Solactive seeks to shake up the highly concentrated market for index providers by slashing prices. After a sluggish start, the young German shoot quickly established itself in the landscape.
How was Solactive born?
Before founding Solactive, I worked at Deutsche Bank in structured product operations. We struggled to find index providers to work with us and started a new business between two companies: the Stuttgart Stock Exchange and a Swiss consultancy firm. I joined the Swiss consulting firm where I headed the index business. In 2007, I bought this company (management buy-out) to launch Solactive. When we first started, there were only a few large index providers that had a strong branding image through high marketing spend. Asset managers, on the other hand, were starting to face rising costs and pressure on their fees. We have invested everything in technology, which has allowed us to reduce costs and grow thanks to an aggressive pricing policy.
What were your main difficulties when you started out?
The biggest challenge has been to gain the trust of our customers. At first, they kept asking us if we would still be there in five years. We have also decided not to invest in advertising. Word of mouth, on the other hand, is an excellent resource. We therefore had to succeed in impressing our customers enough to recommend us. It took a long time in Europe, people are more careful there than in the United States, where risk-taking is more accepted. Today we are sufficiently established that our survival is no longer in question. Last year, Solactive ranked third among global index providers for ETF launches, just behind BlombergBarclays and MSCI, but ahead of FTSE and S&P.
The key figures
500 billion dollars
Debtors followed Solactive’s indices at the end of 2018 according to Burton-Taylor data, making it one of the main players in the sector.
12,000 Indexes calculated
Solactive is also administrator of 3,500 indices for more than 600 clients in total, from Australia to the United States via Japan and Canada.
How do you see the future of Solactive?
We are at the heart of a fundamental shift in the asset management industry, with more and more managers moving away from large providers of high-priced indexes. Customers look at three criteria at an index provider: quality, brand and price. Quality relates to the construction of the index, its calculation and administration. But also the ability to work with the customer to adapt the product to their needs. We are clearly behind the big index providers when it comes to fame, but even there our brand has grown in recent years, especially among professionals. But it is on the prices that we make the difference, because we are significantly cheaper than our better-known competitors. I don’t think historical index providers know how to react to a “low cost” player. With an index provider like MSCI that can show a high operating margin, the opportunities are plentiful!
What is the impact on your business of the craze for green finance?
Changes have been rapid in this sector. Our first ESG index, launched in 2008, was a complete failure. There was more talk than action at the time. Today it’s a huge trend and one of the fastest growing industries for us. But there is a real complexity in ESG, a difficulty in defining the concept beyond a few general criteria on which everyone can agree. In fact, ESG integration requires strong personalization through the construction of tailor-made indices. We always start by asking our clients what they mean by ESG, what they want to achieve. In France, the nuclear vision differs from Germany, for example. There is no right or wrong approach, but you have to take these differences into account.
Are you worried about the consolidation of ESG data providers?
I personally think it could be a risk. It is not ideal to have no European player, but only a few global players looking to consolidate the market. Solactive uses an architecture that is open to most vendors, but we are keeping a close eye on this area.