Data Literacy: The Midwife of Data Democratization
Making data insights more available
Takeaways
Although the alternative data industry is several years old now, there is reason to believe that its growth is just beginning to jump-start.
Major conferences and large legacy information providers are moving into the space.
Meanwhile, the ability to use and understand alternative data is beginning to expand down market in the hedge fund industry.
In addition to Facteus, there are many other sources of basic information to help firms of all sizes and budgets to achieve an appropriate degree of data literacy.
At Facteus, we have been in the alternative data space since 2016 but something feels distinctively different standing here in 2022.
Back then, we were one of many new data providers jumping into this exciting unknown. An excellent chart from AlternativeData.org visualizes this exponential growth trend in new data providers year-over-year.
This trend continues and is gaining velocity even today. Back when we started in 2016, at which point there were barely 350, today there are 445 reported alternative data providers.
Is 2022 the beginning of the Data Age?
Such leading conferences as Eagle Alpha Unbound, Neudata Data Insights and Scouting Summit and Battlefin Discovery Day are showing record growth in both new data provider booths and overall attendees.
Here’s why 2022 feels different for me. First, over the past few years, there has been a shift in momentum toward technology and service providers, specifically targeting the inefficiencies in this alternative data space. Second, 2022 is the year when such large industry incumbents as Bloomberg have begun offering their own alternative data solutions. While on the one hand that could make some people who are committed to our boutique-sized firms a little nervous, I see it differently. This is the time when a pure-play orientation can shine as a technology and data provider. This is all just part of the life cycle, a healthy sign of maturation for the industry as we continue to grow and develop our ecosystem.
Of course, the potential for concentration of alternative data into an oligopoly of big providers is a cause for concern – for all of us, competitors and customers alike. While I trust market forces to ensure that a diverse array of data sets remains available to all who need them, I’m also gratified that these aren’t the only guarantors.
Facteus might not have control over market forces, but my colleagues and I do have agency to inform our prospective clients about the elements of alternative data, and from there they can make their own decisions. I’m confident “Bloomberg” won’t be the answer every time.
This isn’t our first ‘Information Age’
Growth in literacy across Europe has been a primary topic of interest for many historians studying the impact of the Gutenberg printing press. It marks the point in space and time – Mainz, Germany, 1440 – where and when recorded content was no longer the purview of nobles, clerics and courtiers, but rather something that could be shared with the masses. A book that would otherwise take months to copy once by hand could now be cranked out by the hundreds in an afternoon using cheaper materials as well as cheaper labor.
There is no doubt that Johannes Gutenberg had a significant impact. Studies revealed that literacy rates rose from 11% in 1500 to 60% in 1750. Equally intriguing, though, is the impact on the spread of knowledge throughout the medieval world, which helped fuel innovation during the Renaissance. Because books could only be disseminated at the speed of horse-drawn wagons, the process took centuries. Still, the information spread was akin to the spawn of the internet in this past generation.
I don’t want to push the analogy too far. Facteus’ clients and other end users of alternative data certainly have a bias toward being better informed than most commoners of the late Renaissance or early Enlightenment. But just as verbal literacy propelled the culture forward almost 800 years ago, data literacy can do the same for us today.
Our ancestors did speak words, of course, they just didn’t know how to store them, refer back to them, compare them and disseminate them efficiently. In that way, I maintain that the analogy holds.
And, if it does indeed hold, it could well have the same effect on society as that first literacy revolution: the spread of democracy. This sense that we are all equal can only take root when one person’s ability to form an informed opinion is indeed on a par with what their erstwhile “betters” could come up with.
Too much will never be enough
So I cannot help but draw parallels to our forebears during this moment in alternative data history. Just as only the cognoscenti had access to and the ability to discern the meaning of ancient scrolls, today that priesthood is comprised mostly of large multi-strat and quantitative hedge fund managers. They are the most likely ones to ingest and utilize alternative data because they are only those who can afford to carry a team of data engineers, data scientists, data analysts, and data infrastructure costs. Without the additional overhead, a hedge fund could not make sense of the incoming alternative data nor incorporate it into investment research or strategy. In other words, there is a high cost to becoming data-literate if a fund endeavors to integrate alternative data into its investment process.
Don’t get me wrong. We at Facteus love our high data-acumen clients. But they need not be our only clients – or the only of our industry writ large.
This is where technology and innovation play a vital role. Just like the Gutenberg press, alternative data tools and service providers are making data more digestible and readable. Instead of employing an entire data team of high-cost engineers, cloud-based SaaS tools perform the heavy lifting on data processing, making insights available directly in Excel spreadsheets, Bloomberg terminals or proprietary dashboards.
As a result, following the literacy growth cycle from Renaissance times, we are spreading investment insights from alternative data faster each year. Following this growth, data literacy and consumption come next. Then hopefully, as data literacy proliferates as a skill in the investment community, alternative data will become another tool in every investor’s toolbelt.
Don’t worry, quant funds. You’re still likely to get the newest, best data first, but it’s a given that the advantage will tend to flatten out over time. Remember that there are degrees of literacy and, as the retail investor achieves a high-school level of data literacy, you’ll still be able to afford to hire more scholastically acclimated employees who can read the post-doc stuff.
Regardless of where you are in you journey toward mastering alternative data literacy, and thus ushering a new age of data democratization, let me leave you with a list of related links to keep moving it forward: