Where hedge funds collect your info: The crazy hunt for alternative data

first-quarter figures, business reports and monthly business reports are available for a share professional the most Important thing. Theoretically, it is possi

Where hedge funds collect your info: The crazy hunt for alternative data

first-quarter figures, business reports and monthly business reports are available for a share professional the most Important thing. Theoretically, it is possible to read from you, which company, which country it's just as well, it should invest in what shares and in what not. Theoretically. Because there is a serious Problem: "most of The Reports are out of date at the time of their release," says Stephanie Tan.

she works at the Dutch Start-up Suburbia. Its founder Hamza Khan was a long time, "Head of Commodities" in the Bank ING. As such it was his task to watch the price development of raw materials as precisely as possible in advance and to act accordingly. Kahn quickly realized that the market depends much more on real-time data and it does not come with a monthly look far. So he went to 2018, self-employed and founded Suburbia.

" Alternative " in Corona-crisis

asked The company collects in Amsterdam meanwhile, the sales data from all over Europe, mainly from Germany and the Benelux countries. 350 million transactions registered in Suburbia every year. In Germany alone, that's enough to seven percent of the whole market. The Dutch know, in which cities Restaurants already have opened and be able to estimate the beer consumption on the basis of the weather report.

transactional data such as offers Suburbia, are only one example of "alternative data". The term refers to all the information, you will not find in traditional financial channels, therefore, not in annual reports or shareholder communications. Around 450 companies collect such data now in the world, 78 percent of all hedge funds you can buy now. Most of the providers are only in the past few years.

now, in the Corona-crisis, the alternative data are particularly in demand. "The interest is increased definitely. All want to know how the economy is responding to the pandemic,“ says Tan. This is due to the fact that the financial world operates, particularly in an unprecedented Situation. It is a lot of uncertainty about the reigns of what is coming. Investors grasping for any bit of Information that you can get.

Europe is for US hedge Fund in a "black hole"

The data, the Suburbia collects, come from payment service providers, which supply most of the retailers and restaurateurs with cash. The machines provide a convenient, they may use the anonymous payment information, and to providers of "alternative data" as Suburbia make.

The customers of the low countries, in turn, are mainly hedge funds and asset managers from the United States. "Europe is a black hole," explains Tan. In the USA, so much is paid with a credit card, that the investors have with the data from the Visa or Mastercard a good Overview of what is being bought where. In Europe, they are in need of assistance, because we pay a lot of cash and the EU consists of 27 different States.

mood image from News Headlines

which is also The "Brain Company" from Italy delivers. Every day Matteo Campellone and Francesco Cricchio look here at a long list. Her self-written algorithm ranks 10,000 shares in the world then, how positive or negative people think about the corresponding group. In the case of 1, the champagne, pop the cork, and in the case of -1, it looks quite bad.

This mood is created in Milan by a computer program that scans 2000 News-web sites in 26 languages, and according to Headings searches. A neuro-linguistic algorithm can then evaluate independently, which are more likely to be meant in the most positive and which are negative. "Security vulnerability threatens 10 million iPhones" are minus points, "Apple opens its stores in China" plus points. At the end an average value for each share.

Two physicists to bring science into the world of Finance

The Ranking of the two Italians sell to US hedge funds. The use of the raw data, in turn, in their own models that provide you with at the end of the most promising stocks – and those that you should sell rather. To ensure that no gross errors have companies such as Suburbia and the Brain Company built at least a rudimentary quality assurance. Regularly scan your data to abnormalities that are not likely to actually be. Every single record you can check. The buyer cross-check the data, but often against other information before you use them in models.

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Campellone and Cricchio are actually physicists. "We wanted our researchers to think in the financial world," said Campellone. The market of alternative data is perfect. Much of it is experimental. The two Italians cannot predict whether shares with a positive mood at the end perform better than others.

But even if your data is only a minimal difference, do you see that as a success: "The Problem in the financial world is that there is a great deal of noise," said Campellone. To allow everyone to share vast amounts of data and information find. However, only a few of these signal character and really interpret the next share price.

Smartphone-Locations and satellite images

On the hunt for such mini advantages, paint the methods of professional investors are always crazy. Data on transactions and the analysis of News and Social Media Posts in the popularity scale at the top. However, among the Top 10 in other data sources.

One of the most important of the more than a billion Smartphones in the world. Almost every App will track now, where a user is. Many of these data to be sold anonymously and cumulatively – is also a data provider. Yiannis Tsiounis by the US Start-up, Advan, for example, can drink to see how many New Yorkers are in the hospital, a coffee at Starbucks or working in a factory, long before there are official data.

"The financial industry will always need to rely more on such alternative data," says Tsiounis the US magazine Forefront, "this is simply a question of Survival. How will anyone win without such data in the long term?“

An old story about the Wal-Mart founder Sam Walton, stating that he reviewed the success of its stores by the fact that he was one of the cars in the Parking lot. Today's data providers use the same principle, with satellite images, the car count on any Walmart Parking lot. Or the quantities of raw materials in front of a factory. Or, to Harvest to predict. The possibilities are endless.

The risks of "alternative data"

is compromised, The exciting question for the future will be the extent to which the privacy of such information hunts. Tan assured that all of the data that it collects about Suburbia, were in line with the EU data protection regulation. In addition, you can be anonymous and would be only available in an aggregated form. The individual buyer in a transaction – his age, his sex – and-white Suburbia, therefore, nothing. the

In the United States, the boundaries are not so clear. Advan sets, for example, with its Geolocation data anonymous user profiles. This is used to determine whether a Smartphone that appears several times in a hospital, belongs rather to a employees or patients or visitors.

The U.S. financial supervision the FCA has published at the beginning of the year, a contribution to the debate about whether alternative data could lead to an unfair advantage for those who use them. Then you would have to be discussed, whether or not such data for competitive reasons, be made public, or that their use needs to be prohibited. So far, the FCA presumes but yet, the industry is too young.

But she grows tremendously: Last year, global sales were for the first time in more than a billion dollars. Even without Corona-crisis he should have this year, a 70 percent increase, which could accelerate now.

In the PCP In the

Updated Date: 11 June 2020, 05:26

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