MSCI approaches Barclays indexes ahead of looming regulation.
MSCI has reportedly approached Barclays to buy its index business, according to news reports. The move would combine two of the dominant players in the index business—MSCI in equities and Barclays in fixed income—into a single, multi-asset powerhouse.
The deal is far from complete, reports say; discussions are early-stage and Barclays may talk to other suitors. But if completed, it would have significant consequences for institutional as well as retail investors, including in ETFs. Barclays is a leading provider of fixed-income indexes in the ETF space, while MSCI is a leader in equities.
It’s a big market. U.S. fixed-income ETF assets alone at the end of October topped $250 billion.
On the panel at an IndexUniverse event yesterday in London, Alain Dubois, managing director and head of new business and product development at MSCI, declined to comment on the matter. Barclays also declined to comment.
Regulatory Pressures Contribute to News
The MSCI/Barclays news comes at a somewhat tenuous time for the fixed-income indexing market. New regulations in the wake of the Libor scandal last year have introduced new challenges to fixed-income benchmark providers.
Banks like Barclays have historically used prices from their bond-dealing desks to run their indexes. But increased scrutiny on the independence of pricing efforts, plus new regulations that require banks to set aside more capital on their balance sheets (which have then reduced their internal bond inventories), have made this increasingly difficult.
Christopher Woods, head of governance and policy at FTSE, said yesterday at an IndexUniverse.eu event: “The No. 1 challenge to the index industry is it will have to consolidate and reconfigure itself. Fixed income seems to be on shaky ground, and it’s quite hard for banks to run indexes with requests coming from their own dealers. The challenge of meeting regulatory requirements hits smaller players and our experience at the sales process is much more consultative.”
The Barclays/MSCI tie-up could encourage other equity-only index providers to diversify beyond their equity base. Already, we’ve seen firms like S&P expand into other asset classes, with its acquisition of the popular GSCI commodity series in 2007.