The index business: Can it be disrupted?

by Matt Ober, General Partner at Social Leverage

S&P, Russell, and MSCI dominate. There are others for different asset classes and lots of niche providers. But will we ever see a new entrant that can disrupt the powerhouse index providers?

I think it’s going to take a lot of money and a lot of coordination with large investors. The index providers dominate because they are the benchmark for the largest asset managers. To disrupt them you need to become the benchmark of choice. The largest index providers are also data & information services powerhouses. S&P owns Markit, IHS, and so many quality datasets. Not only do MSCI own the risk business with Barra, but they are one of the leaders in the ESG space. Bloomberg has a lot of indices and made an amazing acquisition many years ago when they bought the Barclays Indices.

I think if the index business is going to have some disruption, it won’t be a new company, but an older, larger data business that goes on a roll-up acquisition spree and brings together strategic asset management investors. A targeted, thoughtful approach that slowly gains some market share. Are they going to unseat the big guys? I don’t think so. But with the right leverage of new technologies, a lean workforce, and proprietary data along with the right strategic investors, I think a dent can be made.

The question is, who are the right investors? What is the right older, larger, data vendor? And who is the right leader to take on this battle?

I have always thought that Exchange Data International has one of the best core data assets. They are a data vendor for data vendors. They have very fair commercial terms and allow anyone to redistribute and build on top of their data. There is a lot to be desired in their offering, but maybe they have some of the core building blocks. Combine this data with the right team, the right branding, a few interesting smaller unique datasets, a core asset manager or two, and maybe you can get a few half-decent indices off the ground.