Asset managers: Driving outperformance through alternative data

Published on by Priya Vaidyanathan

The asset management sector faces a series of challenges, including volatile markets, heightened regulatory pressures and rapid technological advancements. Margin pressures and a fiercely competitive environment have forced asset managers to differentiate themselves and generate alpha by moving beyond conventional analysis.  Alternative Data in Asset Management plays a crucial role in this shift, enabling firms to leverage insights ahead of competitors and secure a superior return advantage.

With global asset managers constantly pursuing alpha generation to differentiate themselves, generating robust investment strategies becomes crucial. Clients demand quick and actionable insights and constant updates from investment managers. To stay ahead of the game, firms must constantly filter large volumes of data, sift through data reliability and provide portfolio readjustments as necessary. The need for risk management and the complexity of regulatory requirements add to the difficulty in alpha generation. . While firms have significant experience in handling traditional data, asset management firms are pursuing integrating alternative data in asset management into their decision-making process. Initially pioneered by hedge funds, alternative data sources – including social media trends, geospatial information and satellite imagery – are witnessing a spike in demand across the asset management sector. This entails investment in highly skilled investment research teams that could be complemented by data engineering, advanced analytics and machine-learning capabilities.

What is alternative data in investment research?

Alternative data in asset management refers to the non-traditional data sources used by asset managers in addition to the traditional sources such as company filings, market data and industry metrics to help in overall investment research. Tracking market sentiment and trends and analysing customer spending patterns are some ways in which asset managers corroborate their primary research and offer interesting insights.

Data sources typically used for research

 

Use of alternative data in investment research

   

Challenges in using alternative data

While alternative data in asset management has high potential to augment research, it is associated with challenges such as a lack of standardisation, concerns around reliability, regulatory suitability and speed and volume of raw data. Data cleansing and validation are also key challenges firms face in using this data. Options available to investment research teams in using this data include the following:

 

How Acuity Knowledge Partners can help

While most asset managers have invested in a specialised data sciences team, retaining a scalable team is time-consuming and expensive. We offer bespoke solutions, based on a client’s nature of research, type of data and depth of data management and analysis required. Alternative Data in Asset Management is increasingly being integrated into investment strategies, and our solutions help firms effectively leverage this data for deeper insights. We provide a comprehensive research solution, complete with a team of domain specialists across asset classes (equities, credit research, ESG research and private market research), data analysts and technology experts. Our team of highly qualified and experienced analysts work as an extension of a client team. We have one of the largest pools of research analysts with professional degrees in finance (such as CFA and CPA), supported by our Training and Knowledge Management team and a CFA Institute-accredited equity research training programme.

Our ability to work across the value chain of investment research provides a risk-free and cost-effective solution that enables asset managers to offer differentiated research/investment ideas. We also provide the ability to ramp up or down, based on requirements, and our multiple delivery locations offer support across time zones.

Case Study: Bulge-bracket IBs: acquiring scalable alternative data sets to enhance equity research

Client sponsor: HoR, US and EMEA

Client need: One of the pioneers to use alternative data for investment research, the bank wanted to add additional bandwidth to ramp up the data acquisition effort and creation of an in-house data lake. Acuity has a team of 7 equity researchers and 2 ML engineers dedicated for the bank

Targeted key performance indicators for 12 sectors

On a consumer stock, Acuity created a data product for 60,000 data points across 1,600 points of sale. Based on this unique operational insights, the analyst initiated a contrarian long view vs. the consensus

Tech Used :

Europe-Headquartered Bulge Bracket IB

Client sponsor: Head of Primary Research

Client need: Post MiFID II, the bank started leveraging a third-party platform to source alternative data. The platform had limitations on scaling up especially for complex websites. The bank deployed a Acuity team of 5 ML engineers and 1 Data Scientist to build a proprietary platform

Unique insights across 18 sectors by sourcing 20mn alternative data points

 

Tech Used:

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