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Fabrizio Zumbo, Cerulli Associates

Cerulli reports ESG demands leading to index provider and ETF issuers partnerships and collaborations

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The push to meet the needs and allay the concerns of ESG-focused investors is driving change at index providers and asset managers, according to Cerulli Associates.

“Traditionally, any manager launching an ETF would have to license the index it wished to track and then replicate it as an investment portfolio. However, the relationship between index providers and asset managers is changing, with some managers developing bespoke benchmarks in partnership with other companies,” says Fabrizio Zumbo (pictured), associate director, European asset and wealth management research at Cerulli Associates.

The firm reports that in 2020, MSCI entered into a partnership with a leading asset manager to launch a sustainable range and expanded its partnership with a financial data and analytics firm to launch three groups of sustainable fixed-income benchmarks.

It added eight climate-themed indices designed to help investors align their portfolios with the goals of the 2015 Paris Climate Agreement. Meanwhile, Morningstar has fully integrated Sustainalytics’ data and analysis into all ratings and benchmarks, following its acquisition of the ESG ratings and research provider.

Smaller index providers are also gaining traction, the firm says. German company Solactive has added new indices and services through partnerships and investments in smaller firms.

At the same time, Cerulli reports that some large players are switching index providers with the aim of reducing costs and increasing profit margins, because managers that use their own indices are able to reduce the amount they pay to third-party index providers in licensing fees. Ultimately, they could be more in line with the specific and tailored exposure requested by investors.

“As the quality of data improves and technology makes it easier to process and analyse non-financial information, index providers are bringing in new ESG-themed benchmarks,” says Zumbo.

However, only 19 per cent of the ETF issuers Cerulli surveyed last year expect to develop a self-indexing proposition, even though 57 per cent see it as an opportunity. Some of the managers that Cerulli spoke to were cautious about self-indexing because benchmark regulations are in place to mitigate conflicts of interest.

Cerulli reports that passively managed assets in Europe ended 2020 on a high note, attracting EUR29.4 billion of net inflows during December, an increase of 23 per cent month-on-month. Statistics from Cerulli find that, overall, passively managed assets registered positive net flows of EUR147 billion, outstripping actively managed assets, which attracted net inflows of EUR66.5 billion during the year. ETFs in Europe attracted EUR22.5 billion in net sales in December and EUR93.8 billion for the year, the firm says.

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