The European head of indices at Standard & Poor’s is quite clear about his target market. “Our target is pension funds and portfolio and asset managers,” says Eudald Canadell.
Canadell, 47, is based in Paris, which is the new European headquarters for S&P’s index business – S&P wanted to make it a “real European operation”, he says. Previously, the agency’s European index operations were more of an outpost for the New York-based firm.
Canadell says S&P’s model is for several regional operations with a fair degree of autonomy – though New York still performs the back office operations.
Canadell took over as the US-based company’s managing director of Index Services Europe in September last year. He joined S&P in September from Spanish exchange group MF, of which the MEFF derivatives exchange was a part. At MEFF he was director of business development – where he had a role in opening up the exchange and becoming involved with the Chicago Mercantile Exchange’s Globex 24-hour trading system.
During his time at MEFF he was involved with open access debates with other exchanges, namely the Paris Bourse, which went on to become Euronext, and Eurex. As a result, MEFF members could trade the Bund and notionnel contracts and it was through this process that he ended up talking to S&P. They liked him so much, it seems, that they hired him.
The number of staff levels have increased from four a year ago to 11 in European index operations, with four new people coming on board soon – evidence, says Canadell, of S&P’s European ambitions.
“The UK is one of the main focuses of attention,” he says. The UK has a complete operation, including the calculation of indices for which the transfer is now taking place. “There’s a human part of this that’s very important,” he says. There is an obvious time-zone impact, along with a greater timeliness in processing corporate actions. And there is the market-specific knowledge and expertise that only local staff can provide.
In terms of revenue, Canadell is candid: “Our model is very simple.” Licensing revenue is derived from assets under management, on a flat fee basis and also via contracts traded via derivatives. He was unable to provide a breakdown of European index revenue, as the company consolidates its revenue centrally.
European indices generate “sound revenue”, he said. “I expect it to grow considerably. He stresses that results were not expected right away. “We’re not that impatient about building an index that is successful right away.” The main revenue driver in Europe is still S&P’s best-known index, the S&P 500.
He sees a good source of revenue coming from Italy, via the MIB tie-up. The Euro350 has as yet, “no meaningful revenue” from derivatives contracts, he said.
He confirmed that further agreements were planned. He sees S&P’s European strategy being built through strong partnerships with local exchanges. “We would consider anybody.” He stressed that S&P has not spoken on a formal basis with any of them, though “informal talks’ have taken place. S&P is focusing on Euronext and Deutsche Börse, as well as Spain and the Nordic region.
In terms of the competitive environment, cost is not the main issue, Canadell reckons. “The main factor is the attractiveness of the product itself.”
On the exchange-traded fund side, Canadell notes that 50% of worldwide funds under management are referenced to S&P indices.
S&P itself is part of media giant McGraw-Hill. Canadell says the fact that S&P is not a separate company gives it certain advantages. “I have the freedom to talk with whoever I want,” he says. Asked about the relationship with the ratings side of S&P, Canadell makes it clear that there are very high Chinese Walls between the two operations.
The S&P Europe 350 Index measures the performance of equities in pan-European markets, covering approximately 70% of the total market cap.
Currently there are no options available on Standard & Poor’s European indices.
ETFs on the S&P Europe 350 and S&P Euro indices were launched on Euronext-Paris in February 2002, and on Borsa Italiana in October 2002.
S&P’s European indices are calculated using a base-weighted aggregate methodology, meaning the level of the index reflects the investable market value of all component stocks relative to a base period.
S&P says the user base for its European indices is “institutions who prefer an index that is free-float adjusted, focused on liquidity and integrated with other indices around the world”. It provides customised indices to meet European investors’ “very customised index needs”. It has been providing clients with customised indices over the past few years.