Greater investment in analytics and data required, study finds

The use of advanced analytics and alternative data in the asset management industry is expected to increase significantly over the next three years but more investment is required to realise firms’ capabilities in these fields, a report has found.

Fund managers anticipate that the use of advanced analytics will grow by 180%, and alternative data by 70%.

Whilst advances are being made, the study by New York-based advisory and technology firm Element22 suggested more work needs to be done. Out of the 59 asset managers surveyed, nearly 80% overestimated their advanced analytics and alternative data capabilities.

Predrag Dizdarevic, founding partner of Element22, said: “Even the most advanced asset managers realise they will need to continue to invest heavily to find new ways of generating alpha, and they acknowledge this is a journey without a final destination.”

Asset managers are at varying levels of developing their ability in these fields.

Around 70% of firms remain in the early stages of developing their data and analytics programs, according to the report carried out in conjunction with Greenwich Associates and sponsored by UBS Asset Management.

Nearly 50% of respondents already have an analytics strategy in place, while 63% have one for data with just under half using it for generating alpha.

All managers in the later stages of their journeys said they are using machine learning to some extent.

Thomas Heinzl, chief operating officer at UBS Asset Management, said: “The research underscores the importance of investing in data and advanced analytics to drive efficiencies and process changes, along with the ability to generate returns.”

Implementing advanced analytics strategies requires the trialling of machine learning, natural language processing, and smart robotic process automation technologies.

Those firms that are pursuing advanced analytics and alternative data strategies are investing heavily in their programs, with managers spending anywhere from less than $1 million (€0.9 million) to over $100 million per year. The average spend was $5 million annually.

Despite these investments, the report suggests “an order of magnitude more will be required” to realise sustainable value.

Firms in the early stages of developing advanced analytics and alternative data programs were those most consistently planning to increase investment, with 90% of respondents reporting planned increases.

Respondents involved in the survey are located across North America and Europe, and manage a combined total of $15.6 trillion assets.

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