Forefront Communications

Financial News: Campaigners Sound Alarm Over Hedge Funds’ Data Use

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Forefront Communications

Forefront Communications

Privacy campaigners and watchdogs have raised concerns about hedge funds that are ramping up their use of mobile phone users’ location data, in order to track visits to shops, gyms and hospitals.

The signals produced by mobile phones are used to calculate an estimate of the device’s geographic location, or geolocation data. This is yet another kind of so-called alternative data being mined by hedge funds for investment purposes.

The organisations’ criticism comes amid an explosion in the types of data sets hedge funds can access to inform their investments. A number of funds supplementing or even replacing traditional company research with information sources including satellite imagery, credit card transactions, clandestine ‘dark web’ sites and now, tracking of foot traffic via mobile phone data.

Hedge fund spending on alternative data sources is growing by around a fifth each year, according to a recent report by consultancy Opimas, and is expected to hit $7bn by 2020. And more than one-fifth of asset managers and hedge funds had geolocation data on their wish list, consultancy Greenwich Associates said in a report early this year.

A spokesperson for The Information Comissioner’s Office said location data is “a valuable source of information but its collection and use may be considered very intrusive”. They said anonymising data and using it in aggregated form were “key safeguards,” and added that the European Union’s major update to privacy laws, General Data Protection Regulation, is due to come into force May 2018, when “there will be a greater focus on transparency and organisations being accountable for what they do with personal data”.

The Financial Conduct Authority declined to comment on funds using alternative data. A person familiar with the matter said that although this is not an area the FCA is looking at specifically, the regulator does monitor data financial firms collect and how they use it. If this alternative data were to be deemed insider information, it would potentially constitute a breach of market regulations.

One company that sells alternative data to hedge funds, US-headquartered Thasos Group, claims it has already started tracking billions of mobile phone users’ visits to “shops, restaurants, shopping malls, airports, deliveries to loading docks, hours worked on assembly lines and patient counts in hospitals” in the US. The company, which says it currently has 25 hedge fund clients, intends to begin tracking mobile phone users in Europe later this year.

Ken Nickerson, formerly of quantitative hedge fund Process Driven Trading, and a Thasos adviser, said that companies like Thasos process “unbelievably massive amounts of data” into insights that are “useful” to hedge funds because often the information is not yet reflected in the market prices of the relevant assets.

One manager of a New York hedge fund, who uses Thasos’ mobile phone data in his trading strategy, said old school groundwork, like calling up managers to quiz them on a store’s performance could be complemented by access to geolocation data. An investor in Starbucks, for example, could use geolocation data to track customers’ interactions with the chain: “The movement of people to various Starbucks locations, how long they’re spending there, and you’re able to gather how well Starbucks is doing,” the manager added on condition of anonymity.

The data has also provided insights into the forecasts of hospital stocks in the US. Around 20 hospital parent companies are traded on the New York Stock Exchange.

“We can use the data to look at how the aggregate number of patients correlates to the published numbers in real time,” said Greg Skibiski, the founder of Thasos. He said Thasos uses artificial intelligence models to track patterns of behaviour in the mobile phone data and so identify which phones belong to patients, doctors and visitors.

Companies like Thasos license geolocation data from mobile phone apps. Thasos says it gathers its data from around 100 app companies that have several million daily active users.

In a statement, Thasos said its intelligence is “derived from volunteered mobile phone location data that has been anonymised, aggregated and thoroughly vetted” to ensure legal compliance.

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