Sunday, July 16, 2017

"The Alternative To Alternative Data For Investment Managers"

In emerging, and especially in frontier, market investing you had better know someone.
Or take the time-honored approach and buy the local banks while praying the books have some correlation with reality.
Ditto for Chicago.

From ValueWalk, July 15:
In Emerging Markets, strategic intelligence firms can provide answers using Alternative Data where big data cannot compete

The pace of growth in alternative data supply signals a broadening acceptance that looking beyond P&L in a systematic way supports overall alpha generation. Squeezed by the increasing enthusiasm for AI backed systems and pressure to justify fees in a lower returns environment, discretionary managers see ‘Alt Data’ as one differentiator to help attract and retain investors in a highly competitive hedge fund market.

Alternative Data is by definition fundamental research, reliant upon high internet penetration in markets to collect, read and assess information at a significant enough scale to provide actionable insight for investment decisions. This makes US and European markets prime for data exploitation of this nature, the very markets where alternatives to traditional financial analysis are increasingly necessary, and supports funds in ultimately sustaining higher levels of return, let alone their own existence.
Emerging markets do not provide the same opportunity for data mining; the inherent lack of internet penetration and poor access to sources of information lower reliability and impede performance. The need for diversification of information still exists however, and whilst this has typically been in the context of mitigating risk when deploying cash, increasingly it will be required in pursuit of enhance investment performance.

Who are the ultimate owners of the target company and what political links do they have? What is the true state of isolated assets? Does corruption exist within the supply chain? What threats are posed to the company from local actors, and how can they be mitigated? 

Private inward investment is well used to employing strategic intelligence consultancies to undertake enhanced due diligence and market entry services in all corners of the developing world. The additional resource deployed into offline information acquisition to thoroughly comprehend both companies and individuals is increasingly fruitful in determining fact from fiction. It enables analysts to evaluate in theory and in practise and has protected some of the very largest deals to have happened, or not happened, in the last 20 years. On the ground, situational awareness collected by regional specialists cannot be equalled when navigating at this level of uncertainty....