It is notoriously difficult to find out much about the index industry as a business. There is only one stand-alone, publicly traded index company—MSCI Barra—and while its public reporting goes into some detail about its finances, it doesn’t tell us everything we want to know. Moreover, different index companies take wildly different approaches to generating revenue and growing their businesses: some focusing on licensing fees that give away index-related data, and some that care little for trademarks and branding, and focus instead on selling data and analytics.
Recently, the editors of Journal of Indexes sat down with the heads of the leading index companies to discuss what makes their businesses tick, and what challenges they see ahead.
 Alex Matturri, Executive Managing Director, S&P Indices
Journal of Indexes (JOI): Where does the value lie today in the indexing business? Is it in the trademarks, the data, the analytics or something else?
Alex Matturri (Matturri): It lies in the intellectual property that the index provider brings to the table. That may partly come from trademarks, partly from the data and partly from the brand.
Analytics are important, but for the most part, analytics platforms are open architecture. By contrast, trademarks and data are not something anyone else can create. Having a proprietary brand—not just an index itself, but how you service your customer—is really what drives our business.
JOI: How much of your revenue comes from benchmarking, from licensing for investable products, from data sales, from analytics? Where are the best opportunities for growth?
Matturri: We normally don’t get into detail around revenue stream. Having said that, we are more product-focused than benchmarking-focused. In the U.S., the S&P 500 is probably the leading index that’s both a benchmark and a product. Once you get past that, a lot of it is much more product-focused—developing indexes used in investable products, and with that comes data.
JOI: Why did you focus more on the product side?
Matturri: It dates back to the history of the S&P 500, which is both the leading benchmark of the U.S. marketplace and the leading product index, whether you’re talking about futures and options, ETFs or other things.
JOI: Should index data be freely available?
Matturri: No. People should pay for it. We make a certain amount of information available. Anyone can benchmark to our indexes; that information is available. But the underlying data is the output of our intellectual process. If we were forced to give it away for free, how would we continue to innovate?
JOI: There are already hundreds of thousands of indexes on the market. What’s left? What’s driving index innovation today?
Matturri: The ability to continue to innovate will last for a while. Is it endless? I don’t think so. But we will continue to create indexes that investors want to invest in, whether that’s narrower sectors or broader market indexes.
Fifteen or 20 years ago, U.S. investors invested in the U.S. marketplace. Now they want to invest in global markets, emerging markets, frontier markets, multi-asset class strategies. An exposure product that allows investors to get access to markets that previously were closed has value both for benchmarking and product creation.
JOI: Does the “index committee” process add value against purely quant-driven indexes?
Matturri: I managed index funds in a past life. You come to appreciate the nuances that come from an index that’s run by a committee. It allows the index to adapt to changes in the marketplace that a purely formulaic process doesn’t. It’s easy to control turnover, and no matter how good your methodology, not every factor can be considered in a formulaic process.
Having said that, a lot of indexes we have are more formulaic. You can have a combination of both: a formulaic index with a committee that reviews it. But once you have a truly formulaic index with hard and fast rules, it is easier to game that. You see that with some of our competitors, who have fully formulaic indexes. People do take advantage of that.
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