The trend of using alternative data in the asset management industry is accelerating. Data is becoming the source of future competitive advantages. Statistics show that as of 2017, about 800 funds around the world have used alternative data to make investment decisions. In 2017, investment institutions invested approximately 400 million USD in alternative data where the industry is in a period of rapid development, and it is expected to reach 1.7 billion USD in 2020, with a CAGR of approximately 45%. According to the forecast of research company Opimas, the global alternative data market will grow from 4.3 billion USD in 2017 to US $ 9 billion in 2020—doubling in three years.
Alternative data development in China
The alternative data market in China is one to watch in the next few years. As there is a significant lag between release of official data on companies and what is actually happening in the market, alternative data providers can step in to bridge the gap for investors of all types. A couple of data providers are based in China, in major cities like Beijing and Shanghai, while there are several others that are headquartered abroad but still focus on the Chinese market. According to a recent SCMP article, Wu Haiyan, managing partner at China Growth Capital, estimates that there are about a dozen start-ups in China that focus on alternative data, however alternative data has covered a huge range, most of them are e-commerce data, transaction data, consumer data etc., not many for investing singal data. In addition, several global data aggregator like Bloomberg has just launched their alternative data product since 2019 but Chinese alternative data is just at the very early stage.
What do investors do with alternative data? In general, alternative data supplements decision-making and investment strategies. It provides special information to fund managers to understand a specific industry or company. Whether it is obtaining raw data from data providers to incorporate into their models or examining processed alternative data, investment companies are quickly recognizing the usefulness of alternative data. Various asset management firms have already begun to build their own data insights teams.
Certain data providers specialize in one type of data while others choose to widen their scope of capabilities. Either way, with a growing demand for alternative data and a rapid development of technology infrastructure, we expect the alternative data market in China to heat up in the very near future.
Data available on the market
There is quite a variety of data types available on the market. The three main sources of data come from individuals, companies and sensory data like transportation or geo-locations.
Consumer trend is a huge area that helps investors understand how a target company is faring. App downloads, reviews and ratings and social sentiment can indicate if a company is doing as well as it is claiming or not. Usually these alternative data providers go beyond what we may normally think of as consumer trend data. Through big data and advanced data collection methods, these data providers dig deep in order to gather data from the original sources. For example, before a topic or item starts trending in the Chinese market, these providers will have already identified it earlier on through their models.
What is lacking in the market is reliable ESG data. There are a few players tackling this field but there has been limited offerings in examining how companies are performing in ESG-related categories. For one, much of ESG-related data are officially released on a yearly basis, usually in annual reports or filings. This creates a huge lag for understanding how a company or industry is actually doing on a day-to-day basis. As environmental and social concerns are increasingly being highlighted both globally and in China, ESG-related data is proving to become progressively more important to investors in evaluating company and industry performances. China has recently been introducing new regulations on ESG-related areas, many that impact the way companies conduct their business operations.
Risks involved with using alternative data
Privacy risks remain in the forefront of risks that data providers and investors have to consider when dealing with alternative data. Especially in the cases of consumer data and employee data, privacy risk that should be taken seriously.
Regulatory risk is another key area to be aware of. Especially in China’s unique regulatory system, new regulations can greatly affect what data providers can do and how investors can utilize information. That ties into legal actions. Some data providers’ operations may overlap into gray areas while working on their data collection. This can lead to serious legal risks.
GC Insights pay particularly attention to the data privacy risk of Alternative data and carefully source the corporate ESG data from the best quality data providers in China.
How GC Insights can help
As an ESG research firm focused on the Chinese market, we strive to constantly elevate our services for all of our clients. We know that many investors interested in the Chinese market may have questions and concerns about how ESG-related areas play a role in China. We closely assist various investors in understanding the local scene and complying with the most recent market regulations.
Most current China ESG data are not comprehensive, limited and unfrequently updated. The ESG data we can provide is carefully sourced from publicly available or legally licensed sources, in addition to regular updates on most A share stocks, majority of H shares and also bond issuers. For us, we value what ESG data can offer and as alternative data continues to grow, we believe in consistently offering the best services to help investors gain the most reliable and updated insights on the Chinese market.