Hedge fund and private equity investors to focus 2020 due diligence efforts on alternative data compliance, says Corgentum survey
Hedge fund and private equity investors to focus 2020 due diligence efforts on alternative data compliance, says Corgentum survey.
The vast majority (83 per cent) of hedge fund and private equity investors intend to continue increasing the resources they allocate to analysing compliance procedures surrounding alternative investment managers use of third-party research including expert networks.
That's according to the results of a new survey by Corgentum Consulting, a provider of operational due diligence reviews and background investigations.
In particular, investors believe that a key focus in 2020 will be on the security and privacy considerations surrounding hedge funds and private equity managers use of alternative data.
Seventy eight per cent of participants in the survey indicated that they will for the first time begin incorporating a review of fund manager uses of alternative data. Furthermore, 96 per cent of those who already review alternative data anticipate expanding their due diligence efforts in this area.
Key motivations for this focus cited by investors include:
• Increased fund manager use of alternative data in alpha generation
• Strong regulatory push on data security and integrity such as Europe's General Data Protection Regulation (GDPR)
• Increased availability and complexity of big data sets related to financial transactions, sensors, mobile devices, satellites, social media, biometric, geo-location and exhaust data
These findings are also in-line with the recently released 2020 Examination Priorities of the US Securities and Exchange Commissions Office of Compliance Inspections and Examinations.
"Investors want fund managers to utilise alternative data to enhance their investment research process. Corgentum's survey results show that investors also increasingly recognise that with the use of these new data sets comes accompanying operational, compliance and regulatory risks. Allocators are now beginning to tailor their due diligence processes and resources towards analysing this growing research avenue," says Jason Scharfman, Managing Partner of Corgentum Consulting.