Cache Me If You Can

A plethora of new data sources from inside and outside the organization is creating a new market. Some innovators, like Australia’s Data Republic, are creating data banks.

Each bank holds data from various sources, from major banks to airlines and retailers. Users then pay for access and gain new insights.

Such insights can be anything from finding an optimal location for a retail store to finding the right demographic for an online service.

Recently, a new area of “alternative data” has emerged. Its rapid progress highlights the emergence of a new category of data vendors.

Alternative Data Arms Race

As with Data Republic, the world of alternative data has spawned a new generation of innovators. They are aggregating data from various sources and making it available through subscription.

It is of significant interest to hedge funds, forex traders and asset managers. Greenwich Associates estimated that USD 183 million was spent in this area. Meanwhile, Tabb Group estimated the investment could double in the next five years. In the words of a Deloitte report, “today’s innovation could be tomorrow’s requirement.”

An announcement in March 2019 by Bloomberg highlighted the rising importance of alternative data. The information giant made the Predata data set available live on its Bloomberg Enterprise Access Point website. It gives clients access to thousands of Predata’s geopolitical risk signals.

The move by Bloomberg matched that of the U.S. stock market Nasdaq. Last December, it acquired Quandl, a Toronto-based provider of alternative and core financial data.

Founded in 2012, Quandl provides alternative data and core financial data from over 350 sources. It has information on capital markets, energy, shipping, healthcare, education, demographics and society. When it was acquired, the company reportedly had more than 30,000 active monthly users. It counted eight of the world’s top hedge funds and 14 of the 15 largest banks as its customers.

The Euronext exchange group announced in February 2019 it was also launching alternative data products. It is looking to help clients with extra risk management tools.

Global investment bank UBS has been collating alternative data for its use for many years. It recently spun off its Evidence Lab unit as a separate entity. It publishes around 6,000 reports a year based on alternative data.

Meanwhile, blockchain-based SciDex is building a decentralized marketplace. Users can buy and sell scientific data for investment decisions on the platform.

Alternative Truths with Satellite Data

Another major source of alternative data is satellite imaging. Several providers are already moving into this space.

It offers better insights for people interested in the Chinese economy but are skeptical of the official statistics.

The Chinese Satellite Manufacturing Index (SMI) created by the U.S. company SpaceKnow in 2016 is one such data. It uses 2.2 billion satellite snapshots of more than 6,000 industrial areas in China to measure the country’s manufacturing performance.

Shipping data tracking iron ore sales for Australia’s three largest mining companies are also of interest. It can deliver accurate estimates weeks and months in advance of the official publication of the economic data.

Satellite data is also useful in understanding the oil market. Orbital Insight uses satellite imaging to deliver oil storage data from major economies. The data provides greater transparency into an opaque market.

Strategic Advantage of Alternative Data

Greenwich Associates noted that asset managers and hedge funds want logistics and supply chain data.

The research company’s 2018 Future of Investment Research Study found that 50% of institutional investors are planning to increase their use of alternative data. It will be used as a primary or secondary source by 17% of investors.

Soon, according to Deloitte, investment companies that don’t use alternative data could face strategic risks. It “might very well be outmaneuvered by competitors,” it said.

"An organization’s inability to spot, assess, manage, and respond to strategic risks may affect its critical assets, financial performance, or reputation,” the report said.

It points to the fact that alternative data would not stay alternative for much longer.