Vanson Bourne survey finds that 1 in 4 institutional-based financial services professionals collects, and integrates alt data daily
Key survey takeaways range from still being in the alt data ‘early adoption’ stage, presenting exciting opportunities for investors to gain ‘market information advantages’, as well as how alt data is enabling ‘augmented securities evaluations’
In this piece we will provide you with an:
Vanson Bourne has released a new financial industry report, surveying 100+ professionals in the U.S. and U.K. from the:
- Hedge/Quant fund
sectors, about their alternative data versus legacy data usage.
Here are the key survey numbers:
- The survey concluded that 24% of institutional-based financial services professionals collect, and integrate alt data into their day-to-day operational workflow.
- 64% use alt data as part of formulating their ongoing investment strategies, while 59% leverage it in order to understand, and improve customer experiences crucial to retention, and client-acquisition.
- Key alt data integration obstacles within the context of banking include issues at the analysis level 75%, while the other 25% cite data-sourcing/procurement, as their main challenge.
- 77% of U.S.-based businesses find it ‘easy’ or ‘very easy’ to integrate alternative data sources into decision-making, while only 49% of their British counterparts have a similar ‘ease-of-use’ experience.
In-depth survey analysis, and key takeaways
How commonplace is alt-data usage among financial services professionals?
The survey concluded that 24% of institutional-based financial services professionals collect, and integrate alt data into their day-to-day operational workflow.
This means that, based on Everett M. Rogers’ ‘Diffusion of Innovations Curve’ (see below), we are still in the ‘Early adopters’ / ‘Early majority’ stages in the investment management constituents alternative data adoption cycle. Seeing as alt data is sought after by financial institutions, for the most part, due to its ability to afford a ‘market information advantage’, now is an excellent time to get in on the mezzanine level.
Good examples of alt data-based ‘market information advantages’ include using:
- Credit card transaction data to estimate sales volume instead of traditional legacy footfall data.
- Crowdsourced data, indicative of factors such as commercial rental prices, and shopping trends enabling investors to respectively identify favorable market value fluctuations, as well as recognizing new market demands before making any concrete Private Equity commitments, for example.
- Energy consumption, including gas emission, toll road, and electricity data to determine usage levels in target markets, and ensuing commodity price movement.
How are organizations utilizing alt data in practice?
64% use alt data as part of formulating their ongoing investment strategies, while 59% leverage it in order to understand, and improve customer experiences crucial to retention, and client-acquisition.
Regarding alt data informed investment strategies, the main reason why funds have found value in this context include:
- Getting a real-time picture of investor social sentiment, as was the case with ‘The Big- Short Squeeze’
- Augmented securities evaluation, as was the case with recent Cannabis stock price fluctuations, based on social sentiment, Mergers and acquisitions [M&A] data, and news stories (in this case pertaining to legalization).
Regarding alt data-informed consumer experiences, this is important for both investment analytics, and trading tools aimed at the masses, as well as for boutique investment houses, and hedge funds geared towards the ultra wealthy. In order for digital wealth management services to be successful, they need to fully understand their:
- Point of Sale (PoS)
- Brand perception
- Software as a Service (SaaS), and analytics product cycles
- Core audience, and aspirational customer attention spans
To this effect, they are using alt data points including (but not limited to):
- Brand sentiment on social media (shares/posts/mentions/likes)
- Search trends (including keywords, competitor/brand mentions)
- Transaction volume (both platform-native, and in financial markets at large)
- User engagement (including value of impressions, click-through rates, and messaging across competitive landscapes).
What are the key obstacles to integrating alt data within the context of banking?
At the analysis level 75%, while the other 25% cite data-sourcing/procurement, as a key issue.
Data analysis becomes increasingly difficult when data sets collected are unstructured, have inadequate lineage, and/or poor data quality. Financial sectors are also:
- Increasingly relying on a wide variety of data sources, making crossrefrencing more challenging.
- Faced with semi/unstructured fiscal data which does not conform to pre-set data-driven investment models, and algorithms. Good examples of alternative data sets in this context include Environmental, social, and governance (ESG), social media sentiment, and earnings call transcripts data.
Where is corporate alt data integration more complex – in the U.S. or U.K.?
77% of U.S.-based businesses find it ‘easy’ or ‘very easy’ to integrate alternative data sources into decision-making, while only 49% of their British counterparts have a similar ‘ease-of-use’ experience.
According to a Bank of England report, the reason for this is largely due to U.K.-based regulatory obstacles pertaining to data collection, and analysis technology.
Here are the major reasons for the American-British data collection divide:
|1||Businesses can hold onto data indefinitely, based on their own, internal corporate Terms of Service (ToS)||Continental data regulations require companies to remove data points that do not directly pertain to their predefined business goals.|
|2||Privacy laws have a tendency to change based on whomever is currently in the administration.||Privacy laws tend to be more of a constant with fewer partisan divides.|
|3||Consumers have much less ownership over their personal data meaning corporations can more readily drive profit margins up using online user engagement data.||More consumer-focused protections enable users to edit, control, and even completely remove their personal data from corporate/public databases.|
When managing Mergers & Acquisitions (M&A) across the pond it is important to be aware of these differences. This divergence should also be an important consideration when thinking of expanding globally to new markets.
The bottom line
The proliferation of alt data usage among institutional financial professionals is well on its way but is still ‘young enough’ in order to still present real opportunities for early adopters. The longer firms hold off on implementing an operational external data strategy, the more they put themselves in a precarious strategic position in the context of their individual, sectorial competitive landscapes.