Investment managers highly rely on third-party support for managing alternative data

By Puja Sharma

Historically the problem of extracting insight from alternative data has only been solvable by hiring scarce technical resources and building custom tooling in-house. Unfortunately, this approach adds enormously to the total cost of adopting alternative data and is impossible to justify for all but the largest funds

When it comes to analysing alternative data, 71% of investment managers and analysts who focus on fundamental investing say they use third-party software systems. This is according to new research from Exabel, a fintech start-up providing investors with a platform to make the most out of alternative data as part of their investment processes.

The company’s research found half (49%) of professional investors interviewed say they use systems provided by data vendors and 45% use in-house built software systems. One in three (33%) say they use basic toolings such as Excel and Tableau. Some 91% expect their use of third-party software systems to analyse alternative data to increase between now and 2028, with 21% expecting a dramatic increase.

In terms of why they expect usage to increase, 69% of professional investors interviewed said it is because it is more economical to do so than investing in their in-house systems, followed by 51% who said they provide a more consistent way to work with different types and sources of data. Just over half (55%) of professional investors surveyed said their organizations are using between 5 and 10 alternative data sets, and 38% say they are using between two and five.

The study found that many are very reliant on third-party vendors for their alternative data. Half (51%) say they source between 50% and 75% of their alternative data this way,  and one in ten (10%) say they receive between 75% and 100% from third-party vendors.  Over the next three years, 77% of professional investors say they will become more reliant on third parties for supplying alternative data.

Overall, 89% of professional investors surveyed said the quality of alternative data provided by data vendors is excellent or good.

 Neil Chapman, CEO of Exabel said: “Historically the problem of extracting insight from alternative data has only been solvable by hiring scarce technical resources and building custom tooling in-house. Unfortunately, this approach adds enormously to the total cost of adopting alternative data and is impossible to justify for all but the largest funds.

“The economics of using SaaS technology platforms which can recreate the tooling found in the most sophisticated hedge funds on-demand, and at a fraction of the cost, is becoming more compelling, and our research suggests this trend is set to increase.”

Exabel’s solution platform brings the investable insights from alternative data direct to investment teams, delivered on its cloud platform providing investment managers with unique insights using alternative data. It works with market-leading alternative data vendors across the globe to assist them in productizing their data for investors.