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Acadian Asset Management, a $77 billion investment firm, has signed a partnership with Microsoft to use the tech company’s Bing Predicts macroeconomic indicators The deal is the latest example of Wall Street firms using so-called alternative data to get an edge
Investors are in the business of making predictions.
When an investor’s prediction is correct, the investor will deliver outsize returns. On the flip side, if an investor’s hunch is wrong, money will be lost. And as the digital transformation of Wall Street continues, data will become more and more integral to making those predictions.
Acadian Asset Management‘s partnership with Microsoft is the latest example of data’s mounting importance to Wall Street. The Boston-based investment firm, which has $77 billion under management, announced it would be the first investment company to employ Microsoft’s Bing Predicts macroeconomic indicators.
Business Insider spoke with Ryan Stever, Acadian’s director of global macro quantitative research. He said Acadian decided on the partnership after the firm was convinced that the data from Microsoft’s search engine could be used to predict things about the overall economy.
“Using data on what people are searching for on Bing, we can forecast unemployment numbers or retail sales,” Stever said.
“It stands to reason,” Stever added. “Consumers are a big part of the economy, and what they are doing online can potentially indicate broader trends about the economy.”
That insight can be profitable. For instance, if Acadian knows sales are going to go up in a certain segment of the economy, based on an increase in online searches, then the firm has the potential to make money on that information using certain investment strategies.
Stever describes the partnership as the perfect recipe. Microsoft provides an expertise in drawing information from the data. And Acadian specializes in building investment strategies around such data. He said Wall Street’s love affair with data is only set to increase.
“I’m not entirely sure if other firms will engage in precisely the same type of deals,” he said. “But it is certainly the case that Wall Street will be using more and more of the data from Silicon Valley.”
“This is the natural progression the industry is witnessing, and firms that ignore this reality will lose out,” he added.
The agreement is the latest example of the way in which hedge funds are trying to use data to get an edge over competitors. They’re vying for new data sets their competitors don’t have or haven’t thought of using.
State Street, a global financial-services firm, addressed this trend in a recent note titled “The Journey of Digital Transformation.”
“Digital transformation is driving a seismic shift in the investment industry,” the note said. “Both fintech startups and established investment firms are using emerging technologies – including predictive analytics and machine learning – to disrupt the industry, promising clients highly customized, hyper-convenient investment solutions.”
The pressure for firms to take steps toward digitization is increasing at a rapid pace, according to State Street. And those who miss the digital boat seem likely to face serious problems in the near future.