Last month, our CEO Philip Brittan participated in a panel discussion around “Best Practices in the Lifecycle of Data Acquisition, Implementation and Maintenance” at Managed Fund Association’s MFA West Conference. Harry Askenazi, Account Executive at Crux, sat down with Philip to understand a bit more about the discussion and share some of the takeaways with our community.
Philip, what were some of the themes addressed during your panel discussion at MFA West?
From my point of view, one of the ongoing themes is the new dimension of data safety that firms must address when evaluating whether or not to use new data sources. Traditionally, firms that evaluate new data posed the questions: ‘is the data useful?’ and ‘is the data novel?’ Now, with the rise of alternative data, coupled with more regulatory scrutiny, people must also ask – ‘is the data safe?’ The question of safety has to do with the legality around the data and the potential reputational damage, but also with the shifting sands – something that is perfectly legal today might not be tomorrow.
Also, another important aspect we explored was that given some alternative data providers may go out of business, those firms that rely on a specific data source will have a problem should it no longer be available. As a result, firms may care less about novel data and may want to have redundant sources of a particular signal in case one flares out, which creates a portfolio effect. The addition of the safety dimension is causing a lot of interesting ripple effects across the industry.
One discussion was around privacy concerns in alternative data and you mentioned how “anonymization is fraught with challenges and issues” in response to Jumpshot shutting down. You made a comment around how “this affects every individual with a smartphone.” Can you explain this a bit further?
Yes, part of our conversation centered around anonymization in alternative data sources. We discussed some of the anonymization challenges through the example of location data. Yes, you can anonymize to take a person’s name out, but if you actually look at the data – you can see an individual is spending 90% of their time in two places – an apartment and office location. From there, you can start to easily figure out who that person is – just because the person’s name was removed doesn’t mean you can’t figure it out. People are not really sure how to anonymize the data without destroying it – reducing its usefulness.
When discussing privacy, the comment around “this affects every individual with a smartphone” was brought up in discussion around geolocation data. Online behavior is being snooped without people being aware. As a result, considerable backlash has occurred — not an overwhelming outrage yet, but there’s rising concern about this. For example, Jumpshot being shut down was a direct reaction to this issue.
During the panel, you spoke about how the nature of the LP/GP relationship is changing and how it’s evolved with the proliferation of alternative data. Can you expand upon this?
In terms of how the relationship is changing, LPs are more curious now on what their GPs are doing and how they’re doing it, due to the risks involved with alternative data. Famously, a lot of hedge funds, particularly in the quant space, are secretive about what they do. The pressure for GPs to be more open on what they’re doing, how they’re doing it and what data they’re using is rising. GPs are under increased scrutiny to ensure they’re not only living by the letter and spirit of the law, but also thinking about future reputational risks by engaging in a particular trading strategy.
What was your biggest takeaway after this discussion?
The fact that the panel discussion happened was an interesting signal in and of itself. It highlighted the degree to which firms are concerned with data and the increased effort developing the resources to ensure that firms are doing the right things with their data.
As I’ve been speaking at recent MFA events, we’ve seen this theme continue to be highlighted. At MFA Network, I participated in a discussion where LPs expressed the want for more information on data that their fund managers are using. The concern is to make sure there’s no trickle-down liability from the hedge funds they’ve invested in by using data they shouldn’t be using. Across these two conferences, I’ve heard this repeatedly, so I’d say this was my biggest takeaway.
On May 6th, I will be speaking on a webinar panel run by Waters Technology on the topic of “Optimizing the Data Technology Stack: Integrating Data Suppliers with Cloud Platforms and Analytics Tools for a Winning Data Strategy.” Please contact us if you’d like to join.