Thanks for being here!
This is the Alternative Data Weekly for Friday, April 12, 2024.
Announcement(s):
Battle of the Quants, May 9th. NYC.
Theme that emerged in this week’s email is … AI is being integrated into the investment process, but a human remains in-the-loop.
QUOTES
“That nine in 10 managers are already using AI — or are planning to — as part of their investment and research process corroborates the thesis that managers are actively seeking an edge from AI (and we recognize the potential for ‘AI washing’ here). Of course, managers may not see an alpha return on their investment in AI if everyone is using the same AI techniques. Any new-found anomalies may quickly disappear, as alpha is a zero-sum game, and everyone is spending” – Nick White - Mercer
News Articles
Podcasts
Cool Charts
Final Thoughts (Argentina)
#1 – Ben Lorica’s Taming the Unstructured Beast: Data Tools for Unleashing Generative AI. April 2024.
My Take: Working with data is hard. Integrating GenAI and LLMs into current processes so decision makers can engage with confidence is really hard. The author does a great job of putting in place a framework of steps needed to execute effectively. The coming move to Gen AI requires a “renewed focus on data engineering and data management tools”. Check out full slide deck here.
#2 – Adam Nahari & Dimitris Bertsimas published External Data and AI Are Making Each Other More Valuable. February 2024.
My Take: A big problem with external data is incorporating it into your firm’s investment process. AI makes that easier. AI is a tool used to more effectively engage with data of all sorts, including external data. The authors put forth a couple use cases in which they use external data to evaluate private market investment opportunities. Investment firms need to be evaluating AI tools. It is yet to be determined which use cases will provide the greatest advantage, but the potential is too great to ignore.
#3 – Leo Almazora published How do asset managers see AI?. March 2024.
My Take: This article cites a Mercer Report which I’ve highlighted below in the Charts section. Bottom line is AI is being incorporated into the investment process, but a human remains in-the-loop.
BONUS: European Commission’s AI Act. March 2024. “The AI Act aims to provide AI developers and deployers with clear requirements and obligations regarding specific uses of AI. At the same time, the regulation seeks to reduce administrative and financial burdens for business, in particular small and medium-sized enterprises (SMEs).”
What else I am reading:
The Diff’s The Data Business, At Three Resolutions. April 2024.
Jason Derise’s Data Chorus Looking Back and Looking Forward. April 2024.
Byron Tau’s book Means of Control: How the Hidden Alliance of Tech and Government Is Creating a New American Surveillance State
Bloomberg Launches Point-in-Time Data Solution that Gives Quants a Competitive Edge. April 2024.
Benn Stancil’s Oops. April 2024.
Erin Stanton of Her AI insider published Second Issue: Getting the Hang of It!. April 2024.
Matthew Lynley’s What happens to Fivetran? March 2024. (paid)
RANDOM: Why Is It So Hard to Build an Airport?
Source: Hedgineer’s Michael Watson interviews Kirk McKeown, co-founder of Carbon Arc.
My Take: These are two of my favorite people in the data world. Hedgineer & Carbon Arc are leading us toward the future of the data industry. Of most interest to me was Kirk’s idea that time-in-the-seat matters and investing is still largely an appreciate-ship business. You simply need reps to get better at investing. As it relates to data, Kirk asks about the tradeoffs of AI taking the place of those early days of time-in-seat. Young analysts will miss out on doing some of those mundane, but valuable tasks that AI can do better.
Another interesting point is that there might be ~1,000 data providers today (60-minute mark) … this is going to a million data providers in 5 years. I agree, there is no limit on data supply. Some data is valuable while most will be useless. This is tough on both data vendors & data buyers…but is a huge opportunity for those companies that can create value & deliver it to decision makers.
Highlights (75-minute run time):
Minute 01:00 – Kirk’s background (first 10 minutes is a must-listen for anyone trying to break into the world of hedge funds)
Minute 12:30 – how to design the information gathering process.
Minute 15:00 – how to compete on the call side (commodity business)
Minute 22:30 – auto-transcription of expert calls
Minute 27:00 – how is compliance involved in call process
Minute 30:00 – good example of primary research project of a fund
Minute 44:00 – the structure of the investment team; staying in the alpha space
Minute 53:00 – what is Carbon Arc; making it easier to work with data; financial systems first principals
Minute 63:00 – UI development with data is a problem
Minute 70:00 – decomposing brands into factors
Minute 74:00 – scaling data … engineering scales linearly, more data will come to market faster than people can ingest and derive insights (both Hedgineer & Carbon Arc win here)
Other stuff from the interview….
Four Products:
Metrics
KPIs
Cohorts
Market shares
Next: Factors
Data Life Cycle:
Collection
Transformation
Synthesis
Growing the Biz
Scale
Infrastructure
Compliance
What matters in your career:
Smart
Process
How hard you work
Source: Mercer Investments' AI integration in investment management 2024 global manager survey.
BONUS: @jimpethokoukis
BONUS 2: Live Data Technologies
Source: Argentina.
Hi readers. Thanks for making it to the end of the ADW. I spent my Spring Break in Argentina with my HS sophomore son’s rugby team. I was looking forward to the trip for many reasons, but as a fan of history & macro-economics, I was fascinated to visit this economically infamous country.
The boys were excited to get stacks of 1,000 peso notes (~$1 bills). Buenos Aires is beautiful but has seen better days. The people were wonderful and some of my college Spanish came back to me by the end of the trip.
I quizzed any willing English-speaking Argentinian about the economic and political situation. The ATM lines, the new President, cash-preferred transactions, & cheap prices (by US standards) had me curious. Most simply shrugged their shoulders and acknowledged that its “just how it is in Argentina”. The 1,000 peso notes were everywhere and I was told the gov’t didn’t want to print bigger denominations as that would be acknowledging or potential exacerbate the inflation problem. Its interesting to pay for a steak dinner with a stack of pesos.
I’d go back. There is plenty to see and do. I felt safe the entire time. The people were friendly. The food was good. Buenos Aires was very walkable. The second half of our time was spent in Mar Del Plata, which is a beach town 5-6 hours south of BA. This was as nice a beach town as I have visited. Very walkable and the summer crowds were just leaving town as we arrived.
And as a bonus, there was no jet lag despite the long flight (just 1-hour ahead of US ET).