The independent ratings system and forecasting service, The Index Standard, headed by Laurence Black, has expanded to include the hire of a new head of analytics, Jay Watson.
Watson spent 15 years of his career at Barclays, where he was head of multi-asset index structuring EMEA, working on quantitative investment strategy-based indices, working with Black in the US during that time, and maintaining contact when Black left Barclays to set up his own business.
“I have concentrated on indices across all the asset classes in various different roles from index development, to portfolio construction to client interfacing and index governance,” Watson says. “I finished as the chair of the development oversight group at Barclays, ensuring that new indices were well engineered, so I have spent many years in index design and development and am now moving across from a big organisation to a small one.”
Watson says that his role with The Index Standard will be to add more weight on the technical side. “I am looking forward to developing more refined analysis and ratings and extending the ratings to different types of products beyond ETFs and indices, for example to fixed index annuities – anywhere where an index is fundamental to a product,” he says. “There is a big need for a better understanding of indices.”
The audience for The Index Standard comes from advisers, who, Watson believes, face an enormous range of indices. “Helping them to focus on things that are actually useful and appropriate for their clients is important,” he says. And with the institutional audience, Watson says the firm’s appraisals will be helpful for product design and also in view of the increasing regulatory focus with the ‘best interest’ initiatives.
“People would like to have some sort of independent evaluation of indices for compliance-type reasons,” he says. “We believe this will become more important in the next year or two. The growth of the index universe is enormous and we are seeing more and more specialist objectives for indices, and they are becoming more sophisticated, and it is harder for people to understand what indices are supposed to do and whether they are right for them.”
Watson comments that increasingly insurance products involve complicated indices and investors need analytical assessments of which indices are well designed and well built.
“The biggest problem facing the industry is the plethora of indices,” he says. “If you are an investor, you are faced with this enormous range, so some sort of taxonomy of that zoo of indices is very helpful and some sort of ratings system which enables you to compare like with like.
“It’s like buying a car – all cars have four wheels and an engine but to know what is good or less good it is helpful to have an independent opinion to guide you in that choice.”
Watson holds Black – and his ambitions for The Index Standard – in high regard, having worked with him over a number of years.
“We want to provide the index world with something that is really useful and analytic, not subjective, with appraisals based on quantitative analysis and we think there is a need for that,” he says.
Products such as fixed index annuities and registered index-linked annuities are facing their attention. “These are very important products that people are buying for their retirement years,” he says. The offering currently covers US products but the firm hopes to expand its purview to Europe and elsewhere outside the US soon.