New Survey Indicates Use of Alternative Data in Investment Community Shows No Signs of Slowing

Lowenstein Sandler announced the release of Alternative Data: The New Oil for the Digital Economy? The 2022 Lowenstein Sandler Alternative Data Report. The survey, which is the third annual survey on this market development from the firm’s Investment Management Group, finds demand increasing for alternative data—not only driven by hedge funds, but also by private equity firms and venture capital investors. Alternative data is generally defined as information not contained in company filings, press releases, analyst reports, or other traditional information sources.

The Report is authored by Scott H. Moss, Chair of Lowenstein’s Fund Regulatory & Compliance practice; Boris Liberman, Co-Chair of the firm’s Derivatives & Structured Products practice; and George Danenhauer, counsel in the firm’s Investment Management group. Its findings are based upon a survey conducted by Ovation MR of C-level executives, data scientists, equity analysts, portfolio managers, and legal/compliance officers.

Their responses show that the popularity of alternative data “has skyrocketed in recent years,” with its global market expected to grow from $4.49 billion to $149.1 billion.

The Report’s other significant findings include:

• Nearly 80 percent of current users plan to increase their 2023 budgets for alternative data. Private equity firms and venture capital investors appear to be planning more aggressively for increased spending than hedge funds.

• Nearly three in four users of alternative data report spending between $1 million and $5 million per year on alternative data. On average, private equity firms spend slightly more than hedge funds do—$1.3 million and $1.1 million, respectively.

• Investors continue to find new and creative sources for alt data, including satellite imagery, geolocation data, biometric data, online job reviews, credit card transactions, app downloads, and website traffic.

• Only a small minority of investors have no plans to deploy alternative data in the short term, an even lower percentage than the survey found in 2021. 29 percent of respondents who said they did not currently utilize alt data said they had utilized it in the past and expect to do so again in the next six to 12 months.

As Scott Moss notes, “Hedge funds and other investment advisers clearly continue to view alt data as meaningful when making investment decisions, and regulators are poised to continue their enforcement focus on the potential misuse of material nonpublic information and other risks posed by alt data.”

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