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Mark Makepeace, chief executive officer of FTSE Group, has been with the company since the beginning. Makepeace established FTSE Group as an autonomous company in 1995 and has been responsible for the company's global expansion. Under Mark's leadership, FTSE Group has grown from a small startup company to a world leader in the design and management of stock market indexes. Recently, the U.K.-based company has been aggressively targeting the U.S. market. Makepeace sat down with JoI Editor Jim Wiandt to discuss the company's plans in the U.S., as well as the overall state of the indexing industry. Journal of Indexes: FTSE appears to be very serious about making inroads into the U.S., and has garnered a lot of attention recently with various products; RAFI, the FTSE / Xinhua China indexes and ETF, FTSE4Good's alliance with Vanguard , and the Nasdaq partnership all come to mind. What are your aspirations for the U.S. market? Mark Makepeace: The U.S. is a tough and extremely competitive market to get into. But it has also been the center of innovation and change in the financial services industry. To my mind, it is important for us to focus in the U.S. on three key are as : • Partnerships. This is an area we have been very successful with recently, as high profile U.S. partnerships with Nasdaq, NAREIT, Vanguard and Research Affiliates demonstrate. By combining our global scope with the strengths of local partners, we are able to better serve U.S. investors; • Innovation. You can't offer the same products that already exist on the market and hope to succeed. There are areas of the U.S. index market that are very well developed, and we need to focus on innovations in new areas that play to our strengths in order to make significant headway in the U.S.; • Client needs. We do a large amount of customization, and from FTSE's very start, we have always worked closely with clients to best meet their needs. This focus on the client has produced better indexes that are more useful to investors. JOI : FTSE as an index provider continues to have dominant market share in Europe and particularly the U.K. Do you think the current political environment gives FTSE a leg up in Europe and makes it more difficult for U.S. index providers to win business there ? M M : No, I really don't think so. We are in a strong position in Europe because we work damn hard with all of the big clients, and have carefully developed our business in Europe. We say, "Have a beauty parade" anytime, as we strongly feel that our indexes and services will stand up well to any potential competitor. JoI : What do you see as the growth areas for the index industry in the U.S.? M M : The U.S. is still the first market for new ideas, and that makes it an exciting environment for us. ETFs will continue to grow, as will the market for other derivatives products. The ideas around the RAFI/FTSE fundamental indexes have a lot of room for growth. I think you will also see a t rend toward even more index customization strategies, as well as an increasing focus on international equities, both areas of strength for FTSE. JoI : For U.S. investors who are unfamiliar with FTSE, could you provide us with a brief history of your business? In what ways do you think FTSE varies from the major U.S. index providers? M M : FTSE recently celebrated its 10th birthday. When we first started as an independent company in 1995, we had nine employees. We now over 200 employees and serve thousands of clients in 77 countries. We have offices in London, New York, Paris, Frankfurt, Madrid, San Francisco, Hong Kong, Tokyo and Beijing, and calculate over 60,000 indices - 600 of those in real time. In terms of what makes FTSE stand out, it is our global strength and focus on serving clients, as well as our focus on accuracy of asset class representation and quality of markets. There are really only two global index providers with wide-ranging global indexing capabilities. But the competitive landscape is both expanding and shifting. If you want to maintain, and indeed grow, market share , you've got to innovate. And our index families are continually evolving to meet the market's shifting demands. We have historically been very client driven and have long focused on meeting our clients' evolving needs. This makes our indexes fundamentally sound and investable, while also being adaptable to new innovations and strategies. Because of this focus, our biggest strength has been the methodology in our Emerging and Developed Markets . Perhaps the biggest difference of FTSE indices from the competition is the focus on quality of markets. Market representation plus quality of the market is what makes a strong investable index. People have talked about the index market becoming increasingly commoditized...but I don't think that's true. There is a lot of variance on views about equity indices. And ultimately it comes down to who is best serving the client. We have to provide our clients with the tools they need to do their job. It's not for us to try to tell them what strategies to employ or how to invest; it's our job to help them execute their plans as seamlessly and efficiently as possible. JoI : What is your single most important business objective over the next five years? M M : It is important for us to stay focused on the things we do well. This means leveraging the strength of partnerships and working carefully with our clients to develop solutions that meet their needs. We expect that around 20-30 new FTSE-based ETFs will be trading in the U.S. in the relative near term. We also see a lot more global deals, with an increasing focus on international markets...something that of course plays to FTSE's strengths. JoI : FTSE has made a foray into more active indexes that strive to be benchmarks with the RAFI indexes. What sort of potential do you see for these indexes? M M : The concept of fundamental indices is similar to what a lot of the enhanced indices are. They are trying to systematically look at what parts of the market are undervalued and overvalued, and put this to work in the benchmark. I view them as an extremely useful supplement to current benchmark indices, and don't think they'll totally replace cap weighting, which is a highly accurate way to reflect market values. There has been a tremendous amount of interest in these products since we brought them to market. JoI : China has been held out as a panacea to investors looking to get into the front end of the "next empire," yet Chinese mainland markets have performed dreadfully. Why is this? Are Chinese equity markets a sensible place for investors to put their money? M M : The important issue in China is that we need good index standards in place as the market develops. And markets in mainland China are beginning to evolve. The FTSE Xinhua indices are fully transparent, with a publicly available set of rules, and the indices are rebalanced quarterly. It is also important not to think of China as the market in Shanghai or Shenzhen. Look at the performance of H Share and Red Chip equities trading in Hong Kong. The iShares FTSE/Xinhua 25 fund (FXI) trading in New York has over $1.3 billion tracking it and is based in shares of mainland Chinese companies trading on the Hong Kong market. (The index has enjoyed a five-year annualized return of about 15 percent, and over 30 percent on a three-year annualized basis). The Chinese government is trying to tackle the problems that make the local markets less efficient than they might be. There are a lot of obstacles with local government managers still owning a large amount of company shares, for example, but things are moving in the right direction. |
