- Alternative-data companies have helped investors and companies wrap their heads around the huge impact of the novel coronavirus.
- A mix of market uncertainty, the need for timely data, and hopes of getting more granular insights pushed hedge funds to lean on more alternative data sources.
- Some alternative data providers have created new products, like dashboards, reports, and indexes, specifically around COVID-19’s impact.
- That being said, at least one alt data executive said it’s not putting significant resources into chasing corona-specific products, deeming it a “sucker’s game.”
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Armando Gonzalez never thought his alternative-data company would make something that his father, who is in his 70s, would be checking everyday.
But the novel coronavirus pandemic has forced Gonzalez’s Ravenpack, a Spain-based alt-data company that tracks media reports for investors, and just about every company in the world to rethink the way they do business.
What that meant for Ravenpack was the introduction of trackers specifically targeted for mentions of the virus in the media, with indices like the fake news index, which tracks when dubious information is spread about the virus, and the fear index, which tracks hysteria in conjunction with the virus.
“It’s become a tool for anyone who wants to take a more data-driven approach to understanding the reaction to the virus,” he said
Gonzalez told Business Insider that local governments have used and customized the index to understand why people might believe a certain thing about the virus — and that his father is checking in daily with him about the fear index’s rise and fall.
The alternative data industry — which despite its growing pains, is still set to explode in the coming years — was created to supplement and occasionally replace traditional sources of data, like government data on employment and wages and earnings reports from public companies, for investors.
The pandemic, however, has put more pressure on investors than ever before, as markets tank and global economies are put on hold. Hedge funds, the main consumer of alternative data, have been desperately trying to understand the impacts on all industries and what comes next.
Alt-data companies have stepped up with corona-specific offerings
As the virus quickly spread to the US, a number of alternative-data companies introduced several coronavirus-specific datasets.
Amenity Analytics posts and distributes a daily coronavirus tracker that alerts readers to companies mentioning the virus in media and transcripts. Cognovi Labs tracks the panic around the virus in different countries and sectors. 1010data created a partnership with Nielsen to help retailers understand their supply chains better.
“In my view, alt data has been strengthened,” said Steve Iannini, founder of P Street Advisors, which uses satellite images to project revenue streams and sales.
There was already a solid base of users, but Iannini has found that delayed reporting from public companies has pushed completely new customers to him.
“I expect at least some will stick around after the pandemic.”
CompStak, a platform that crowdsources US commercial real estate data, has seen an uptick in interest from hedge funds, according to Michael Mandel, the cofounder and CEO.
While the bulk of CompStak’s customers are lenders, landlords, and investors in commercial real estate, Mandel told Business Insider a portion of clients are financial firms looking to pull signals from the data to trade on.
Although only a handful of clients, that group represents a decent chunk of revenue for the company due to their premium subscriptions, and has shown increased interest in recent months.
“On the sales side of our business, the most positive conversations we’ve been having lately have been with hedge funds,” he added.
1010data, which offers alternative data and reports to both financial and retail customers, started churning out a whole new set of reports once the impact of the coronavirus became widespread, Inna Kuznetsova, the company’s interim CEO, told Business Insider.
Retail customers that previously wanted six-month outlooks now ask for daily updates to understand the impact the virus would have on their stores.
Speed wasn’t the only requirement, though. Granularity was key as well. With different regions being impacted differently by the virus, chain owners needed to understand how their various locations might fair, Kuznetsova said.
Even stores within the same zip code could have drastically different experiences if one is close to what is considered a hot spot, she added.
“When you talk about thousands and thousands of stores in the same chain, analyzing this on a very granular level helps you to manage inventory very efficiently and manage your delivery in a much better way,” Kuznetsova said.
Over the past month, Kuznetsova estimated preexisting customers consumed 30 to 100% more data and reports than typical.
Even stores that weren’t considered essential and were forced to close found the need for 1010data’s reports and analysis more critical than ever, Kuznetsova said.
While those customers didn’t necessarily need to worry about managing inventory and keeping up with demand, understanding customer behavior to get a better grip on when they should open is key, Kuznetsova said.
“Having a Plan A, Plan B, and Plan C in place depending on when that exit happens and how the customer behavior will evolve makes a difference between the business surviving and thriving and the business going down,” she said.
Some view alt-data efforts in coronavirus as a ‘sucker’s game’
That doesn’t mean the industry will be flooded with cash as business returns to some state resembling normalcy. A recession could limit buyers’ wallets. New regulation on what personal data is allowed to be packaged and sold could eliminate dozens of companies.
And if 2019 taught the alternative-data industry anything, it’s that companies that pushed to expand too quickly into new areas often suffered for it. One alt data provider questioned whether it was worth pursuing use cases around coronavirus.
The executive acknowledged their firm was looking for “low-hanging fruit” they could offer clients that might help them understand the impact of the virus.
However, the executive said the company wouldn’t dedicate significant resources or adjust its long-term strategy looking for feeds or reports specific to corona.
“I don’t want to go chasing magic bullets,” the executive said. “I think it’s a suckers game. By the time you find it and test it and license it, this stuff takes months to do at the best of times, you could be chasing your tail on this stuff,”
But, in many ways, alt data has already proven its worth during this time of crisis.
Bloomberg reported on Singapore-based Dymon Capital’s large gains this year, which the fund credits to its use of alternative data.
Chris Petrescu, the former head of data strategy for ExodusPoint, told Business Insider that data from Cruise Analytics, an alternative data vendor that tracks cruise ship occupancy rates and prices, would have given hedge funds “weeks of a head start” on how those businesses have ultimately fared during the pandemic.
“This is a $35,000 dataset that could have saved or made $100 million,” said Petrescu, who now runs CP Capital Enterprises, and consults for hedge funds on data strategy and corporations that are looking to monetize their data.
For Petrescu, it wasn’t about making a new product for the virus — it’s about finding the impact through the data a company was already collecting. Battlefin identified datasets that would show early signs of impact as the virus expanded in the US and Europe.
New frontiers for alt data
And for alt data companies, it’s not just about proving your worth, but also expanding your reach.
Marta Lopata, chief growth officer at web scraper Thinknum, told Business Insider the past few months have partially served as a way to demonstrate the capabilities of alternative data to new audiences. Thinknum, which scrapes data from the web, pushed out a dashboard specific to COVID-19 that tracked changes in economic indicators.
Lopata said the experience has allowed the startup to consider how to address the needs of new customers, specifically corporations, long considered the holy grail consumer base for alt-data companies.
“I think it just expands the number of use cases that we actually expected to service this year,” she added. “In the foreseeable future, we do on see our product being adjusted more and more to corporate needs as those use cases are expanding.”
Regardless of whether you’re a hedge fund, corporation or just a retail chain trying to keep your head above water, many in the space are adamant the past two months has served as further evidence of the power of alternative data.
“How can you adjust your business fast to this evolving environment?” 1010data’s Kuznetsova said. “I think the only way to do it is having a compass and a map. Alternative data is in essence your compass and map. Your view into what is going around.”