According to survey results published in September, 2019, by Lowenstein Sandler, over 80 percent of hedge funds of all sizes are using alternative data in some capacity, with 75 percent of respondents saying they use it to make better investment predictions.
Completed by C-level executives, data scientists, equity analysts, portfolio managers, and legal/compliance officers in the private funds industry, the survey assessed how funds of all sizes use alternative data. Funds were grouped by size–less than $500 million, $500 million to $5 billion, and greater than $5 billion–to determine how data use, and concerns about it, differ at varying levels of asset value.
The report, entitled Alternative Data = Better Investment Strategies, But Not Without Concerns, is the first survey of its kind from the firm’s Investment Management Group; it was authored by Peter D. Greene, partner and Vice Chair of the group, with contributions from partner Benjamin Kozinn.
“It is not surprising to me that an overwhelming majority of funds are using alternative data,” said Greene. “What is interesting is how funds of various sizes are using it and how they plan to expand their use in the future. In a changing industry, it is more important than ever to learn what alternative data can do, while also acknowledging the limitations and concerns that come with using such data.”
81 percent of respondents’ organizations plan to increase their budgets for alternative data. Of those, the majority plan to increase budgets by 11-25 percent.
The survey results also show an increasing interest in using newer data sources such as web scraping and biometrics to stay competitive. 57 percent of respondents expect to use web scraping as a data source within a year, a jump from the 49 percent who currently use it; and 32 percent said they currently use biometric data now, with 45 percent expecting to use it in the future.
However, concerns do remain over new regulations and privacy laws, cost and time investment, and the ability to distinguish relevant information from large volumes of data.
Most respondents (98%) said they used alternative data in combination with fundamental analysis to make investment decisions.
The release of the report was noted by Hedgeweek, Business Wire, Opalesque, the Managed Funds Association newsletter, Institutional Investor, Associated Press, Yahoo! Finance, StreetInsider.com, and Chief Investment Officer.