It’s important to ask hedge funds about their alternative data use to understand if it is adding value to their asset allocation process and then helping them to generate alpha, says Tim Ng, CIO of consultancy Clearbrook LLC.
“We try to discern first, what is the type of data and/or information they are trying to access? Two, how are they processing it? Three, how are they adding that additional data analysis to the overall investment process and/or risk management process? And can you demonstrate, now that you’ve put these new data analytics into effect… how has it positively, hopefully, added to underlying performance?” he says.
For quantitative firms that have used data for many years, investors may add questions such as what steps these managers are taking to update and change their models as well as incorporate more factors in light of the greater volume of data and information available today, he adds. Ultimately, Ng says he wants to know if a firm can “show us the proof as to the outcomes.”