Summary List Placement
- As Wall Street’s obsession with data continues to grow, firms are eager to make digesting information as easy as possible.
- Snowflake, which posted the biggest-ever software IPO on Wednesday, has launched a data exchange that already counts hedge funds like Philippe Laffont’s Coatue and data vendors like FactSet as users.
- “I think it’s going to be the way people want to access data in the future,” the chief technology and product officer at FactSet told Business Insider.
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The story was originally published in March 2020 and has been updated to reflect Snowflake’s recent initial public offering.
Financial firms — from the biggest banks and asset managers to small family offices — are using more data than ever.
The flood of information has proved valuable for their investing strategies. But there is a cost to managing so much data, and it’s not just the money spent paying for the feeds.
“A lot of time, effort, and tech is wasted on just moving data around and formatting in a way that makes it usable for analytics,” Gene Fernandez, the chief technology and product officer at the data giant FactSet, told Business Insider. “It’s attractive to everybody if we can kind of reduce the amount of time that’s spent on that low-value, pretty far away from the use case effort.”
Enter Snowflake, the buzzy San Mateo, California-based company that posted the biggest-ever software IPO on Wednesday, raising $3.4 billion. The company helps firms manage data across public-cloud providers.
During the summer of 2019, Snowflake rolled out its public data exchange — where data consumers like Philippe Laffont’s Coatue Management can connect with and receive feeds from providers like FactSet.
With that launch and encouragement from customers, particularly those on Wall Street, Snowflake is slowly rolling out private exchanges managed by the data consumers themselves to a select group of clients and has a wider launch planned for the summer.
“I think it’s going to be the way people want to access data in the future,” Fernandez said.
Alex Izydorczyk, Coatue’s head of data science, cited Snowflake’s initial position as a data warehouse as a reason the exchange is so appealing.
The company didn’t set out to solve this problem. Matt Glickman, a Snowflake executive who is leading the exchange business, told Business Insider “it just fell out of our core product.”
For that very reason, Izydorczyk said, Snowflake’s data exchange has a leg up.
“The data exchange integrates with the warehouse, effectively, allowing data vendors to transfer data to customers’ data warehouse without additional engineering effort,” he said via email. “This removes the step that is traditionally necessary to integrate an organization’s data into a single warehouse. The seamless nature of that process made it appealing and differentiated.”
That step — exact, transform, load — can take “hours or days,” Izydorczyk said, a significant amount of time for hedge funds that are constantly searching for an undiscovered trade.
Sunil Desai, Fidelity’s vice president of data architecture, said it saves his firm four to six weeks’ worth of work per dataset. Fidelity is planning to use the data exchange for “sharing the data with our external clients and vendors,” he added.
Pete Petersen, the chief technology officer for the $52 billion asset manager Causeway Capital, said “cleaning up the data pipelines is the most important priority” for him and other CTOs in finance.
“This is our most important problem,” he added.
Data exchanges are becoming more common across Wall Street
To be sure, Snowflake isn’t alone in looking to solve Wall Street’s data woes via an exchange.
Izydorczyk said “it seems unlikely that either a marketplace or a data transfer protocol would be entirely winner-take-all — there are several other solutions on the market already.”
Fidelity, Desai said, is also planning on using multiple exchanges going forward.
Two Sigma, Goldman Sachs, and Citi invested $41 million in Crux Informatics, a startup that has a similar goal of improving the plumbing for data. Business Insider reported in February that the financial-technology firm faced several changes to senior leadership over the past 12 months.
Public-cloud providers, such as Amazon Web Services, Microsoft Azure, and Google Cloud Platform, either already have or are well-positioned to offer similar products. Meanwhile, BattleFin and Eagle Alpha have built up market share by catering specifically to alternative data.
But what sets Snowflake apart is its neutrality. For one, industry sources said hedge funds were hesitant to work with platforms backed by one of their competitors.
Snowflake is also cloud-agnostic, meaning it can work across the various cloud providers. For firms looking to avoid restrictions to a single provider, that’s a key benefit, Fernandez said.
And so while cloud providers have the size, customer base, and positioning to undercut Snowflake, keeping their services proprietary to their own system will remain a major hang-up for many firms, he added.
“Technically there’s no reason why they couldn’t make it compatible with others,” Fernandez said. “But right now, for the most part, if you buy an AWS service, it’s only gonna run on AWS.”
There’s always a chance that a big cloud company like Amazon could usurp Snowflake and others because “anytime you do business with the Amazons of the world, there’s a potential for that,” Causeway Capital’s Petersen said.
But Petersen is confident that Snowflake has a “big head start — at least a couple years.”
“Snowflake might have too much of an edge on a supply-chain basis,” he said.
The larger the network grows, the more data providers are going to feel the pull to join as well. A spokesperson for Refinitiv said the data giant was in exploratory talks with Snowflake about a relationship but declined to provide details.
Meanwhile, S&P Global Market Intelligence’s Capital IQ is close to joining the network.
“We continue to work with Snowflake and other cloud providers to enhance our clients experience with our data and extend our delivery options,” a spokesperson for S&P Global Market Intelligence said.
Snowflake still needs to grow
To be sure, the Snowflake’s platform is still young.
Industry observers said the exchange didn’t offer any additional analytics or transformation of the data before giving it to hedge funds and banks — a potential problem for growth because there’s a limited set of firms that have the data-science capabilities to get use out of such large amounts of data.
Glickman, though, doesn’t foresee this as an issue for the young exchange. He believes infrastructure will be built on top of the platform by the data consumers and views the exchange as transformative as the internet.
“Most of these data flows are already happening today; we are just removing the friction,” he said. “I honestly think this is the same level of enabling that the internet was.”
One of the biggest reasons Glickman is confident in the future of the exchange is that many of the firms that want to eventually join the exchange already use Snowflake for storage, making the pitch that much easier.
“Apple’s App Store wouldn’t have been a success without the iPhone,” he added.
For all the interest hedge funds and data providers have shown in Snowflake, one key group remains noticeably absent: banks.
In May 2019, Business Insider reported JPMorgan tapped Snowflake’s data warehouse to help the bank with its cloud strategy. A spokesperson for JPMorgan declined to comment about whether the bank was considering joining Snowflake’s data exchange.
Meanwhile, Morgan Stanley is exploring commercial solutions, such as Snowflake’s data exchange.
Allison Gorman Nachtigal, the head of the cloud center of excellence at Morgan Stanley, told Business Insider via email that the bank needed the delivery of data and insights to clients to be “highly scalable, secure and resilient” while also keeping pace with demand.
“Using a data exchange which they understand and trust would simplify a historically complex data management problem for financial services providers and provide clear advantages for clients,” she said. “We see the potential to service existing clients faster and more efficiently, and also believe we can more easily engage in new opportunities.”
DON’T MISS: Two Sigma, Goldman, and Citi invested $41 million in data startup Crux Informatics. But the past 12 months has seen the startup churn through execs as it looks to solve Wall Street’s data woes.
Snowflake just had the biggest-ever software IPO. Execs at Coatue, Fidelity, and FactSet explain why they were early adopters of the company's data exchange and how it can transform Wall Street.