October 26, 2021 | Stamford, CT — Demand for new sources of data among institutional investors is driving double-digit growth in annual budgets for “alternative data” and putting new emphasis on internal data management capabilities. 
Alternative data are unique, non-traditional data sources that can add valuable explanatory power to both quantitative and fundamental investment models. 

Approximately 45% of the investment professionals participating in a recent study from Coalition Greenwich report their firms now use alt data in their investment process and portfolio construction. Almost another quarter of the respondents say they plan to start using alt data in the next 24 months. 

However, despite the growing enthusiasm for alternative data, most investment professionals are not satisfied with how well alt data is being incorporated into their investment decisions and research processes. Alt data are often “unstructured,” drawing from text and other media that can be difficult to organize and interpret. As a result, data management processes such as data acquisition, tracking and validation are becoming increasingly important to investors. 

“In fact, many of the study respondents consider tools and techniques to harness alt data to be just as important as the data itself,” says David Easthope, Senior Analyst for Coalition Greenwich Market Structure & Technology and author of Alt Data for Investing: Not So Alternative Anymore.

New Users, New Providers
Growing demand for alt data is also attracting new providers. In particular, many “traditional” financial information vendors are expanding into the market and developing offerings tailored to this new segment. However, as more investors acquire and analyze these alt data sets, alpha opportunities diminish. 

“Alternative data does not stay alternative forever, so managers must be consistently on the lookout for new data sources to supply an edge, leading to a continuous evolution of the alt data ecosystem,” says David Easthope.