Research & Alt Data: A Zero Sum Game


Much to the surprise of the audience at a recent research industry conference, a number of asset managers who participated in one of the panels admitted that their firms’ research and alternative data budgets are a “zero sum game”.  What does this mean for the research and alt data industries?

Building a Research / Alt Data Budget

As a result of MiFID II, most EU and all of the larger global asset managers have implemented budgets to manage their spending on research and alternative data that is independent of their equity commission pools.  

While many research industry analysts assume that these budgets were created from the top down, most asset managers explain that their budgets are actually built and managed from the bottom up.  In other words, the firms’ total research and alternative data budgets are driven primarily by the number of analysts and PMs on staff.  If the number of investment professionals in one year declines by 10%, the firm’s overall research budget should fall by a similar amount.

One other factor that drives these budgets is the role or experience of their investment teams.  Clearly, a senior portfolio manager generally has a larger budget for research and alt data than a junior analyst.  On the other hand, a quantitative analyst is likely to have a larger budget for alt data and a smaller budget for research than a fundamental analyst with the same level of experience. 

Given these factors, if the number of PMs at one firm drops by 10%, then the overall research budget is likely to drop by more than 10% whereas if the number of junior analysts falls by 10%, the overall research budget is likely to fall by less than 10%.  If the number of senior quantitative analysts falls by 10%, the firm’s alt data budget is likely to fall by more than 10%.

A Zero Sum Game

While many asset managers maintain a separate research and alternative data budget, each investment professional generally receives a single amount of money funded from these two budgets.  Investment professionals are generally allowed to spend their allocated funds in whatever way that makes the most sense to them.

Consequently, if investment professionals value alternative data more than research, they could choose to spend a majority of their allocated budgets on alt data and less on research.  If a majority of the staff at an asset management firm did this, then that firm’s research spending would likely fall, while their spending on alt data would rise.

Most asset managers we have spoken with recently admit that the absolute dollar amount their firms currently spend on alternative data is actually quite small when compared to their overall research budgets.  However, they also say that their spending on alt data is growing rapidly.  The upshot of this development is that investor spending on research is likely to slow in the future as buy-side analysts choose to use more of their limited budgets on alt data versus on traditional investment research.

Our Take

Most executives at investment research and alternative data firms typically believe that the future prospects for their businesses are rosy as buy-side analysts and portfolio managers look for better ways to generate alpha.  However, most buy-side research buyers see this wishful thinking as unlikely given the pressures their firms are facing in the wake of fee pressures, increase regulatory demands, and the shift from active to passive management.    

The reality that buy-side spending on research and alternative data is unlikely to continue to grow forever is a hard pill for many in the industry to swallow.  However, this does not mean that specific research or alternative data types or individual firms cannot grow in this mature market.  What it does mean is that winning in the increasingly competitive research and alternative data industries will require continuing to invest in building innovative value added research and data products, while simultaneously capturing market share from existing players in the space.  Clearly, it’s a jungle out there.


About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email:

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