Data As An Alternative Investment?

We have all heard of the 60/40 asset allocation rule. An investor should put 60 percent of their investment portfolio in stocks and 40 percent in bonds. During these days of higher inflation, your investment adviser might recommend that you allocate a portion of your portfolio to other assets such as real estate, gold, or, even cryptocurrency.

That got me thinking. Why wouldn’t investors think of allocating a portion of their investment portfolio to data?

Data Valuation

There are several case studies in this regard. Several airlines pledged their loyalty programs as collateral to raise cash during last year’s COVID-19 shutdowns. For example, United Airlines raised $5 billion by pledging its MileagePlus loyalty program at an implied valuation of $21.6 billion. Industry insiders estimate that customer data is worth 20–40 percent of the value of an airline loyalty program. This pegs the value of United’s customer data in the range of $4.3 billion to $8.6 billion.

To create a so-called data asset, the data owner needs to securitize the data. This could take several forms such as a sale-and-leaseback. Companies will need to overcome challenges such as data ownership and data privacy. However, there are analogies in the investment world where investment banks securitize all types of assets including mortgages and high-yield debt.

Probably, the biggest challenge to data asset securitization is that most company CEOs, CFOs, and boards would be resistant to change. However, we believe that these stakeholders will likely change their minds when they realize that the value of their data is a significant portion of their market capitalization. For example, United’s customer data at $4.3 billion to $8.6 billion was a significant portion of its (depressed) stock market capitalization during the COVID-19 travel shutdown in 2020.

YDC Data Valuation Engine

We have publicly-available data valuations for hundreds of companies on our website via our data valuation engine. This can be used to help businesses monetize their data. For more information, please go to www.yourdataconnect.com.