Alternative data a gold mine for investment groups
Recent years have seen a proliferation of data vendors who trawl through vast amounts of digital information and sell it on to investment groups.
The vendors are able to scoop up 'digital waste' thrown out by people and companies, and turn it into valuable intelligence that has the potential to give investment firms an edge in the market. But this is just the beginning for alternative data harvesting.
There are a number of types of alternative data emerging, one example being website scraping. Website scraping involves 'scraping' public websites for information that might be valuable – perhaps reviews or downloads. Social networking sites are similarly rich with information that might give clues to consumer views and trends.
More people than ever before are online, and these days we can do very little without leaving some kind of digital footprint. Investors who are able to make sense of this ever-growing pool of data will be able to stay one step ahead in a constantly changing investment landscape, according to experts, with some predicting that this new, digital treasure chest will entirely underpin the future of the money management industry.
Although the sector is still relatively unregulated, some corners predict it to grow to a value of £300m over the next 5 years.
However, a cause for concern is the legality of these operations. For example credit card tracking, one of the most valuable mines of information for hedge funds who want to see what consumers are spending money on, is arguably an invasion of privacy. Combined with geo-location technologies that can give a real-time idea of who's buying what, and where, investment firms can get a strong idea of how well a store is doing, even before they release the results themselves, but there's no doubting the 'big brother' undertones.
By nature, hedge funds have always sought an advantage. In the past this has mostly taken the form of conducting polls or schmoozing CEOs, but increased regulation on insider trading has made some of these options less viable.
Alternative data offers another route to this information that seems almost limitless. There are more than 1bn websites currently in existence, with another 100m being added each and every year. This equals many billions of gigabytes of data that could give clear and detailed intelligence on consumer trends.
Many companies are already profiting from this new frontier. Satellite imaging company SpaceKnow who analyses China and Africa for clues on economic activity raised over £3m this year, with many other firms following suit.
This move represents a huge mine of potential for investment groups and the companies who sell to them – but how regulators can keep this industry profitable AND ethical is still in question.