Key Compliance Considerations for Fund Managers Using Alternative Data

Over 80 percent of hedge funds are using alternative data, including biometric data, geolocation data and web scraping, according to a recent survey conducted by Lowenstein Sandler. Although use of alternative data is expected to increase, stronger privacy regulations – such as the recently enacted California Consumer Privacy Act of 2018 – will affect fund managers’ ability to source and use that data. To explore how fund managers can become comfortable using alternative data, the Hedge Fund Law Report recently spoke to Peter D. Greene, partner at Lowenstein Sandler and author of the survey. This article sets forth Greene’s insights on the key compliance issues raised by using alternative data, including insider trading and privacy concerns; new and prospective regulatory issues in the U.S. and abroad; best practices for mitigating risk and managing third-party data providers; and ways newer forms of alternative data are affecting fund managers. See our three-part series “A Fund Manager’s Roadmap to Big Data”: Its Acquisition and Proper Use (Jan. 11, 2018); MNPI, Web Scraping and Data Quality (Jan. 18, 2018); and Privacy Concerns, Third Parties and Drones (Jan. 25, 2018). To further explore these issues, on Wednesday, January 15, 2020, at 11:00 a.m. EST, the Hedge Fund Law Report will host a complimentary webinar, entitled “Best Practices for Private Fund Managers’ Use of Alternative Data.” Moderated by William V. de Cordova, Editor-in-Chief of the Hedge Fund Law Report, the panel will feature Adam Reback, director at Optima Partners; Stacey M. Brandenburg, shareholder at ZwillGen; and Jeffrey Neuburger, partner at Proskauer. The discussion will address issues including the pros and cons of generating or purchasing datasets; managing third-party data providers; complying with data privacy laws and cybersecurity guidance; and avoiding insider trading and other risks. To register for the webinar, click here.

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