Pension fund managers are the ultimate asset owners, responsible for the long-term financial security of millions of retirees. They face the challenge of allocating their capital to a variety of asset managers, such as private equity, venture capital, hedge funds, mutual funds, ETFs, funds-of-funds and consultants, who then invest in the market.
How can pension fund managers ensure that they are selecting the best asset managers and getting the most out of their investments? The answer is to use open-source data, or publicly available information, as a key criterion in their decision-making process. Open-source data is a powerful tool for asset managers because it can improve the returns and consistency of pension fund portfolios. But pension managers must know what to look for when evaluating asset managers that use open-source data.
Open-source data is any information that can be accessed, analyzed and used by anyone, without any restrictions or fees. In other words, nothing that is behind a password or paywall. Examples of open-source data include news articles, publicly facing social media posts, government reports, crop harvests, home purchases, airline ticket pricing, academic publications, Yelp reviews, satellite images, web scraping and more.
Open-source data is valuable for asset managers because it can provide insights into market trends, consumer behavior, industry dynamics, company performance and competitive advantages, among other factors. By using open-source data, asset managers can develop a repeatable and scalable investment process, based on data-driven analysis rather than intuition or guesswork.
Open-source data can also help asset managers measure and improve their investment process, by testing their hypotheses, validating their assumptions and tracking their performance. Open-source data can give asset managers an edge over their competitors, who may rely on traditional sources of information, such as financial statements, analyst reports, and market data, which are often outdated, incomplete or biased. When billions of dollars move in microseconds, it’s critical to have the most complete and up-to-date data possible.
Pension fund managers can benefit from allocating their capital to asset managers who use open-source data in their investment process, because they can expect higher and more consistent returns over time. This can be demonstrated by looking at the performance of the largest and most successful hedge funds in the world, including Renaissance Technologies, DE Shaw, Citadel, Millennium, Bridgewater, Balyasny, AQR, Two Sigma, Tiger Global and Marshall Wace. These hedge funds have consistently outperformed the market and their peers by using open-source data as a core component of their investment strategy.
They have also been able to adapt to changing market conditions by using open-source data to identify new opportunities, risks and trends. By investing in asset managers who use open-source data, pension fund managers can diversify their portfolio, reduce their exposure to market volatility and enhance their risk-adjusted returns.
Pension fund managers should look for several attributes when evaluating asset managers who use open-source data. Top of the list: What is the quality and quantity of the open-source data they use? How do they collect, process, and analyze data from these sources? Can they collect and analyze data at scale? Fund managers will also want to know about the methodology and framework that asset managers use to generate investment ideas, hypotheses and signals from open-source data, and how they test, validate and refine them.
Smart fund managers will want to know how asset managers execute and implement their investment strategy, and how they use open-source data to monitor, adjust and optimize their portfolio. What is the track record of their investment process, and how do they use open-source data to measure, report and improve their results?
Finally, it’s critical to understand the culture and team of the asset manager. Are they good citizens of the internet? Can they guarantee that they don’t disrupt the operations of websites when they scrape data? Can they guarantee that data will be aggregated and anonymized and that personal data will not be used?
Open-source data is the key to pension fund success because it can help asset managers create a data-driven, repeatable and scalable investment process that can generate higher and more consistent returns over time. Pension fund managers should allocate their capital to asset managers who use open-source data, and look for the attributes that indicate a high-quality and effective use of open-source data. By doing so, pension fund managers can ensure that they are fulfilling their fiduciary duty, and securing the long-term financial well-being of their beneficiaries.
