An interview with Peter Greene
We had the opportunity to interview Peter Greene, Vice Chair of the Investment Management Group at Lowenstein Sandler LLP, on the topic of data privacy in alternative data. We cover the evolution of data compliance, current challenges in the regulatory scheme and how data privacy might evolve in the future. Comments have been condensed and edited for clarity.
Looking back at your presentation from the 2020 Quandl Data Conference, how important is data privacy and data compliance for a hedge fund or data-driven investor today versus 5 years ago?
Greene: A lot has changed. Five years ago, it wasn’t quite the Wild West, but data compliance wasn’t what it is now.
Five years ago, many data providers couldn’t fully articulate the purity of their data provenance chain. We’d ask them where their data was coming and if they had outside counsel, and we’d get limited answers followed by questions of why we were asking in the first place. They were still developing an understanding of the importance of those questions from a legal and compliance perspective.
Now, that response is rare. Today’s vendors understand the weight of these factors and—if they’re large enough—they actively devote internal compliance resources to them.
They often have a memo prepared either internally or by external counsel, setting forth the answers to all the questions that we ask. The vendors know they won’t be able to do business with sophisticated hedge funds or other buy side shops unless they’re able to get past the compliance phase by answering these questions in a manner that’s satisfactory to either an inside or outside lawyer for the fund.
So, I think the compliance landscape has changed in that vendors know the process is coming and all of my clients—whether long/short equity or credit, whether 10 employees or 1,000 employees, whether AUM is 250 million dollars or 50 billion dollars—have compliance policies and procedures around the diligence, onboarding and contract negotiations associated with any data they buy.
For an investor who is looking at the landscape now—maybe even getting into investment or looking for a data supplier—what are some of today’s risks that would’ve been less prominent five years ago?
Greene: The two most important risks are coming into possession of material non-public information or personally identifiable information (PII). Those have always been paramount. Today, the public’s sensitivity to them, especially PII, has been heightened. I would argue that there is a decreased chance of encountering these risks because the market takes them seriously. The issue of data privacy now hits the radar of your average, everyday consumer as well as regulators.
Would you say that the worlds of the consumer and investor are entwined? How do you think mainstream conversations affect the profile of data privacy?
Greene: If we set aside hedge funds and securities laws issues for a moment, we see intense, mainstream focus on what happens to your data, especially your geolocation and transaction data.
Whatever the type of data—be it credit card data, geolocation data or social media sentiment—the spotlight is so intense that the public, the mainstream media and Congress are all watching. When Apple creates a commercial devoted to the importance of personal privacy, there’s no question it’s on everyone’s mind.
Five years ago, if you asked the average person about their data, it likely wouldn’t be top-of-mind. Now, far more people ask themselves “what’s happening to my data?” That’s because the media is writing stories about it and Congressmen and Congresswomen are giving speeches about it.
How do you think that rising concerns over data privacy will impact the investment world in the next few years?
Greene: There will still be a wealth of data available in the coming years. Instead of seeing less data, it is instead more likely that we will see more hoops through which companies will need to jump in order to secure your permission to sell your de-identified data; I do not think that you are going to see a material decrease in the amount of your de-identified data that is out there and available for consumption by the buy-side.
A lot of the alt data low hanging fruit has now been picked. Do you think this will lead data suppliers to lean into greyer areas of sourcing data?
Greene: There are always people on the fringe who are going to do things that are grey, but sophisticated clients like mine will not buy such fringe data because the compliance checks are only getting more rigorous. So, I think that if people play in the grey, it does not really matter for the lion’s share of the alternative data being consumed by the market.
Moving through the next couple of years, what do you see as the biggest compliance challenges for both data suppliers and also for firms and investors themselves to be aware of?
Greene: Geolocation and biometric data are going to be the most complex issues for the next couple of years. Are regulators across the world going to find the appropriate balance between consumer privacy and free markets?
The single area in which I expect the greatest proliferation will be geolocation data. Our phones—via all the apps we download—track where we all are all of the time. And that data, when harnessed properly, can be very valuable to the buy-side. And until we reach a balance as a society as to what information is acceptable to share, it is just going to be this battle back and forth. And that is the battle that is going to play out over the next few years more than anything else.
You are going to see more law. For the moment, you are going to see more state law like the California Consumer Privacy Act, but hopefully, you are going to see federal laws on privacy and on protecting your data, specifically what companies need to do to protect it. And we should all welcome that because it will make it clearer. Again, I think that even if there is a law that makes sharing a bit more restrictive, I do not think it is going to have a measurable impact on the amount of data that is available for consumption by the buy-side.
How do you see yourself and Lowenstein Sandler adapting to these changes in the coming months, the coming years?
Greene: For us as lawyers, it is keeping track of all of the changes in the law, all of the new state laws. We are looking at how the laws affect the ability of our clients—buy-side managers and businesses—to buy data. We are also making sure that when we conduct due diligence and negotiate agreements on behalf of our buy-side clients with data vendors, we take account of the various laws that are out there to make sure that the data we are buying is pure from a provenance perspective.
How do you handle legal compliance now?
Greene: It is case-by-case analysis of the data set. However, practically speaking, you really need to comply with the lowest common denominator because it is too difficult in most instances to parse through how the law of each state relates to a specific data set. That is why the marketplace would welcome a pre-emptive federal law.
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