In a maturing ETF industry inhabited by more and more funds, downward pressure on indexing costs will only grow more intense, Solactive's Scheuble says.
Steffen Scheuble, chief executive officer of Germany-based indexing firm Structured Solutions AG, is convinced the world of ETFs will continue to expand—increasingly into more complex “enhanced beta” areas that involve more sophisticated rules-based screens.
When the head of the company behind Solactive indexes spoke recently with IndexUniverse.com Managing Editor Olly Ludwig, they talked about the ETF industry outlook, some of the more prospective areas of fund development and also about the nuances and limitations of a trend toward ETF sponsors creating their own indexes.
Ludwig: You’re up against the MSCIs and the FTSEs and the S&Ps of the world—all of whom cast a long shadow in this business. And yet you have clearly demonstrated you're getting traction. So tell me a little bit about how you see the challenge and how it’s going at Structured Solutions AG.
Scheuble: Actually, the starting point had nothing to do with Structured Solutions. The starting point of our company was in 2006, when I was working for Deutsche Bank in the structured product business. We were searching for a very fast index provider.
Ludwig: "Fast" meaning what?
Scheuble: "Fast" means you can launch a structured product with within one day. With an index provider that can launch an index within one day, you can launch an exchange-traded product within 24 hours. If you went to the traditional index providers back then, it took weeks to get an index up and running, because they were not used to the regulatory framework in the German structured product business. We have now managed to cut down the time needed to launch an index to something like five minutes—something that is very valuable to structured product issuers, delta 1 trading desks, etc.
The second thing behind the creation of Structured Solutions was, really, pricing. You probably know about the pricing schemes of the big index providers. In our opinion, it’s definitely possible in many cases to offer this service cheaper with the same quality and significantly more customized. Just being cheaper is not going to work; it may be a door opener, but in the end you have to deliver at least the same quality as the established competitors.
Ludwig: Let’s talk about that for a moment. My understanding is that, in the traditional arrangement, it’s a percentage-of-assets proposition, a basis point structure on an ongoing basis. And that would seem to be just fine if your fund is a small one. But if you reach the scale of a SPY, suddenly that’s a lot of money. So what you're serving up is an alternative to that?
Scheuble: We offer different fee models. So if you come to us, you can actually have a basis-point model that is linked to assets under management.
But in general, we believe that we don’t contribute too much to huge assets under management in most cases. You can launch an ETF and you can use a Solactive index. But you are responsible for the marketing and the distribution of the product. And if you are responsible for the marketing and the distribution, I do not necessarily have to participate in the assets under management, because I've done nothing for that.