Rethinking Alternative Data in Institutional Investment

Abstract

As alternative data steadily become mainstream in finance, institutional investors may benefit from rethinking how they engage with alternative datasets. Specifically, they could gain from rethinking (1) alternative data’s value proposition, (2) how they characterize alternative data, and (3) how they access alternative data. Rethinking their approaches to alternative data in these ways can help investors select alternative datasets that better align with their organizational resources and contexts. Such rethinking offers the greatest advantages when it focuses on building defensive and defensible strategies around alternative data, rather than prioritizing quicker exploitation of short-lived opportunities. Rethinking alternative data will require institutional investors to investigate new partnering possibilities, which should help them weather (and even thrive during) the escalating arms race among financial-market participants for alternative data. Building capacity for alternative data in these ways could also help investors accelerate innovation.

TOPICS: Big data/machine learning, security analysis and valuation, equity portfolio management