Index and Benchmark Data Complexity and Costs Grow

Management of index data and benchmarks is getting more costly and complex, and will continue to do so, according to a survey of 32 investment management firms conducted by Investit, an independent research firm, and commissioned by benchmark pricing, index and economic data provider Rimes Technologies.

The cost of buying index data was cited by 85 percent of respondents as the biggest issue in data management, while 60 percent said customized and blended benchmarks are an important issue, according to Peter Ellis, a managing director at Investit.

"For portfolio managers to manage strategies effectively, they need a broader range of market data on investment desks, to tell them how well they are doing against their objectives," he says.

Looking specifically at costs, with the three main types of costs being licensing, staffing and technology, 93 percent of respondents say index data licenses are the largest cost, while 60 percent ranked technology as the lowest cost concern or next to lowest, adds Ellis.

Complexity will drive demand for index and benchmark data, according to Ellis, and the industry can expect continued growth of data. "There are more complex strategies that managers have to support," he says. "We have more diversification, and nervousness about exposure to single asset classes. There is significant growth in the number of complex investment strategies, which is driving an increase in the number of blended benchmarks."

Automation of operating platforms, or lack thereof, is another challenge in index data and benchmark data management, respondents say, with 60 percent of them collecting index data manually for alternative types of assets. Data collection and validation are the easiest areas to automate, and yield the greatest benefits, adds Ellis.