Investment managers are set to increase their budgets for alternative data in 2025, building on growth over the past two years, according to research.
The research by investment analytics platform Exabel and alternatives data provider BattleFin has highlighted a shift towards third-party software for data analysis, while many firms still rely on basic tools like Excel.
The study, which surveyed fund managers in the US, UK, Hong Kong and Singapore managing a total of $820 billion in assets, found that 85% of investment managers expect their alternative data budgets to rise this year, with a third (33%) forecasting substantial growth. This follows a period of rapid expansion, where 43% of respondents saw budget increases of 50% to 75%, and 36% reported 25% to 50% growth in their spending.
One area expected to see the biggest increase is third-party software for alternative data analysis, according to the researchers. Currently, 66% of firms use third-party systems, compared to 51% relying on in-house solutions and 51% using vendor-provided platforms. However, 59% of respondents still rely on basic tools like Excel and Tableau, underscoring a gap in technology adoption.
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That reliance on outdated tools is expected to decline, with 85% predicting greater use of third party systems over the next five years and 15% forecasting a dramatic increase. Cost effectiveness is a major driver of this shift, with 87% citing cost savings as the primary reason for moving to third-party solutions. This was followed by 62% who see them as a more consistent way to handle diverse data types and 52% who find them more effective than in-house systems.
Senior management appears supportive of this transition, according to the findings, with 98% expressing commitment to alternative data in investment research. The majority of firms (84%) have a dedicated alternative data lead, while 11% admitted they do not.
When it comes to budget allocation, 62% of firms dedicate between 25% and 50% of their alternative data budgets to acquiring data itself, while 45% allocate a similar percentage to technology and software. Nearly 49% allocate between 10% and 25% of their budget to hiring personnel for analysing and managing alternative data.
Tim Harrington, CEO of Battlefin & Exabel said: “The demand for alternative data continues to grow globally, with investment managers increasing their investments year on year to both acquire and
manage a growing array of datasets.
Key issues include resourcing, standardisation of data across sources, and use of third party analytics tools. We are committed to leveraging the power of alternative data to deliver actionable insights and value. In today’s dynamic market environment, accessing high quality data is crucial for achieving a competitive advantage and unlocking alpha.”
