Tuesday, August 7, 2018 Stamford, CT USA — The rise of advanced analytics has created a new industry of financial market alternative data providers with annual revenues that doubled over the past 12 months to $300 million and is on track for potentially even more spectacular growth ahead.
A new report, A Buyer’s Guide to Alternative Data, from Greenwich Associates investigates the growth of the alternative data market, the source and evaluation of data sets, and identifies the leading companies in the space.
“Finding an edge in today’s competitive markets is no easy task, and increasingly, the search for alpha is centered on alternative data,” says Richard Johnson, Vice President of Greenwich Associates Market Structure and Technology and author of the new report.
The process for evaluating new data sources is not straightforward and often requires “cleaning” to ensure data quality. In addition, when investors compare alternative data sets and providers, they need to consider the strength of the signal, uniqueness and how additive it is to the investment strategy. This makes evaluating the ROI a key factor for investors in determining the best data set to purchase.
The report finds that investors acquire alternative data from a combination of different sources including from third party resellers, directly from organizations creating a data product or through their financial information system.
The most popular types of alternative data were found to be web-scraped data, sentiment analysis and spending data from credit cards or point-of-sale-systems. For quant firms utilizing alternative data the average budget is about $900,000 per year, although for some firms, it is over $5,000,000 per year.