Dow Jones hungry for more market share
The head of Dow Jones’ index business recognises that the organisation has not traditionally catered for the pension fund industry – and that’s something he wants to change.
“Pension funds are something that we as an organisation underserve,” says Mike Petronella, president of Dow Jones Indexes/Electronic Ventures. “We view that as an opportunity.”
Furthermore, the Dow Jones veteran says the venerable New York-based company sees opportunities for its index arm across the Atlantic. “We see Europe as an incredible opportunity.”
Dow Jones already has, of course, a foothold in Europe, with the Stoxx joint venture with its partners, Switzerland’s SWX and Germany’s Deutsche Börse. “In order to be part of the European scene we had to have astute European partners,” Petronella says. “It was smart to team up with entrenched European players.”
“It was the absolute correct decision,” Petronella says of the venture, adding that the three partners all bring different things to the table. Dow Jones brings index development and maintenance, SWX calculation and Deutsche Börse distribution. He says there is no tension among the index partners.
As an index provider, how does Dow Jones see the current debate on benchmarking? “Strategically we recognise that one size doesn’t fit all,” Petronella observes. “You’ve got to meet the client needs.”
He says Dow Jones has not yet maximised its potential in benchmarking. “We’re mature enough to be a serious player on the benchmark side.” He says there’s a quicker payoff in the traditional tradable side of the business.
“On the benchmark side we’re not on the radar screen. But we can be, but it will take time.” A typical benchmark is a ‘one-size-fits-all’ affair.
For unconstrained benchmark requirements there is DJ Portfolio Indexes, “a toolkit”. And there’s “pretty widespread” demand for indices that are either customised or ‘white labelled’ for clients. Dow Jones may or may not brand the index, it decides on a case-by-case basis.
Petronella has been with Dow Jones for 29 years and become president of Dow Jones Indexes/Ventures last year.
Perhaps surprisingly, the index arm of Dow Jones, founded in 1884, was only licensed for investable instruments as recently as 1997. The aim, Petronella says, was to monetise what had previously been used internally as an editorial tool.
What about the charge that the index business is buried within such a large organisation? Petronella responds: “The only thing that I do is indexes.”
The index business - while small in terms of Dow Jones’ overall revenues - is important because of its high profile. “We carry the brand on a global basis. We licence the brand.” The index business had revenue of $21m (E18m) in 2002, compared to Dow Jones’ total of $1.56bn.
The firm does not disclose the operating profit of the business, but Petronella confirms that it’s “not a low margin business”. Operating margins at Stoxx were in line with other index providers.
He recently took over the rotating chairmanship of the Stoxx supervisory board from Christoph Lammersdorf. His background is in project management. “I’m not a techie by any means,” he jokes. He sees his role as relationship management and the formulation of strategy.
He expresses pride the Dow Jones Industrial Average is still the most quoted index in the world. “We’ve been in the index business for over 100 years,” he adds.
Stoxx no longer has the European index field to itself, with the arrival of pan-European indices from UK-based FTSE Group. The move from the UK group was not unexpected, Petronella says. But he says Stoxx remains pre-eminent. “We’re still leading, we’re not following.” Excluding national indices, he says Stoxx has a 90% market share on the tradeable side.
He asserts that Stoxx has a wider product offering than the two ‘standalone’ FTSEurofirst indices. “We offer you a whole family. ‘You choose,’ I say to investment managers.”
“Investors speak with their wallets,” he says. “Market participants have made their choice.” And he reveals a competitive streak. “We look at competitors and say – can we take market share?”
Stoxx of course has been going through a period of management change since the departure of Scott Stark at the end of last year.
In September Elizabeth von Werra took over from interim managing director Ettore Candolfi. She joined from Lombard Odier Darier Hentsch in Geneva, where she was a fund manager.
Petronella says it was important that she came from the sell side. The business was now in “very good hands”. Candolfi has gone on to set up his own consulting business.
So with its new management, it will be interesting to see how Dow Jones, via its relationship with Stoxx, will fare in the new, competitive, European index marketplace.