OPINION: Securitizing ‘Big Data’
Big data is valuable. It is so valuable that Eric Schmidt, the executive chairman of Google’s parent company Alphabet, predicted that “nation states will fight over how important data matters.”
Armed with big data and the algorithms needed to exploit it, big data “will provide huge nation-state benefits to global companies and benefits to their citizens,” he said in his Google Cloud Next conference keynote address in San Francisco.
But can big data be turned into a financial asset?
Many firms already exploit big data to identify business opportunities and improve customer interactions that improve their bottom lines.
But can companies leverage their store of big data into a revenue-generating, tradable asset?
One possible way a business could turn their big data into a financial asset would be to join the nascent alternative data industry and the use the revenue it generates from its licensing as the base of an asset-backed security.
Of course, a firm would need to identify which data is valuable enough that it would generate a steady revenue stream but not as valuable that it would diminish the competitive advantage that the organization derives from it.
The data also would need to be proprietary data to avoid any re-selling issues. A firm also would need to find a way to protect its intellectual property once it moves beyond its firewalls.
There are other significant hurdles that such instruments would need to clear before they could find their way onto the market.
The first would be the various data privacy laws currently in place. It is doubtful that the financial services firms could monetize its big data due to the data privacy laws currently in place. However, it would not prevent banks from helping companies in other industry verticals from securitizing their data sets.
Large retailers and other consumer-focused businesses likely would have the easiest time securitizing their big data due to the vast amount of customer data they have. Firms focused on smaller or niche markets would need to bank on the exclusiveness of their data’s content since they could not compete on the scale of their data.
Securitizing big data is possible, but whether it would be worth it is open for debate.
MiFID II prompts asset managers to assess the true value of research.
TickSmith works with CME Group to improve access to the US exchange’s historical data.
NN Investment Partners uses social media to measure sentiment in its investment process.
AI advancements hone corporate bond pricing in near real-time.
Separating identity from client data may boost alternative data.