Marketing assets

Here’s how much asset managers overpay for market data

With little public transparency on the prices of market data providers, an asset manager can pay significantly more than its competitors for the same critical services.

In the index market, for example, some asset managers are paying 13 times more than their peers for the same products, according to the latest report from Background research, which provides analysis on the investment research market. Additionally, vendors added inflation increases at random, “and the inconsistency of applied inflation increase percentages becomes more prominent through 2020, 2021, and 2022.”

Some pricing and benchmark data providers charge some customers nearly 11 times more than other customers for equivalent services. According to the report, rating agencies charge some managers three times the price of others for comparable products. The new report builds on last year’s survey, in which Substantive Research found that some companies were paying more than twice as many as peers to lay off an index.

The only positive is the search and analysis market. According to the report, at least a minority of data providers in this industry use a standardized pricing model. But the lowest to highest price for similar products can still vary up to three and a half times.

Substantive Research based the results of a survey of 40 asset management firms with $5 trillion in combined assets. Thirty percent of companies are hedge funds, while the rest are long-only managers. Sixty percent of managers are based in Europe and 40% are based in North America.

“The power dynamics of market data are fundamentally different from those of the research market – the leverage of market data often rests entirely with the provider. We can’t change that, but it’s clear that this market is maturing and vendors are gradually changing their behavior,” Mike Carrodus, CEO of Substantive Research, wrote in the report. “Incumbents have secured their dominance in some key areas, but they also recognize that transparency can only be good for the industry.”

In the current environment, pricing power rests almost entirely with data providers, according to the report. Even after taking into account the differences in structures, needs and requirements, prices still vary considerably from manager to manager.

While negotiations don’t usually lead to huge price drops, they can help reduce annual increases and have a significant impact on buyers’ budgets, the report said.

“Many incumbents have been extremely successful in becoming must-haves through investments in their products, technology and marketing capabilities, so their pricing leverage can be seen as a natural reward for these efforts. said Carrodus. “However, in a volatile market climate, buyers are more focused than ever on the effectiveness of their market data budgets, creating adversarial trading dynamics, which are exacerbated in difficult times.”