Do hedge funds have data budgets?

by Matt Ober, General Partner at Social Leverage

Do hedge funds have data budgets? It depends.

Many people think that hedge funds have unlimited budgets. I frequently hear about hedge funds spending over seven figures on datasets. The reality is that most datasets sell for less than $100k per year. There are many that are in the $100,000 to $250,000 range, and very few, if any, that are selling to hedge funds for over $1M.

Do hedge funds have data budgets? Quantitative funds typically have no budget if it makes money and is uncorrelated. That being said, it still takes time, effort, and patience to sell to quants.

Do fundamental hedge funds have budgets? They almost always do, or they may constantly look to purge unused data and tools. That being said, if the fund does activism, for example, it can’t put a budget on a dataset need. If it helps with a big activist research project or position, budgets get thrown out the door.

The answer depends for other types of funds and strategies. If a firm is raising money from a new, large European investor and they need ESG metrics as part of reporting, then there’s no budget because of the need to meet investor demands.

My rule of thumb for most data vendors is to assume that if they are selling a new, unique dataset that has a moat and is used by minimal hedge funds, then there is typically going to be interest and an unlimited budget. If they are selling something that is commoditized, something that is hard to work—the data isn’t cleaned, structured, or well documented—or they are doing a displacement sale, then it’s going to be hard, and budgets will be tough.

If data solutions can make the firm money, save the firm money or help the firm raise money, then there is no budget.