David Trainer explains why venture capital firms are pushing money managers toward proven superior data. Ignore it and face lawsuits, he argues. As passive investing shrinks the edge from scale, differentiated fundamental data is becoming the only way to generate alpha.
Chapters
We've recently received a lot of attention from venture capitalists, private equity firms who seem to have quite suddenly woken up to this idea that the data business is changing and the investment industry is ripe for a lot of change in particular. Around this idea that how are they going to be profitable in a world where so much money has gone into index funds or passive vehicles away from active? Our big takeaway here is that the number of firms that need ways to differentiate and create alpha is much larger than the number of firms that actually provide data. And when you take the fundamental data, industry in particular, which is where we are, emerging data providers, new constructs. There's really no one else out there in the world that can provide this value-added alpha-generating fundamental data. Everybody for decades has relied on unscrubbed regular data. And for a long time, the fund industry and fund companies have been able to get away with that because they've been able to cut costs. By getting bigger and bigger, larger and larger, greater economies of scale. And we think the amount of time or the amount of opportunity remaining in scale advantages and getting bigger distribution is next to none. So they got nothing left to grow profits or maintain profits anymore besides really creating a differentiated product in a market that's become incredibly And we are providing a very clear and direct way to generate incremental alpha that they need, and there's no one else that can do it. My prediction is that all firms will have to eventually be users of this superior fundamental data, not just because it generates alpha, but because once it becomes really more well-known, how can any money manager make a straight-faced argument that they're able to fulfill their fiduciary duty of care? If they're knowingly ignoring what is proven superior fundamental data. I don't think the compliance department is going to want to take the risk that you make an investment decision based on the proven inferior data and that blows up, you underperform, and you're getting shareholder lawsuits because they're saying, why were you driving at night without your headlights? Why did you have your head in the sand? That positions new constructs really well in the coming days and months. We're really excited to see more folks, especially in the institutional private markets, recognizing that.
