A top US regulator has issued guidance to funds on how they should document their usage of alternative data within investment processes.

The Securities and Exchange Commission’s Division of Examinations issued a risk alert Tuesday that highlighted several deficiencies the group observed when examining investment advisers, including those related to alternative data. “The alert highlights that buyers need to systematically assess whether each source in their research portfolio involves alternative data risk,” said Don D’Amico, managing director and general counsel at Neudata.