10 November 2016

Hedgeweek: Quant hedge funds at forefront of creating alpha from alternative data, says TABB

Quantitative hedge funds have been at the forefront of creating alpha from alternative data, according to a report from TABB Group – “Capturing Alternative Alpha: The Rise of Alternative Data Sets”.

Increasingly though, the report – which explores four different categories where alternative data is thriving, outlining the challenges and opportunities as well as breaking down the applications and implications for each – reveals that fundamental hedge funds, sell-side firms, venture capitalists, and even long-only asset manager firms are looking into use cases for alternative data sets.

Research author Valerie Bogard explains that the amount of alternative data has exploded, with alternative data market spend in the US estimated to double in the next five years to USD400 million. Within this growth, the categories of location tracking, satellite imagery, transaction data and public website data have been particularly useful.

 “While active managers are facing unprecedented competition from exchange traded funds, fund managers are also struggling to find alpha from their traditional data sources,” says Bogard. “Firms are gradually realising that discovering new trading strategies also requires the discovery of new data and differentiated insights, which is driving a deeper hunger for alternative data as the answer.”

Bogard also details the important role of data partners, such as alternative data aggregators and synthesisers, for support in ushering in and managing these new sets of data. The research highlights 20 specific firms that are at the forefront of providing financial firms access and analysis to this data. As firms become more comfortable experimenting with the data and more knowledgeable about the methodologies of collecting and analysing it, Bogard expects they will increase the overall momentum around adoption.

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