Asset Managers Seek More Value from Index Providers

Active managers recognize the importance of benchmark data to their business, but asset management executives think they can and should be deriving even more value from index providers’ vast databases and analytic expertise. This is according to a new study from Greenwich Associates gauging the perception of index providers by active investment managers.

Results of the recent study, which included 86 executives at North America-based active asset managers, suggest that benchmark index data plays an essential role in the investment process, helping asset managers to understand market trends, develop forecasts and compare performance across different funds, asset classes, geographic regions, styles, and other dimensions. Indexes also enable investors to understand their return attribution and communicate performance. And they are used increasingly in other functions such as enterprise risk management, alpha generation and marketing. As such, more than 80% of the active managers participating in a new study rate index benchmark data as important part to their businesses. 

However, the costs of index data have increased over the last two years and although costs for index licenses are just a fraction of the overall costs of running an investment firm (about 1.3% among study participants), many asset managers are raising the question of whether index providers are offering sufficient value for money.

“There is considerable room for index providers to add value by creatively using their wealth of data, analytics and intellectual capacity,” says Richard Johnson, Principal for Greenwich Associates Market Structure and Technology and author of Benchmarking the Value of Indexes Among Active Managers.

For example, almost half of asset managers are interested in leveraging index provider capabilities in the areas of thought leadership and original research that supports managers in making complex investment decisions.

Richard Johnson concludes, “One of the most interesting findings to emerge from the study is asset managers’ desire to partner with index providers at an even deeper level beyond the core benchmark business.”