Beware Pitfalls Using Intelligence Research


The following is a guest article from Thomas Tippetts, founder of OMYTIS, an intelligence provider which draws on regional and specialist intelligence suppliers.

Fund managers are increasingly relying on the intelligence consulting industry (whose services are typically prefixed by ‘strategic’, ‘corporate’, ‘business’ or ‘risk’) to validate significant positions and deliver clarity on targets in emerging and developed markets. Alongside the developments in data analytics and technology driven ‘Alt Data’, strategic intelligence provides a significant and differentiated solution in opaque circumstances. However, there remains a persistent lack of understanding as to how this realm of alternative research operates. Whilst it has evolved and matured to provide actionable insight for investing clients, pitfalls remain.

For a $2bn a year industry, the intelligence market continues to be ambiguous and consumers must rely upon a great amount of trust in their supplier. It delivers, at times, uncorroborated information at a high price (both in monetary value and level of risk) and then it is left to the consumer’s discretion as to how to proceed. This information is usually gathered through ‘global proprietary networks’, a vague term for human based information acquisition. The nature of these methods consists of anonymous sources, discreet enquiries and observational insight. How sources and consultants go about collecting this information is key for the viability and actionality of the intelligence delivered.

For fund managers, the right supplier will unquestionably provide a discrete and highly competitive edge when investing in global markets. The wrong supplier will deliver sub-standard services that could also increase the risk to both an investment and overall reputation. In reality, just finding intelligence suppliers can be difficult, let alone knowing who can cater to the specific needs of investment professionals in a transparent and legal manner. US and UK funds typically use suppliers either based on their visibility, such as Kroll or Control Risks that boast multiple offices globally, or based on proximity, such as Ergo or Alaco who have perhaps one or a small number of offices but are located principally in New York or London.

Managers should remain cautious when engaging with intelligence firms in both these categories. Whilst dealing with a known brand or global company for all enquiries can be time efficient, it will not always provide the best results across the board. The diverse nature of markets, particularly in emerging regions, are best understood by those who sit solely in and concentrate exclusively on them. Additionally, the multiple methods of information acquisition that exist today, from imagery to social media, are collected in exceptionally different ways with suppliers developing singular expertise in each case. Comprehensive intelligence analysis should take a holistic approach and no one single enterprise can realistically retain premium global insight.

For proximate consultancies, significant competition and downward fee pressure are pushing some to broaden their services to offer international execution capabilities when they may only have expertise and networks in one region. Market pressure is also driving expansion into adjacent services such as computer forensics, cyber security or security risk management to support client retention. This leads to the danger of becoming ‘jack of all trades, master of none’, generalists touting understanding of what constitutes actionable intelligence to long and short money regardless of the market and in reality only possessing a narrow execution capability.

For what cannot be executed internally, these suppliers will outsource to a third party which is not always transparent to the client (outsourcing is not the same as the use consultants on the ground who are instructed and directed in-house). Whilst the retained supplier may hold themselves to stringent ethical and regulatory standards, this may not be the case for the third party provider who are collecting and analyzing the information. Furthermore, managers should avoid individuals and companies who use the opportunity to substitute all out secrecy for necessary discretion. Cloak-and-dagger fixers that don’t disclose their process or offer transparency in their approach may only be hiding inadequacy or illegality.

The rise of Alternative Data and the use of technology to provide insight into target regions and companies signals the acceptance that looking beyond the P&L in a systematic way supports overall alpha generation. The growing number of these suppliers use open source (such as Twitter, Youtube, Wikipedia) and other unstructured datasets to attempt to correlate trends on a macro scale (EagleAlpha and Predata are two examples) and can be an important piece of the puzzle alongside utilizing traditional methods of research. While still in relatively early days, the use of high volumes of data have supported accurate forecasting of events ranging from Brexit (by Predata) to the quarterly results of Chipotle (Foursquare).

Where ‘Alt Data’ seeks to answer questions based on a high volume and broad range of inputs, research carried out by intelligence consultancies offer similarly additive insight based on a very small number of particularly key inputs and still in many emerging markets the lack of internet penetration cannot support data analytics at the scale required for a meaningful solution. It also will not provide the same level of insight on specific intentions of individuals and companies that on the ground, human based information acquisition can offer.

When seeking intelligence suppliers to undertake highly specific information acquisition services, the following points are key to ensuring fund managers achieve a high-quality and usable intelligence product:

  1. Know the supplier

No one intelligence supplier has market leading expertise for every region; seek local expertise for premium understanding. Verify transparency in information acquisition and analysis processes.

  1. Use new technologies

Technology and open source intelligence solutions provide a wealth of ethical and risk-free insight. Human intelligence must be overlaid with online and, where appropriate, imagery and other digital based data. Often a number of separate suppliers, including those that utilize alternative data, may be required to deliver a truly comprehensive and holistic approach to investment insight.

  1. Ensure a track record for supporting investing clients

As the intelligence industry becomes more crowded, seek out those firms who truly understand what constitutes value additive insight for hedge funds and the particular strategies being employed. Thesis validity review, asset appraisal and activism support are some examples of services from suppliers who understand the investment market.


About Author

Sandy Bragg is a principal at Integrity Research Associates. He has over thirty years experience as an investment research professional. Prior to joining Integrity in 2006, he was an Executive Managing Director at Standard & Poors, managing S&P’s equity research business and fund information properties. Sandy has an MBA from New York University and BA from Williams College. Email:

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