ERI Scientific Beta is to stop charging clients a fixed fee for use of its smart beta indices in a move the provider hopes will reshape the market.
Noël Amenc, chief executive at ERI Scientific Beta, argued there was no business risk associated with its decision to move away from a flat fee to a single performance-based charge from the beginning of June.
But he said he did expect a pushback from the industry.
Amenc predicted that rivals would seek to discredit the approach, by claiming ERI’s indices would achieve greater outperformance by taking on greater investment risk, or call on regulators to “block” its new fee structure.
“We are basing this pricing scheme on a [reference] index that has a lower volatility than the cap-weighted [index],” he said, stressing the not-for-profit entity owned by the EDHEC Business School would not be changing the methodology behind the reference portfolio.
“Yes, we are putting pressure [on the market],” Amenc added, although he did not anticipate an immediate change in charges levied by other providers.
“If we maintain the ideas, and if we survive, in five years’ time, pricing will change.”
Amenc, also associate dean of the EDHEC Business School, said ERI Scientific Beta did not perceive the move as a business risk but rather a risk to its revenue – a lesser priority due to its not-for-profit status.
The provider’s indices have attracted $10bn (€8.9bn) in assets under replication over the last three years.
Amenc also criticised the level of regulation imposed on indices by the European Securities and Markets Authority (ESMA) as “completely inadequate”.
Emphasising that he was speaking in a personal capacity rather than his role as head of ERI, Amenc said: “It’s not the fault of ESMA – ESMA pushed for transparency. I consider ESMA as a nice [regulatory] body, but, in fact, it doesn’t have the power – the enforcement power is with the [European] Parliament.”
He said his dissatisfaction had led to his resignation from ESMA’s securities and markets stakeholder group.