Survey: GenAI and Alternative Data in Investment Management

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January 11, 2023 – Alternative data continues to strongly influence the decision-making of investment professionals across the investment management industry, according to law firm Lowenstein Sandler’s fourth survey on the subject.

The report, “Alternative Data is Now Mainstream; AI Could Be Next,”  finds that a significant factor driving alternative data this year is the emergence of generative artificial intelligence, with its potential to help firms process enormous quantities of information.

More than half of the respondents said they were currently using AI on an evaluative or fully operational basis, and that they planned to invest more on it through 2024.

The report is authored by Scott H. Moss, Co-chair of Lowenstein’s Investment Management group and Chair of its Fund Regulatory & Compliance practice; Boris Liberman, Co-chair of the firm’s Derivatives & Structured Products practice; and George Danenhauer, counsel in the firm’s Investment Management group. Its findings are based upon a survey conducted by Ovation MR of C-level executives, data scientists, equity analysts, portfolio managers, and legal/compliance officers.

Co-author Moss says: “I’m not surprised that alternative data is now considered mainstream, given the highly competitive market for attractive returns.”

The report contains some surprises: although budgets devoted to acquiring and using alternative data were found to be growing at a decreased momentum than in previous years, in 2023 twice as many survey respondents as last year indicated they are currently using alternative data. Credit card data and consumer transactions are still popular sources of alternative data, while reliance on other categories, like web scraping and geolocation data, has increased. The Internet of Things (IoT) ranked as the most popular source of alternative data.

Other key findings include:

  • Sixty-two percent of respondents—double the amount from last year—said they use alternative data. The greatest increase came from those in venture capital, with 78 percent reporting using it compared to 11 percent last year.
  • 75 percent of respondents said they expect to increase their budget for alternative data, in line with the 79 percent last year. However, this year, only 28 percent of respondents said they believed their budgets would increase by more than 25 percent, down from 65 percent last year.
  • More than half of respondents (52 percent) said they use AI in conjunction with alternative data on an evaluative basis, while 16 percent use it on a fully operational basis. Only 8 percent said they have no plans to use it in the near future.
  • Due to the fading enthusiasm for ESG, alternative data in this area is fading—just 22 percent of those surveyed said they “strongly agree” that alternative data can help asset managers identify and act on specific ESG-related opportunities, down from 64 percent last year. Only 22 percent said their organization is using alternative data largely to gain insight and generate alpha in ESG investments, down from 33 percent last year.