The Surge of Alternative Data Spending Among Investment Firms Heading Towards 2025

Investment management firms are increasingly allocating funds to alternative data sources, with spending projected to reach an astonishing $15.4 billion by 2025. This insight comes from Neudata's latest report, which provides a comprehensive overview of the growing alternative data market within the investment sector.

The landscape of alternative data is rapidly evolving, as evidenced by Neudata's analysis, which reveals that investment firms spent a minimum of $2.5 billion on purchasing alternative datasets in 2024 alone. The report highlights a staggering increase in market activities, suggesting a compound annual growth rate of 21 percent since 2020, intensifying further to 33 percent in 2024.

Key Findings on Alternative Data Usage

The rise in alternative data spending is driven by a host of factors, with web-scraped and transactional datasets emerging as the dominant types of datasets, accounting for nearly 30% of the overall market expenditure. Moreover, the demand for datasets with a global reach is escalating more swiftly than in other regions.

Each alternative dataset generates an average revenue of $1.1 million annually, while some elite datasets can yield over $20 million each year from investment clients alone. Taking into account potential adjustments to methodologies used in calculations, Neudata suggests that the actual expenditure in the alternative data market might have reached as high as $12.7 billion last year.

Future Projections and Market Trends

Looking ahead, the report predicts significant developments in the alternative data market over the next five years. One major trend is the expanding buyer demand, as 95% of data purchasers anticipate increases in their budgets for 2025, suggesting that firms new to alternative data may leap into this expanding market.

Regulatory landscape changes are another aspect that could reshape the industry. Tighter privacy laws and heightened oversight from the U.S. Securities and Exchange Commission, alongside other global regulatory bodies, could impact how data is utilized in investment strategies.

Artificial Intelligence (AI) is also seen as a dual-edge factor. While it has the potential to enhance the value derived from data, it may simultaneously lessen investment firms' dependence on third-party vendors as they begin to develop proprietary datasets.

Neudata's projections paint a picture of a vibrant market, estimating that by 2030, the alternative data sector could soar anywhere between $8.6 billion and a staggering $39.9 billion.

Market Dynamics and Implications

Rado Lipuš, the CEO and founder of Neudata, emphasizes that the competition within the alternative data industry is intensifying, predicting that the upcoming decisions made by investors, regulatory bodies, and data vendors will significantly influence its future trajectory. The consensus is clear: alternative data has transformed from a niche market into a multi-billion-dollar industry, primed for further disruption and innovation.

As investment management firms continue to integrate alternative data into their strategies, the implications for market intelligence, decision-making processes, and competitive advantage will be profound. Firms that effectively harness the evolving landscape of alternative data are likely to reap substantial benefits, marking a new era in investment strategies fueled by data.

In conclusion, the surge in alternative data spending highlights a critical trend within investment management. As firms navigate this dynamic environment, the integration and application of alternative datasets are set to redefine the contours of the industry, leading to superior investment outcomes.