We’re all familiar with the expression ‘Rubbish in, rubbish out’ – or perhaps a slightly more vulgar version of it. Well, the reason it’s such a famous phrase is that you can apply it to so many areas of life – including your business and data platform.
In previous articles, we’ve talked about the different stages or segments of a data strategy – storage, cleaning, preparation, analysis, visualisation and communication. However, before you can carry out any of these tasks, it all begins with sourcing. That’s where ‘Rubbish in, rubbish out’ comes into play. If you start with rubbish, no amount of cleaning, analysis, visualisation or communication can transform it. Fail at the sourcing stage, don’t bother moving on to the next one.
In this article, in partnership with Reframe Capital, we’ll explain why data sourcing and connectivity are of such importance in the alternative investment industry. We’ll also look at how inherent problems can be solved by innovative thinking.
Options for alternative managers
While data has application for alternative managers in several areas – investment decision-making (including valuations), distribution decision-making, client service and reporting, ESG integration and reporting – emphasis will always be on the area that offers the greatest competitive advantage, the most bang for your buck. Today, for many, if not all, the focus is on investment-level data.
Several factors affect the quality of your data:
- Reliability of sources
- Types of data required and obtained from the source
- Willingness or ability of the source to provide data
- Timeliness
- Format
- Structure (or lack thereof
Private Equity and Private Debt
Due to material differences between alternative asset classes, there is a need for different approaches to data.
While PE and PD are very much centred on the underlying company and perhaps the sector, those are all arguably traditional data sources best suited to a bottom-up approach
Firms can source data (at a cost) through established vendors or develop it on a proprietary basis through direct relationships. The edge – the elusive source of sustainable alpha – is overcoming the challenge of accessing reliable and distinctive financial data for private companies, to build an accurate picture of their performance, market position, valuation and growth potential.
Real Estate
The real estate market is quite distinct, however, and one where data analytics is rapidly changing the investment process.
When it comes to conventional data sources and methods, it’s very much a level playing field. Data analysts filter huge data series and reports to identify patterns and gain insights that inform decisions on where to buy and develop. Often, by the time the analysis is completed, the best opportunities have already gone.
To gain a competitive advantage, firms are turning their attention to so-called ‘non-traditional’ or alternative data sources – surveys, mobile phone signal patterns, economic and demographic indicators (such as crime rates, median age). Information like this represents a set of valuable data points which enable firms to plot meaningful forecasts.
Issues with data connectivity
Even if your data is of the highest quality, it requires a high level of expertise to draw from such a disparate range of sources and interpret the associated data. But, once you’ve developed your own complex web of sources from which valuable data flows, it’s paramount (if you’re to gain maximum benefit from your data) to ensure connectivity and consistency between those sources.
This is very much the reason why firms are beginning to look at data centralisation and warehousing in the cloud. But it remains the case, certainly in private markets, that many firms continue to adopt a siloed approach to maintaining data – across different systems and databases (such as CRM platforms, software applications and reporting tools), spreadsheets, PDFs, PowerPoint presentations, Word documents and others.
This kind of set-up, which we believe is common in the industry, is a recipe for duplication, inconsistent terminology and taxonomy (for example, with instrument types), inefficient or incomplete records, which only serves to undermine the integrity of your data and erode its value.
The theoretical solution
‘So, what’s the answer?’, we hear you ask. Is there really a simple, elegant solution out there?
Well, at a conceptual level, yes.
It begins with having a central data platform or warehouse, then having the ability to map or connect to your other systems and applications, with data feeding from that single, consistent source or database. One, complete record, one set of terminology, one taxonomy, no conflicts, no duplication. Anyone can see the advantages when you put it like that, right?
But, to truly service your needs, that source or database must:
- Be compatible with or configurable to interact or ‘talk’ to those other systems and applications
- Allow for simple, low-risk data migration
- Adopt a framework that ensures robust data governance – with changes, new categories or instrument types, additional features, methods, models, scenarios, calculations, all auditable and feeding seamlessly into connected systems
- Enable users to leverage AI and machine learning tools
- Be built to recognise and understand the investment universe and private markets industry, asset class features and nuances
- Provide for a simple, flexible and versatile approach to development of connectivity and integration with other systems - on time, on budget, without reliance on heavily coded third-party platforms or solutions
The real-world solution
Does such a framework exist not just in theory but in practice?
Enter LemonTree Software…
Our data integration solution does everything we’ve mentioned above and more besides.
Join our event
Later this month, Ben Lamping from Reframe Capital and Jamie Nascimento, LemonTree’s Chief Commercial Officer, are hosting a round-table on data.
Drop us a note if you’d like to be part of the discussion.
