advantage.
As firms are forced to seek out newer streams of data from different sources, Adaptive's platform this year found that airline, financials, automotive, and employment data were the most searched this year. Based on the growth rates of certain categories, Adaptive predicts that these four categories and commodities data will be some of the most sought-after sets next year.
For sophisticated hedge funds, raw data feeds might become more appealing, as firms continue to build out their own teams that can clean and synthesize unkempt data into investment ideas. The competitive advantage becomes not the information or tool, but what you're doing with it - which is also a reason commonly cited for why hedge funds and banks have begun to open up their code and data tools to the public.
"Others will take a gamble on newer data sets (with little history, or proven predictability), or rawer data sets (bills of lading) which have proven value but are not easy to wrangle," Adaptive wrote.