Interview: Limeyard looks to disrupt index market inefficiencies
Patrick Valovic, founder and managing partner at Swiss index provider Limeyard outlines the reasons for launching the firm and partnering with Vienna Stock Exchange.
While much has been made of the pros and cons of passive investing, there has been relatively less attention paid to the underlying market of index providers.
Riding the wave of an apparently never-ending investor appetite for passives, the four leading index providers, S&P Dow Jones Indices, MSCI, FTSE Russell and Bloomberg have established themselves successfully as key players, with two-thirds of the global ETF market tracking indices designed by them.
Yet Valovic, managing partner and founder at Swiss index firm Limeyard argues the market is inefficient and could benefit from new players challenging the established order.
“Prices of data providers have increased significantly over the past few years and are continuing to rise,” says Valovic. “Index providers responded by continuously increasing their license fees, safe guarding quite comfortable margins they generate with very few highly profitable indices.
“Imagine, some index providers which offer tens of thousands of indices generate more than 50% with only their top three indices. At the same time, since 2008 we are seeing an increased margin pressure among financial institutions. In an efficient market environment, this situation would result in new and innovative players entering the market to offer more competitive rates driven by a more efficient service offering. But we haven’t really seen that for the index market.
“While some smaller players have entered the market, their operating structures were anything but efficient. Yes, they lowered the fees by bearing lower margins, which was appreciated by their clients, however, index systems remained highly inefficient,”
“Having been in the index business for more than 16 years, I launched Limeyard mid 2016 with a simple mission: to take up the fight against such market inefficiencies.
“Our first fully cloud-based index system follows an innovative system architecture based on a modular approach using newest technology. Our client servicing is more flexible,
faster and absolutely reliable. This enables us to re-define client centricity by providing individualised solutions for our clients.”
He highlights Limeyard’s thematic indices by way of example of the changes being wrought; here, the idea is to enter partnerships with firms that are highly competent in particular areas.
For example, when establishing a low-carbon index, the firm would collaborate
with market experts and universities to establish a comprehensive
overview of firms which could be included in the index.
Offering a combination of white-labelled and own-brand indices, the Swiss firm sees clients as business partners, Valovic says.
In a bid to establish its footprint across the continent, Limeyard has recently entered a strategic partnership with Vienna Stock Exchange, which now holds a minority stake in
the business. This enables Limeyard to add real time index calculation and data dissemination.
“As a relatively new index provider the strategic partnership with the Vienna Stock Exchange is a core element of our business proposition. The joint venture with this traditional exchange enables us to calculate and distribute the global Limeyard index
family in real-time, being able to also serve ETF providers as well as issuers
“Teaming up with a well known brand such as Vienna Stock Exchange clearly helps us to establish our position in the market. In light of the EU Benchmark Regulation the Vienna
Stock Exchange acts as a legal representative of our Swiss based firm in
“Above all, it was the culture of Vienna stock exchange, which is a traditional business with positive dynamic and growth ambitions. There is certainly a level of cultural similarity, which is favourable for our partnership,” Valovic says.