Solactive set for international expansion
News came this week of the launch of the first gender equality ETF from Lyxor, based on a tailor-made index from German-based index provider Solactive.
Timo Pfeiffer, (pictured) Head of Research & Business Development at Solactive, explains that the firm was founded in 2007 by CEO Steffen Scheuble. It was a buy-out of an original company that had a small list of exotic emerging markets indices.
“The business case is rather unusual and tricky given the date of the starting point,” Pfeiffer says, “But over the last four to five years, the index business has taken off the ground and the demand for an external independent calculation agent for indices has grown, driven by the growth of the ETF industry, which needs more indices; more banks using structured products, looking for an independent, flexible index provider to realise some of their strategies; and the fact that the industry is entering a new regulatory regime with the upcoming Benchmark Regulation, adding complexity to look at the way indices are calculated and administered.
“It’s important to have an independent calculation agent, for example as an investment bank, there could be a potential inherent conflict of interest if you run your own trading book.”
Since its launch, the firm now has over 350 international clients, including investment banks, ETF providers and asset managers. More than 260 ETFs are linked to indices calculated by Solactive with over USD50 billion in assets under management for those ETFs.
Pfeiffer estimates that the firm has created over 4,200 indices and now it is taking its first formal steps out of Germany with a December office opening in Toronto.
“A significant part of the business is actually done with North American asset managers,” Pfeiffer says. The launch of a new index comes either from the market itself or from a dialogue with clients. Current trends are everything ESG, Pfeiffer says with a particular emphasis on the ‘S’, social, at the moment with the focus on the launch of the new gender equality index and subsequent ETF from Lyxor.
“As of today, there is more noise than actual assets in the ESG/SRI sector,” Pfeiffer says, “but the theme is growing because people don’t want to miss out and it is gaining speed. You don’t want to be a Nokia who doesn’t do smart phones.”
Solactive’s methodology is always formal, rule-based and quantitative. “What differentiates ourselves is that we are relatively new and small which makes us proactive, agile and flexible so we score on efficiency and turnaround time,” he says.