Waters Wrap: Exploring New Ideas in the Alt Data Market (And Some Election Notes)

Anthony takes a look at some new alternative data offerings coming to market, and also explains why there’s so little election coverage on this website.

Before we get into it on this fine Sunday, I think you should first check out Max Bowie’s deep-dive investigation into the challenges of keeping up-to-date on data notifications. With data notifications growing in volume and complexity, firms are finding it harder to keep track of these changes, and some vendors are looking to help. You can also check out Max’s follow-up opinion piece on the subject by clicking here.

For some stupid opinions, just keep on reading this.

Alternative Ideas

I keep on writing about how cloud, API, and open-source adoption is growing and changing the world of financial technology, so I won’t bore you with more of that—at least not today. But a byproduct of this shift has been the explosion of alternative data.

So much of this data has always existed, it just wasn’t easy to get at it, but cloud and vastly improved compute power make it easier and more efficient to store and crunch huge datasets, and then analyze and distribute insights based off of those data mining efforts. Now, to be sure, some of these so-called data mining projects are bullshit, but the growth of alternative datasets has grown significantly and can’t be ignored. As of October 1, there are more than 1,533 alternative data providers and 5,315 alternative datasets available for finance, according to alternative data intelligence company Neudata.

Now, as we previously wrote, the pandemic—and subsequent belt tightening—has created a challenging environment for alt data providers. But, those who can prove their worth during a recession are poised to grow. And beyond that, firms of all stripes—banks, institutional asset managers, brokers, hedge funds, and vendors—are trying to find new sources of data to help build portfolios, manage risk, improve operational efficiency, and/or improve trading processes, among myriad other use-cases.

For this column, I’d like to highlight two interesting projects underway that we wrote about this past week to highlight how alternative data is creating new business opportunities.

First up is alt data provider RavenPack, which specializes in news analysis using natural language processing (NLP). Now, let me give you a trigger warning: RavenPack is trying to coin a term that I am not particularly a fan of—I think the service is intriguing…it’s the branding that I’m not in love with. OK, here goes: the vendor is creating what it calls an NLP-as-a-Service model—so you can add this to the ever-growing list of –aaS offerings. I know…I’m sorry. If you need to take a minute, I understand.

But, take away the branding, and you have a service that I think many buy-side and smaller sell-side firms can benefit from. Essentially, the service involves scouring through a customer’s internal data, looking for unused, alpha-yielding datasets, rather than chasing only external, third-party datasets. It’s a way of saying to a customer, “Hey, let’s take a step back. Rather than experimenting and trialing a handful of alternative data providers, let’s first see what you have internally, and then you can build your external alt data strategy better once you know what you have in-house.”

They can then use this information for their own internal uses, or maybe that information can be packaged and sold to others—why just sit on the sidelines when you can get into the alt data game, itself?

Taking a slightly different track, Canadian data technology provider TickSmith and UK-based alternative data advisory firm Alqami have partnered to help creators of alternative data monetize their content directly to financial services firms.

What TickSmith and Alqami are doing is to take data that exists that is created by companies that would be classified as vendors, but who don’t yet target that at the financial sector, and don’t structure the data in a way that would be useful for trading companies. Alqami identifies companies with potentially useful data, assesses its value and advises them on how to commercialize it. TickSmith provides the technical tools to take it from that stage to something that can be easily sold to and consumed by financial firms.

Two firms with distinct offerings teaming up to create a new business model in the world of alternative data—but rather than working with firms inside the financial services industry, they’re trying to bring outsiders into the world of financial services. The number of alternative data providers is only going to grow, so why not help push that boulder down the mountain and speed up the process?

It’s my impression that there are more losers than winners when it comes to alternative data, at least during these early Wild West days. But those companies that can create unique business models rather than screaming into the noise are going to find a thirsty user-base of buy- and sell-side firms.

Vox Populi, Vox Dei

On the WatersTechnology homepage, you’re not going to find any stories about the chaotic presidential election in the United States—and that’s quite intentional: I find a “What does Biden’s win means for the fintech community” story to be, well, fucking stupid. Please forgive my language.

As I write this, media outlets have declared Joe Biden the winner, defeating Donald Trump in a very close election.

Trump has yet to concede, but he’s about to find out that the office of the president only hold so much power—no tyrants or dictators here, my friend.

