Scientific Beta

IPE: "The decision from the fund to shift the benchmark indices it uses also comes amid debate in the industry over conflicts of interest from index providers. EDHEC Risk Institute, based in Nice, France, produced research showing that the majority of institutional investors were dissatisfied with the level of transparency provided by index providers. It said moves to improve governance among providers had failed to convince investors that conflicts of interest were mitigated in index creation, leading to calls for further regulation."

IPE 25/03/2014

(...) The UK Pensions Protection Fund (PPF) has thrown its weight behind smart beta after changing the benchmark it uses to monitor equity managers to a minimum volatility method. The nearly £19bn (€23bn) lifeboat scheme has around 35% of its assets in equity mandates in a mixture of passive and active management. Speaking at EDHEC Risk conference in London, principal portfolio manager John St. Hill told delegates that the fund, as one of the “vanguard” of smart beta, had begun the shift away from active management, including the entire change of its benchmarks. (...) The decision from the fund to shift the benchmark indices it uses also comes amid debate in the industry over conflicts of interest from index providers. EDHEC Risk Institute, based in Nice, France, produced research showing that the majority of institutional investors were dissatisfied with the level of transparency provided by index providers. It said moves to improve governance among providers had failed to convince investors that conflicts of interest were mitigated in index creation, leading to calls for further regulation. The European Commission, and the European Securities and Markets Authority (ESMA), are currently working on a proposal to build in further governance and transparency requirements from providers, in addition to the requirements set on UCITS funds in 2012. ESMA said additional requirements would be necessary as more complex indices, such as those used in smart-beta investments, were brought onto the market. (...)