Silicon Valley Continues to Influence Wall Street

The use of alternative data by the active investment community underscores the movement toward alternative data and computer analysis to improve returns and attract clients, according to a recent article in the Financial Times.

The article cites the example of how a computer algorithm (developed by New York-based technology company Dataminr) predicted the recent Gilead Sciences-Kite Pharma takeover because it “had noticed unusual social media chatter and options activity and alerted its clients about a possible buyout of Kite by a large biotech company.” Computers, it asserts, can digest large quantities of data to render it useful for investment decisions. Otherwise, it says, firms would have to “put an intern in front of Google Maps for six weeks.”

According to Tabb Group, a capital markets consulting firm, almost one-third of asset managers surveyed said they were using alternative data–particularly social media data, supply-chain analysis, business performance information and web traffic–with 64% of those predicting that it could help them outperform their benchmarks. This has led to a surge in start-up companies offering alternative data analysis.

The article cites comments by AXA Rosenberg Equities CIO Gideon Smith: “Any role where you are doing something repetitive is ripe to be done faster, quicker, cheaper by machines and robots, and so it is beholden on all of us in the asset management industry to look at what we do…and whether it is something that a machine might be able to do better.”