Roberto Jedreicich gets to the point.
The decision-maker on all things alternative data at Credit Suisse’s internal $650 million quant fund, QT, is flooded with pitches and meeting requests from new data vendors on the average day. But last week, at BattleFin’s Discovery Day in the opulent Plaza hotel in New York, it was more of a tsunami than a flood — he had 30 official 20-minute meetings in two days and dozens of unofficial ones.
So, with limited time, he listened to these companies’ abbreviated histories — how many graduate degrees their founders have, which obscure countries they have real-time data on — and started with one simple question: How does this help me and my fund?
“I can tell pretty much right away which ones I’m interested in, and they’ll know right away if I’m interested,” he said in between meetings. Business Insider trailed Jedreicich over the course of a few days at BattleFin, a conference designed to match up companies that provide alternative data with buyers of that data.
Whether it’s satellite images, credit-card transactions, or information scraped off the web, the collection of obscure data known as alternative data, which is used for investment purposes, is a growing business. A Deloitte report pegged the alternative-data market to surpass the $7 billion mark by 2020.
Data buyers like Jedreicich control the purse strings for the billions of dollars hedge funds plan to spend on this type of information. Data buying wasn’t always the sexiest of roles, but as hedge funds seek out new ways to beat the market, they’re increasingly looking to alternative-data providers that offer insight into companies not found in filings and earnings calls.
A sampling of the companies at BattleFin that were trying to pitch data buyers included: Zillow, the real-estate database with millions of listings; the Amsterdam-based CGLytics, which consolidates and analyzes corporate governance practices for managers with a social-impact focus; and PatSnap, a company focused on data found in new patents and research from the tech world.
Jedreicich is Credit Suisse’s one-man alternative-data team, a data veteran who has done stints at hedge funds, Deutsche Bank, and Merrill Lynch. With a data-buying budget in the millions, Jedreicich does not have a data-science or quant background. He broke into finance in Solomon’s fixed-income department in the early 1990s but didn’t get really involved in alternative data until his eight-year stint at Izzy Englander’s Millennium, starting in 2008. He joined Credit Suisse last summer from Schonfeld Strategic Advisors.
The data-buying community is small but growing. At BattleFin, which had more than 1,000 registered attendees, Jedreicich and his peers were the center of attention.
A legal battle between WorldQuant, which spun out of Millennium, and its former data buyer Matt Ober a couple years ago showed how much funds are ponying up for the best data finders. WorldQuant had sued Ober, alleging a breach of contract because he began working for Dan Loeb’s Third Point before his noncompete ended, and the lawsuit showed that Third Point was paying Ober an annual salary of $2 million.
And now that coders have more data to play with, new startups are popping up in the alternative-data arena all the time.
Data providers’ explosion Shayanne Gal/Business Insider
It’s the job of Jedreicich and his competitors to figure out which ones actually provide anything of value and which ones would just add to the data overload many hedge funds are battling.
2 days, 30 dates
Shopping for alternative data isn’t like going to the grocery store. Jedreicich is not running down some predetermined list of things he wants to buy.
Instead, he and his competitors at hedge funds like Third Point, ExodusPoint, and Balyasny Asset Management, want anything that can provide alpha — investment returns that an investor wouldn’t get from an index fund that is simply mimicking the broad market.
“My focus is bringing in alpha to the firm, everything else is second,” he told Business Insider.
Out of 100 data providers that pitch him, five to 10 get actual contracts.
“If it has alpha, we’ll buy it, no matter what is, no matter how old the firm is,” he said.
Decked out in a fitted black suit, a matching T-shirt, and loafers with no socks, Jedreicich pressed the vendors with the same set of questions: How far back does your data go? What is pricing like? Can I run a trial with real-time data?
The last question can be tricky, he said after he finished scribbling vendors’ responses on the back of business cards he just got. Not everyone likes giving away free samples after all.
“Some do [agree], some don’t, but I always ask,” he said.
He said he had been burned in past after backtesting historical data from a few vendors that his team found had predicted market moves before they happened. After signing a contract and ingesting real-time data, however, the investment signals disappeared, and Jedreicich thinks the historical data might have been tweaked to make the offering look more attractive.
That’s not to say he doesn’t trust data vendors — in fact, he vouched for several companies in a quick lap around the exhibit hall, pointing out longtime players that he has worked with for years. RavenPack, a company based in Spain that uses natural-language-processing technology to quickly review earnings transcripts, political speeches, and more, has gotten several contracts from Jedreicich.
But with any rapidly growing business, there are people looking to make a quick buck.
“It’s not snake oil, but there are a lot of datasets that have no value,” he said.
He wasn’t handing out contracts at BattleFin. Jedreicich, if he liked a pitch, would invite the vendor to his office to meet with his chief research officer and some of his quants. From there, the backtesting of the data can take months, and he often likes to have a monthlong trial with real-time data before signing a contract.
He also asked prospective partners if other quant funds were clients. In an ideal world, the data vendor would have a few quants already signed on but not too many, so Jedreicich feels comfortable that someone else in the industry sees value in the data, but the trades generated from the data haven’t become too crowded yet.
From boxed lunches to gold-trimmed plates
A lot of the alternative data for sale now didn’t exist two or three years ago, Mike Marrale, the CEO of the alternative-data company M Science, said. The explosion in growth was easily visualized at BattleFin, where just a couple years ago, attendance was a fraction of what it was last week, and lunch came in a box. On Wednesday and Thursday last week, catered lunches of farro salads and pasta were eaten off plates with gold trim.
Vendors ponied up at least $3,000 just to attend, though many paid close to $10,000 in order to get a table in the exhibit hall. Data buyers, meanwhile, paid roughly $2,000.
While the pace of innovation helps hedge funds get the latest and greatest, it can make pricing conversations difficult: How do you charge for something that’s never been sold before?
“A lot of folks out there, they’re trying to sell the first telephone,” said Barry Star, the CEO of the 16-year-old alternative-data company Wall Street Horizon, which tracks corporate events.
Many people, Jedreicich said, think they have “million-dollar ideas. No one actually has a million-dollar idea.”
“I don’t like insulting the vendor, but I know what it’s worth,” he said. Satellite data, one of the most well-known forms of alternative data, is something he has never bought because it’s too expensive and difficult to digest.
Still, budgets are growing at every firm, and hedge funds need to take chances on datasets that are unorthodox, Chris Petrescu, the head of data strategy at ExodusPoint, said.
“You need to take risks and take chances to stay competitive with others,” he said on a panel.
Longtime data buyers say that vendors initially ask for prices they’ll never pay because there are so many new companies looking to buy this type of information. At BattleFin, there were panels and educational sessions targeted at how corporations can use different types of alternative data to become more efficient.
“There’s a lot of newcomers in the buyer space,” said Tom Liu, the CEO of ChinaScope, a data company that consolidates, translates, and analyzes Chinese media reports for Western companies.
“There’s a lot of people at the edge of water beginning to wade in,” he added.
That won’t stop a lot of the startups that paid thousands to BattleFin from fizzling out though, Star said.
“Next year, 50% of them won’t be back,” he added.
By Bradley Saacks
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