How Alternative Data is Paving the Way for the Future of Investment Management

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Many hedge fund managers to mutual funds — and even private equity managers — are turning to alternative data to pave the way for the future of investment management.

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A new white paper from SparkCognition contends that alternative data has the power to improve valuation of securities and ramp up clarity of the investment process.

According to the report, “Alternative data enriches the structured data sets already acquired by investment management firms, fueling the potential for information advantage and providing a distinct differentiator in terms of speed and knowledge.”

What are some of these examples of alternative data? Think sentiment data, geolocation data, credit/debit card transaction data, satellite data, email receipts data, web scraping data, web traffic data, and more are all valuable sources of information that contain latent insights useful for systematic and discretionary investing, SparkCognition contends.

That said, there are hurdles to alternative data adoption that the investment management industry will have to address in the coming years — even though much of the industry is quickly moving to adopt these data sources.

Many are struggling to form an alternative data strategy to avoid being left behind, but extracting value from data sources such as this requires considerable talent, capabilities and infrastructure.

“To effectively incorporate alternative data into the investment or portfolio construction process, organizations will need both commitment and access to specialized approaches to analyzing and visualizing data.” — SparkCognition

One of the reasons alternative data usage poses challenges is the fact that by nature, it is highly unstructured, and formats are not consistent, which in turn makes it time consuming to analyze for the purpose of creating investment models.

That said, techniques like natural language processing and machine learning are allowing more organizations to capitalize and extract business value from alternative data, since these new technologies allow processing of large, unstructured data sets at rates never seen before.

Many are struggling to form an alternative data strategy to avoid being left behind. (Photo: Shutterstock/ whiteMocca)

SparkCognition is one of the businesses addressing this wave of data, and has developed a portfolio of solutions that work to automate the data science process. This includes DeepNLP, a solution that is designed to add structure to unstructured data. And with tools like these, SparkCognition shared analysts can now automatically extract information from sources like speeches, news stories, TV, press releases, websites and more.

Download the new report, “Alternative Data for Investment Management,” courtesy of SparkCognition, to learn more about how alt data and machine learning is changing the future of investment management.

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