Reliance on third-party vendors for alternative data to rise, Exabel report says
27 April 2023 Norway
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71 per cent of investment managers and analysts with a focus on fundamental investing are already using third-party software systems, a recent report from data fintech Exabel says.
50 portfolio managers and 50 investment analysts took part in the study, located across the US, UK, Singapore and Hong Kong and collectively holding approximately US $969 billion in assets under management.
Numerous alternative data are used by the majority of firms, with 38 per cent reporting that their organisations use between two and five alternative data sets, and 55 per cent using between five and 10.
51 per cent of those surveyed reported sourcing between 50 and 75 per cent of their alternative data through third-party vendors, with a further 10 per cent sourcing between 75 and 100 per cent in this way. The majority of investors rated the quality of ‘data vendors’ alternative data as ‘good’ or ‘excellent’.
This trend is expected to continue, as 77 per cent predicted reliance on third-party vendors as a source of alternative data to increase within the next three years.
Looking slightly further ahead, between now and 2028, the majority (91 per cent) of investment managers predict increased use of third-party software systems to analyse alternative data. 21 per cent expect this increase to be ‘dramatic’.
This shift is attributed to economic efficiency in contrast to in-house development (69 per cent), and greater consistency when working across data types and sources (51 per cent).
Commenting on the findings, Neil Chapman, CEO of Exabel, says: “Historically, the problem of extracting insight from alternative data has only been solvable by hiring scarce technical resources and building custom tooling in house. This approach adds enormously to the total cost of adopting alternative data, and is impossible to justify for all but the largest funds.
“Using software-as-a-service 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.”
50 portfolio managers and 50 investment analysts took part in the study, located across the US, UK, Singapore and Hong Kong and collectively holding approximately US $969 billion in assets under management.
Numerous alternative data are used by the majority of firms, with 38 per cent reporting that their organisations use between two and five alternative data sets, and 55 per cent using between five and 10.
51 per cent of those surveyed reported sourcing between 50 and 75 per cent of their alternative data through third-party vendors, with a further 10 per cent sourcing between 75 and 100 per cent in this way. The majority of investors rated the quality of ‘data vendors’ alternative data as ‘good’ or ‘excellent’.
This trend is expected to continue, as 77 per cent predicted reliance on third-party vendors as a source of alternative data to increase within the next three years.
Looking slightly further ahead, between now and 2028, the majority (91 per cent) of investment managers predict increased use of third-party software systems to analyse alternative data. 21 per cent expect this increase to be ‘dramatic’.
This shift is attributed to economic efficiency in contrast to in-house development (69 per cent), and greater consistency when working across data types and sources (51 per cent).
Commenting on the findings, Neil Chapman, CEO of Exabel, says: “Historically, the problem of extracting insight from alternative data has only been solvable by hiring scarce technical resources and building custom tooling in house. This approach adds enormously to the total cost of adopting alternative data, and is impossible to justify for all but the largest funds.
“Using software-as-a-service 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.”
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