Scientific Beta

Risk.net: "EDHEC Risk Institute is also challenging the traditional indexing model. In April 2013, the research firm launched its Scientific Beta platform, which allows investors to apply a range of alternative-weighting schemes to a variety of risk universes, permitting them to build 2,440 smart beta indexes free of charge. Index methodologies and constituents are provided on a complimentary basis, while a flat fee of €10,000 buys access to additional risk and performance tools."

Risk.net 14/08/2013

"(...) Index providers tend to charge companies wishing to use their indexes licensing fees based on assets under management (AUM), which means the bigger the exchange-traded fund (ETF), the greater is the revenue from fees that goes to the index provider. And with the total volume of ETFs in existence now in excess of $2 trillion, some market participants believe index firms have never had it so good and are questioning the rationale behind the fee structures. "The AUM-based model makes no economic sense. The cost of designing and calculating a customised index and distributing its composition to a client is essentially fixed and remains the same whether the client manages $1 million or $1 billion," says Frédéric Ducoulombier, Singapore-based director for the EDHEC Risk Institute Asia. "If the index is a standard one then the cost of index design and maintenance, when averaged across clients, quickly converges to zero. With a market standard, index providers' costs also include significant brand-related and marketing expenditure, which slows down the convergence, but once fixed costs have been borne by a base of clients, marginal revenues are essentially pure profit," he says. (...) EDHEC Risk Institute is also challenging the traditional indexing model. In April 2013, the research firm launched its Scientific Beta platform, which allows investors to apply a range of alternative-weighting schemes to a variety of risk universes, permitting them to build 2,440 smart beta indexes free of charge. Index methodologies and constituents are provided on a complimentary basis, while a flat fee of €10,000 buys access to additional risk and performance tools. (...)"