March 14, 2023 | Stamford, CT — Almost half of institutional asset managers in a recent Coalition Greenwich study are using alternative data sets as part of their investment process. 

Alternative data or ‘alt data’ are new, unique data sources that add valuable, explanatory power to both quantitative and fundamental investment models. Today, alt data is now less alternative as adoption increases and new data sets expand the frontier.

Forty-four percent of the institutional asset managers and hedge funds participating in a recent study by Coalition Greenwich are using alt data sets as part of their portfolio construction or trading process and nearly three-quarters say their use of alt data has increased over the last two years.

“Almost two-thirds of institutions that employ alt data believe their use of these data sources adds at least some alpha,” says David Easthope, Senior Analyst for Coalition Greenwich Market Structure & Technology and author of Alternative Data Continues Its Multi-Year Growth Trend.

Overcoming Obstacles to Mass Adoption
Despite the optimism, investors cite significant challenges that are limiting their effective use of alt data. In addition to costs and difficulties sourcing data, almost 90% of asset managers say integrating alt data into their investment processes remains a key obstacle. In fact, virtually all study respondents say the tools and techniques for analyzing alt data are just as important as the data itself.

The proliferation of alt data has resulted in the need for better technical integration with existing databases and models, and increased demand for internal resources focused on handling the new and unique data sources. To harness alt data, users need aggregation, normalization and integration capabilities, as well as tools and technologies to support their workflows. 

For alt data to reach the mass-adoption tipping point, specialized data providers, brokers and aggregators will have to do more to help investors integrate and apply the data to their models. They must remove critical obstacles by offering solutions that include normalized data sets, client support and data expertise. 

“Alt data should no longer be treated as an appendage to the existing investment process but, instead, as a core requirement that is supported with advanced databases, data scientists and modernized research management systems,” says David Easthope. 

Alternative Data Continues Its Multi-Year Growth Trend presents the complete results of a recent study with institutional asset managers and hedge fund executives primarily in the United States. The report documents industry usage rates of alternative data, including trends in number of sources used and spending. It identifies the most commonly used data sets, the biggest challenges investors face in deploying these data sets, and features investors most want from providers to help them integrate and apply the data.