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Discretionary Managers Seek Alpha in Alternative Data
Traders Magazine Online News, June 6, 2017
Alternative data providers see huge potential in providing their data to discretionary asset managers who are losing assets to quantitative and systematic funds.
As active managers trail the performance of passive index funds and exchange-traded funds (ETFs), discretionary fund managers are scrambling to consume big data analytics into their decision making process.
While early movers in the big data analytics industry have mainly been quant hedge funds and systematic fund managers, the next wave is going to be discretionary fund managers, according to panelists at an event sponsored by Wall Street Horizon, Estimize, OTAS Technologies and FlexTrade Systems.
“We’re at the point of crossing the chasm. The early adopters have adopted it. And [now we’re] crossing that barrier between early adopters and the mainstream,” said Vinesh Jha, founder and CEO at ExtractAlpha, who spoke at “Uncovering Alpha in Alternative Data Sets” held on May 17.
There’s been an explosion of alternative data sources, such as satellite imagery data and credit card data that didn’t exist 10 years ago, said Leigh Drogen, founder and CEO of Estimize, an open earnings estimates platform, speaking at the event.
However, discretionary asset managers have more difficulty incorporating big data sets because they lack a process, said several panelists.
“The challenge is to provide this content into the trader workflow of the discretionary managers who are not even quants who have a hypothesis about how the market works,” said Tom Doris, founder and CEO at OTAS. Technologies, on the panel. “They look at those signals and data sources in an ad hoc fashion,” said Doris.
Quantitative hedge funds such as Bridgewater and Renaissance Technologies have invested in big data analytics and generated higher returns than many of their peers. “Everybody wants to be them because they want to have returns like them in the systematic quant space,” said Jamie Benincasa, senior vice president and head of global sales at FlexTrade. These firms are household names in the hedge fund space that are probably on an 8-10 year run.
But these firms are not going to reveal which data sets are of value, “or precisely tell you how it works,” said Benincasa. “They want as much data as they can get and they will spend the money to do so,” he said.
Pointing to Quantopian, a platform for quants to create and test their own algorithms, Benincasa predicts that the next generation of alpha generation is going to come from that crowd. Anyone can open an account on Quantopian’s network and create its own algorithms. Quantopian then monitors performance and allocates capital to quants with the best performing strategies.
Defining Alternative Data
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