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What’s Driving Change in the Index and Benchmark Data Market?

On June 20, RIMES hosted its 2019 Client Conference in Boston. In the third session of the day, Angela Centeno, Research Analyst at Cutter Associates, presented an overview of the index and benchmark market. What follows is a summary of the main points raised during her presentation.

Over the past decade there has been a number of changes to the index and benchmarks data market. Most notably, since 2012 a number of smaller index originators have been acquired by larger companies. While this has reduced competition, there has also been an explosion in the number of indices on the market. According to figures from the Index Industry Association, quoted by Angela, there are now 3.7 million indices in use worldwide.

There are several reasons for this growth, including client mandates and the proliferation of niche investment vehicles. As Angela pointed out: active investors looking to beat benchmarks require custom and bended indices that are more in-line with their holdings.

The challenges of managing data

Angela went on to discuss some of the challenges asset managers are coming up against when it comes to managing index data, drawing on the results of research conducted by Cutter Associates. According to the research, the main challenges were around the increasing cost of index data (78%), changing licence requirements (63%) and the transparency of contract terms (28%). With regards to the latter, Angela reported that some firms have difficulty monitoring usage and educating internal audiences about distribution.

Other challenges faced by data managers include the increased demand for custom and blended indices, as well as data quality and integration issues. Here, firms are struggling to obtain data in the file formats they need to distribute it across the enterprise.

As a result of these challenges firms are weighing up the pros and cons of sourcing data from originators directly, or using redistributors such as RIMES. The benefit of the latter approach is that the data is provided in a standardized format and can be enriched by the redistributor.

The industry response

How is the industry reacting to the changing dynamics of the index and benchmarks data market? Angela reviewed several responses, such as the emergence of free alternatives to originator index data feeds (although uptake has been poor as firms have remained loyal to the big originator brands), more scrutiny and potential legal action over data costs, and the agendas of industry groups discussing means to better this manage this data through technology.

When it comes to vendors, originators are focused on completing their acquisitions and creating new indices. Their work appears to be appreciated by asset managers, with 67% rating them as good or excellent for client services and support. Redistributors, which are increasingly adding value through ancillary services, are rating even higher in this respect, being scored highly for client service (76%), data quality (84%) and cost-to-value (66%). RIMES outperformed the market, being rated excellent for each of the above factors by more than 90% of respondents.

What the future has in store

According to members of Cutter Associates, data managers at asset management firms have many plans for the next 18 months. Increasingly, redistributors are being considered as suppliers of market data, existing vendor relationships are going to be reviewed and many will look to renegotiate their data contracts. Internally, meanwhile, firms will focus on data governance and architecture to ensure best-practice and data quality.

In a much-changed benchmarks market some things remain the same: the originator brands that have dominated for years continue to dominate, and the cost and contract challenges are considered an acceptable price for doing business. However, there is a new focus on relationships and internal improvements as firms look to better control and manage their data operations.

RIMES Managed Data Services is a proven data operating platform that helps firms of all sizes and in all regions align their data consumption closely with business needs. Contact us to learn more.

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