Index provider Solactive has made a strategic investment in UK headquartered Minerva, designed to accelerate the growth of the electronic voting, stewardship, and ESG research services firm. Coincidentally, it also has a new Chief of Staff, Roger-Marc Noirot (pictured), who joined Solactive in March.
Noirot explains that he has spent the last 20 years as a management consultant and across the industry, working until 2017 as COO of DWS’s passive business, by which time it had amassed EUR115 billion in assets.
Noirot knew Solactive CEO Steffen Scheuble and, indeed, had been a client of Solactive in his DWS time. “I was a big buyer of indices as COO, with responsibility for the proper running of the business, but also its strategy and cost base optimisation. As such I was always on the look for index providers who were offering a cost effective service with the same level of quality.”
Scheuble approached Noirot to see if he could spend some time in Solactive’s native Frankfurt working with the team to bring in more institutional practices for the firm.
“Solactive is a relatively young super dynamic firm that has grown organically, including the staff,” Noirot says. “There are a few exceptions, but many of the people in the more junior ranks came from inside the firm, for many it was their first job.
“To scale to the next levels, you need to add more management, outside perspectives and formalisation of business practices. To continue to grow successfully you need to constantly challenge how you look at the firm and evolve how you organise yourself.”
He comments that the last four years of Solactive’s existence have been amazing. He uses the American term ‘product market fit’ to describe the firm.
“Solactive has perfect product market fit. The demand for affordably priced index solutions is growing enormously which explains, together with the flexibility of the firm, how it has managed to get this exponential growth.”
The opportunity to invest in Minerva came from the market. “Minerva is not focused on the ETF domain per se, although their offering is relevant to ETF issuers. Their main service is assistance to share voting on behalf of asset owners and fund managers, a segment which happens to include ETF managers.”
Asset managers have to vote on whether shareholder resolutions should be approved or not approved, a process Noirot describes as cumbersome and often overlooked.
“Asset management firms have spent very little attention on the voting process and have tended to either not vote, or go with management, or vote in line with their proxy advisors.”
He also notes that in the US it is a statutory requirement for professional asset managers to vote, whereas there is no such obligation in Europe.
“Apart from situations where you have activist investors typically shareholders have voted in line with management and in many cases if shareholders had paid more attention maybe they could historically have avoided pitfalls,” he says.
Famously, focus on ESG has seen a huge rise in engagement over recent years. On the voting side, Minerva enables a researcher to look at 1200 data points per company in its coverage universe (close to 4000), build custom voting policies and assist the voting process.
“If you hold a portfolio of 1,000 stocks and you believe a good practice thing is for the company to rotate auditors every five years but so far there is no mandatory requirement in a particular company to do so you need to vote against the reappointment of the auditor when they hit the five year mark.
“To do that in a portfolio of 1,000 stocks you need to find out from each one of them when that will be. Minerva offers the data points for each of the 1,000 and also allows you to create a policy engine which looks across all your dimensions and sees the values and beliefs you have as an asset manager and puts them into a policy engine in a software form. We do not think there is another firm that offers that flexibility and manager empowerment through data and technology.
“It gives the asset manager flags so that their model via the policy engine will vote against or in favour.”
Noirot comments that lots of firms make a recommendation but many asset managers follow the proxy adviser, where just two firms dominate the business. This new business is designed to be an alternative business stream for Solactive, but also to support its index business by offering additional ESG data points.
“It will open the door much more clearly in the active community who are always needing more and better and more efficient research in the ESG world,” Noirot says, emphasising that the firm will continue to have open architecture on the ESG and data side.