But even going into Election Day, whether it was Trump or Biden being sworn in on January 20, 2021, it was likely to have little effect on a technologist’s or data professional’s day-to-day working life. That’s my hot take, anyway. Posts that try and predict what will happen under a Biden or Trump presidency are simply conjecture and guesswork. For example, before the 2016 presidential election between Trump and Hillary Clinton, my friends over at Risk.net published a story with this headline: “US elections: whoever wins, Wall Street loses.” When that story was published, the Dow closed at 17,930. Four years later, as I write this today, the Dow is at 28,323—during a pandemic, no less.

Now that was a good story that provided opinions from some very smart people, and you can find similar stories in almost every single mainstream and niche publication that covers finance. And, to be fair, an outlet like Risk.net should probably be writing those articles, because the regulatory environment and new risks created will change from president to president. But I, personally, find those kinds of stories to be a waste of time when it comes to tech and data—this space simply evolves and changes too quickly to hammer down a political agenda for the next four years. And those in power do not understand tech well enough to really move the needle on day-to-day operations.

Biden will be sitting in the Oval Office in a couple months, but you can’t allow that to significantly change the direction of a firm’s IT roadmap. Yes, of course, there will likely be some differences in regulatory reporting requirements, or in publicly-available data, or in how “Big Tech” is regulated, and the stock market might be a little less volatile if Biden practices what he preaches when it comes to presidential decorum, but as it relates to our subject matter here at WatersTechnology, I think it’s silly to worry about an unknown tomorrow. 

The votes have been cast, and the voice of the people, is the voice of God…but you still have API conversions to deal with and trading platforms that need to be improved. You still need to think about how disruptive technologies will affect your business or consider how the M&A market and consolidation will present challenges and opportunities for your business. And, of course, there are always those goddamn data notifications that you have to deal with on a daily basis.

Now is not the time to be distracted by noise and hyperbole. Whether it’s President Biden, President Trump, or President Kanye West sitting in the Oval Office, my only advice relating to the election is to stay focused on your projects at hand and think about how you can better position your company for the future, regardless of who’s president.

With That Said…

I think transparency is important, and I believe that especially true for journalists. So let me just write that I’m one of those traditional conservative Republicans who voted for Biden. There’s no need for me to get into my reasons for that selection here; if you really want to know, we can have a beer at the White Horse Tavern on Bridge Street in the Financial District (the good White Horse, and not the shitty tourist trap in the West Village).

With that declaration out of the way, I did want to talk for a minute about polling and exit polls, and how the media fits into this landscape. Just as before the 2016 US presidential election (or the UK Brexit referendum), the polls were telling voters one thing, but the actual vote proved much different than those models projected. I get it—there’s a lot of science and mathematics and analysis and making correlations involved in this process, but what is being proven time and again is that—at least on a national level—these polls are, quite frankly, misleading.

For weeks and weeks, on cable news shows and in newspapers and on websites, voters were being told on a daily basis that Biden was up big and that a Blue Wave was coming. Now, 2016 taught many of us to discount these predictions, and I did, so I wasn’t surprised when midnight struck on Election Night and there wasn’t a clear winner. Like 2016, Florida had gone clearly for Trump, despite numerous polls having Biden up going into Tuesday in the Sunshine State. There were several other states where the margin of victory was razor-thin, despite polls having Biden up big going into November 3.

What value does a poll add other than to serve as entertainment? And should serious news organizations be taking part in entertainment that only provides the opportunity to complain about media bias—and, there is definitely an argument to be made that these polls can be construed as biased coverage. The whole point of journalism is to provide value to the reader/viewer/listener. What we are seeing with these large national polls is that the New York Times, Washington Post, Wall Street Journal, CNN, and even Fox News cannot accurately portray the Trump voter (or Brexit voter; or far-right voter), and thus, these polls are off. And if you keep on reporting on the changing poll numbers like it’s a horse race, even though you know these polls are so often nowhere near reality, are you not, as a journalist, willfully reporting on something that you should believe is not reality?

Bad data in, bad data out—how many times do you hear or read this? These polls cannot accurately track Republican voters. So maybe…just maybe…it’s time for media outlets to do away with their coverage of polling numbers and just stick to verifiable facts.

The image at the top of the page is Joseph Mallord William Turner’s “Whalers” courtesy of The Met’s Open Access program.

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