Coatue and Fidelity are early adopters of $12.4 billion startup Snowflake's new data exchange - here's why they think it can transform Wall Street

• As Wall Street's obsession with data continues to grow, firms are eager to make digesting information as easy as possible.
• Buzzy startup Snowflake, most recently valued at $12.4 billion, has launched a data exchange that already counts hedge funds like Philippe Laffont's Coatue and data vendors like FactSet as users.
• "I think it's going to be the way people want to access data in the future," Gene Fernandez, chief technology and product officer at data giant FactSet, told Business Insider.
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Financials firms - from the biggest banks and asset managers to small family offices - are using more data than ever.

The flood of information has proved valuable for their investing strategies. But there is a cost to managing so much data, and it's not just the actual money spent paying for the feeds.

"A lot of time, effort, and tech is wasted on just moving data around and formatting in a way that makes it usable for analytics," Gene Fernandez, chief technology and product officer at data giant FactSet, told Business Insider. "It's attractive to everybody if we can kind of reduce the amount of time that's spent on that low-value, pretty far away from the use-case effort."

Enter Snowflake, the buzzy San Mateo, California-based startup that built a $12.4 valuation helping firms manage data across public cloud providers.

Last summer the startup, which has raised more than $1.4 billion to date, rolled out its public data exchange - where data ingestors like Philippe Laffont's Coatue Management can connect with and receive feeds from providers like FactSet.

Off of that launch, and encouragement from customers, particularly those on Wall Street, Snowflake is slowly rolling out private exchanges managed by the data consumers themselves to a select group of clients, with a wider launch planned for the summer.

"I think it's going to be the way people want to access data in the future," Fernandez said.

Alex Izydorczyk, Coatue's head of data science, cited Snowflake's initial position as a data warehouse as a reason the exchange is so appealing.

The startup didn't set out to solve this problem. Snowflake executive Matt Glickman, who is leading the exchange business, told Business Insider "it just fell out of our core product."

For that very reason, Izydorczyk said, the startup's data exchange has a leg up.

"The data exchange integrates with the warehouse, effectively, allowing data vendors to transfer data to customers' data warehouse without additional engineering effort," he said via email. "This removes the [exact, transform, load] step that is traditionally necessary to integrate an organization's data into a single warehouse. The seamless nature of that process made it appealing and differentiated."

That step can take "hours or days," Izydorczyk said, a significant amount of time for hedge funds that are constantly searching for an undiscovered trade.

Fidelity's Sunil Desai, the Boston-based mutual fund giant's VP of data architecture, said it saves his firm four to six weeks' worth of work per data set. Fidelity is planning to use the data exchange for "sharing the data with our external clients and vendors," he added.

Pete Petersen, the chief technology officer for $52 billion asset manager Causeway Capital, said that "cleaning up the data pipelines is the most important priority" for him and other CTOs in finance.

"This is our most important problem," he added.

Data exchanges are becoming more common across Wall Street

To be sure, Snowflake isn't alone in looking to solve Wall Street's data woes via an exchange.

Izydorczyk said "it seems unlikely that either a marketplace or a data transfer protocol would be entirely winner-take-all - there are several other solutions on the market already."

Fidelity, Desai said, is also planning on using multiple exchanges going forward.

Two Sigma, Goldman, and Citi invested $41 million in startup Crux Informatics, which has a similar goal of improving the plumbing for data. Business Insider reported in February the fintech faced several changes to senior leadership over the past 12 months.

Public cloud providers such as Amazon Web Services, Microsoft Azure, and Google Cloud Platform are also well-positioned to offer similar products. Meanwhile, Battlefin and Eagle Alpha have built up market share catering specifically to alternative data.

But what sets Snowflake apart is its neutrality. For one, industry sources say hedge funds are hesitant to work with platforms backed by one of their competitors.

Also, Snowflake is cloud-agnostic, meaning it can work across the various cloud providers. For firms looking to avoid being restricted to a single provider, that's a key benefit, Fernandez said.

And so while cloud providers have the size, customer base, and positioning to potentially under cut Snowflake, keeping their services proprietary to their own system will remain a major hang-up for many firms, he added.

"Technically there's no reason why they couldn't make it compatible with others," Fernandez said. "But right now, for the most part, if you buy an AWS service, it's only gonna run on AWS."

There's always a chance that a big cloud company like Amazon could usurp Snowflake and others because, as Causeway Capital's Petersen said, "anytime you do business with the Amazons of the world, there's a potential for that."

But Petersen is confident that Snowflake has a "big head start - at least a couple years."

"Snowflake might have too much of an edge on a supply-chain basis," he said.

The larger the network grows, the more data providers are going to feel the pull to join as well. A spokesperson for Refinitiv said the data giant is in exploratory talks with Snowflake about a potential relationship, but declined to get into details.

Meanwhile, S&P Global Market Intelligence's Capital IQ is close to joining.

"We continue to work with Snowflake and other cloud providers to enhance our clients experience with our data and extend our delivery options," a spokesperson for S&P Global Market Intelligence.

Snowflake still needs to grow

To be sure, the Snowflake's platform is still young.

Industry observers pointed out the exchange doesn't currently offer any additional analytics or transformation of the data before giving it to hedge funds and banks - a potential problem for growth, since there's a limited set of firms that have the data science capabilities to get use out of such large reams of data.

Glickman though doesn't foresee this as an issue for the young exchange. He believes infrastructure will be built on-top of the platform by the data ingestors, and views the exchange as transformative as the internet.

"Most of these data flows are already happening today, we are just removing the friction," he said. "I honestly think this is the same level of enabling that the internet was."

One of the biggest reasons Glickman is confident in the future of the exchange is that many of the firms that want to eventually join the exchange already use Snowflake for storage, making the pitch that much easier.

"Apple's app store wouldn't have been a success without the iPhone," he added.

For all the interest hedge funds and data providers have shown in Snowflake, one key group remains noticeably absent: banks.

In May 2019, Business Insider reported JPMorgan tapped Snowflake's data warehouse to help the bank with its cloud strategy. A spokesperson for JPMorgan declined to comment about whether the bank was considering joining Snowflake's data exchange.

Meanwhile, Morgan Stanley is exploring commercial solutions such as Snowflake's data exchange.

Allison Gorman Nachtigal, head of the cloud center of excellence at Morgan Stanley, told Business Insider via email delivery data and insights to clients in a "highly scalable, secure and resilient" way while also keeping pace with demand is critical.

"Using a data exchange which they understand and trust would simplify a historically complex data management problem for financial services providers and provide clear advantages for clients.," she said. "We see the potential to service existing clients faster and more efficiently, and also believe we can more easily engage in new opportunities."