Access Investment Organizations Continue to Find Value in Alternative Data, Despite Challenges and Cost.

Lowenstein Sandler announced today the release of Investment Organizations Continue to Find Value in Alternative Data, Despite Challenges and Cost. The survey, which is the second from the firm’s Investment Management Group, finds that investment funds expect larger budgets and even higher use of alternative data going into 2022.

The report was authored by Peter Greene, partner and Vice Chair of Lowenstein’s Investment Management Group, with contributions from Benjamin Kozinn, a partner in that group.

“Our latest survey findings suggest increased use of alternative data and a maturing landscape,” says Greene. “Increased familiarity and knowledge of the space comes with a more sophisticated understanding of the amount of work and investment necessary to generate successful ROI and positive alpha impact.”

Completed by C-level executives, data scientists, equity analysts, portfolio managers, and legal/compliance officers across the private funds industry, the survey—fielded in spring and summer of 2021—assessed investment organizations’ use of alternative data. The type of fund was analyzed along with AUM, goals of alternative data use, and expectations for the future.

According to the survey results, 78 percent of organizations that use alternative data plan to increase their budgets for it in 2022, with most planning to increase by at least 10 percent. A majority of alternative data users indicated their usage increased in 2020 and the first half of 2021, with just four percent noting a decrease during that time. Significantly, 71 percent of respondents said the pandemic fueled their increased usage.

Key findings from the report include:

  • From 2019 to 2021, the percentage of hedge fund organizations that reported using alternative data noticeably dropped. However, the number of hedge funds reporting that they expect to start using alternative data in the next six to 12 months grew from seven percent to 22 percent. This suggests shifting priorities and an increasing knowledge base of the type of investment needed to extract the most value from alternative data.
  • Social media data sets, followed by consumer transaction and cloud platforms, seem poised to become the most popular and valuable source of alternative data. 54 percent of respondents said they were using social media data today, but 61 percent said they expected to be using it in the next 12 months.
  • Hedge funds have a head start in alternative data usage over private equity (PE) and venture capital (VC) firms. Half of hedge funds using alternative data reported significant use, in contrast to just 26 percent of PE and 33 percent of VC. But a shift is underway: the velocity of increased usage for PE and VC since 2019 was notable, with the biggest usage change for VC, in which 83 percent described increased usage of alternative data.

About Lowenstein Sandler LLP
Lowenstein Sandler is a national law firm with over 350 lawyers based in New York, Palo Alto, New Jersey, Utah, and Washington, D.C. The firm represents leaders in virtually every sector of the global economy, with particular emphasis on investment funds, life sciences, and technology. Recognized for its entrepreneurial spirit and high standard of client service, the firm is committed to the interests of its clients, colleagues, and communities.

Penny Paul
Manager, Marketing Communications
Lowenstein Sandler LLP
(973) 597-2592