Data Buyer Types in the Alternative Data Ecosystem

by May 31, 2024Blog, Featured

Introduction to Alternative Data Buyer Types

In the expanding landscape of investment and financial analysis, the role of the data buyer has become increasingly significant, and the use of alternative data has become a pivotal aspect of strategy for a variety of firms across different sectors.  As experts in the field of alternative data, we know that the landscape is varied, with each type of data buyer having unique needs, challenges, and strategies. This guide explores the various types of data buyers in detail, providing insights into their unique needs and preferences.

The Different Types of Alternative Data Buyers

Quantitative Equity Data Buyer

Quant funds utilize advanced mathematical models to inform their trading decisions. These firms, including Two Sigma and DE Shaw, prioritize data with historical accuracy and relevance to specific equities. They often grapple with challenges related to unstructured data and significant data testing infrastructure, investing between $50,000 to $250,000 annually in data to enhance algorithmic trading strategies and achieve higher alpha.

Fundamental and Long/Short Equity Data Buyer

These funds blend long and short positions, using alternative data to support decisions on both sides of the book. The focus here is on data with strong historical records, alignment with specific investment theses, and predictive qualities. The complexity of managing such data, especially in terms of geographic coverage and company mapping, requires an annual investment of close to $300,000 by firms like Point 72.

Macro Data Buyer

Macro funds, which make decisions based on large-scale economic forecasts, are significant data buyers requiring global and historically robust datasets for backtesting. With an annual data budget of $1M to $5M, firms like Bridgewater use this data to inform currency and index-based strategies, aligning large, complex datasets with global economic trends.

Fundamental and Long/Short Credit Data Buyer

Credit funds utilize data extensively to navigate market inefficiencies, often investing in high-quality credit analysis data from sources like Moody’s. Data buyers are adept at integrating this data into their strategies, focusing on the depth and accuracy of credit analysis to maximize returns. We are seeing more buyers beginning to adopt alternative data for credit scoring to provide further insights and using alternative data sources such as rental payments, utility bill payments, such as for mobile phones and cable TV, and bank account information like deposits and withdrawals sourced from Consumer Transaction Data. It also extends to income data, employment data, education, certain public records, and more.

Commodity Trading Advisors (CTAs) and Trend Following Data Buyer

CTAs use data to capitalize on market trends in commodities and currencies, requiring extensive coverage and precise data delivery to optimize their trading models. With annual data expenditures upwards of $500,000, firms like MAN AHL and Winton use this data to fine-tune their trading models, enhancing profitability through strategic data use.

Private Equity (PE) Data Buyer

Private equity firms are key data buyers focusing on data-driven due diligence and operational insights post-acquisition. They typically start with smaller datasets and scale up, spending significantly to enhance investment decisions. With an average annual spend of $33,000 on data across the PE category, firms like Blackstone and KKR focus on leveraging data to enhance due diligence and monitor portfolio companies, reflecting a keen interest in achieving refined operational insights.

Corporate – B2C Data Buyer

B2C corporations employ data to directly enhance consumer interactions and sales strategies. They prioritize data provenance, industry applicability, and governance, focusing on using this information to drive growth and adapt to market changes, particularly the digital shift prompted by global disruptions.

Corporate – Insurance Data Buyer

Insurance companies, significant data buyers, use detailed data to refine risk assessment and policy customization, focusing on data depth and privacy considerations, driving forward the burgeoning field of Insurtech.

Event Driven & Risk Arbitrage Data Buyer

These funds capitalize on corporate events, requiring precise and high-quality data to identify and exploit arbitrage opportunities. With data costs significantly high, these funds evaluate potential ROI through detailed performance metrics, focusing on creating strategies that reduce volatility and enhance returns through meticulous data analysis.

Venture Capital Data Buyer (VC)

Venture Capital funds are pivotal in nurturing early-stage startups, offering them the capital to innovate and grow. Key personnel in these firms, such as data analysts and engineers, focus on datasets with extensive coverage, historical depth, and specific company or brand applicability. They tackle challenges like insufficient data points and require data that can aid in predictive analytics to determine potential high returns on their selective investments. Notable firms in this sector, including Tiger Global and Accel,

Final Thoughts on Different Data User Types

In a nutshell, while it is evident that all prioritize data quality and applicability, the scale of use and specific challenges vary dramatically. VC and PE focus on investment viability and operational insights, respectively, while quant and macro funds consider complex models influenced by broad economic data. In contrast, corporate entities, whether in B2C or insurance, use alternative data to directly enhance consumer and client engagements, reflecting diverse strategic priorities within the alternative data ecosystem

If you are a data provider looking to target data buyers, please reach out to Eagle Alpha and we can advise you on the best practices to engage with different buyer types and help you understand their needs.

We can also connect you with buyers via our Alternative Data Conferences, help you target buyers who are interested in the type of data that you offer with access to our Alternative Data Buyer Sales Database, and help you showcase your data offering and capture leads through our Storefront tool.