Celebrating the 25th birthday of its first index this year, index provider STOXX, 80 per cent owned by Deutsche Boerse, is seeing another phase in its journey, joining with Institutional Shareholder Services’ business operations under the umbrella of the newly created ISS STOXX.
Axel Lomholt, Head of Index Business, highlights Deutsche Boerse’s commitment to diversification in alignment with its strategic initiative, “Horizon 2026.” The exchange is actively shaping its future through the establishment of a novel segment: Investment Management Solutions, he says.
This segment is made up of ISS STOXX – encompassing all ISS business operations as well as STOXX – and in a separate business line, the newly acquired software and SaaS business of SimCorp including Axioma. The aim is to offer institutional investors products and services along their entire value chain.
Lomholt says that this innovative segment is poised to collaborate with buy-side asset managers, asset owners, and ETF providers, offering an extensive array of solutions across the entire value chain. As Lomholt elaborates, this involves not only adapting to industry shifts but also proactively engaging with key players in the financial landscape.
The combination of ISS’s quality ESG data and research and STOXX’s indexing expertise will enable the index business to provide clients with a comprehensive offering addressing key investment themes, he says.
“We have the aspiration to create significant synergies between the STOXX index business and the ESG data business and this is coming through now,” Lomholt says.
Looking back, Lomholt remembers being one of STOXX’s first clients when the index business was set up as something of a new kid on the block disruptor firm – ‘an index utility, hanging off an exchange focusing on the sell-side business’ as he puts it.
“In the beginning, STOXX was selling to banks and trading companies and the purpose was to create transparent, easy indices for the sell side and that has been a hugely successful strategy. STOXX is the number one provider of indices in structured products,” Lomholt says.
“But how could we work our way with the broader buy side, creating a shift from the targeted STOXX product approach to dealing with clients who want to co-create and co-develop products and bring their own data – that’s sometimes a very different approach.”
What’s allowing this shift is the incredible advancement in technology which has led to a huge shift in investment, Lomholt says.
“For us lots of people talk about AI, but the one thing that is our key priority is how do we cope with the sheer volume of data. How do you deal with all that data and transform it into solutions that are relevant for clients.”
“At the highest level, we think there are three major megatrends shaping the industry right now. Firstly, customisation – we have moved away from ready-made indices, those days are gone. Because what we see is that our clients want to be deep in the process of creating indices and technology allows us to do that and allows clients to get precise exposures.”
The second trend is sustainability. Lomholt says: “The world is decarbonising and there are two major trends within that – more regulation and we think public policy will be tighter so there will be more pressure on resources and stakeholders we have to work with.
In the context of sustainability, biodiversity will play a bigger role for us and it is clear that building and constructing climate aware portfolios is not easy. This is where you need good data to work with and good portfolio construction capabilities and I couldn’t be happier for us to combine forces with ISS against that backdrop.”
The third megatrend is diversification, moving away from traditional bonds and fixed income and the traditional 60/40 portfolio which is now, Lomholt says, 40 per cent in equities, 40 per cent in bonds and then a huge shift for the remainder into alternative assets, such as private equity or infrastructure.
“What that means is that we have moved from a two-dimensional risk/return to a three-dimensional view of what is the impact of my portfolio in the real world. This means that we need to build portfolios and risk frameworks that are more sophisticated than seen in the past, and this is where we can be formidable.”