Traditional indices are still widely used for performance benchmarking, although such indices are often flawed or unsuitable by design. If markets are efficient – as most CAPM models suggest – index benchmarks should reflect this, but often they don’t. This is where custom indexation can step in and offer a better benchmark proposal, thus allowing for a better way to manage and steer the performance of a portfolio manager. 

We fundamentally believe that the effective construction and implementation of an investment strategy requires the development of a custom index that becomes inherent to the portfolio construction process. We see this demand growing beyond the more thematic strategies - such as socially responsible investing (and the creation of SRI indices) or Islamic investing (and the creation of Sharia indices) - to become mainstream. We also see demand for custom indexation in order to adhere to regulations - in particular the pan-European UCITS framework - or to cope with the performance impact of withholding tax and currency overlays or other causes for tracking error such as weight caps.  

Recently, custom indexation has become an essential component in the design process of structured investment solutions. Core investment strategies are reviewed and adjusted for integration in a custom index. Such index must meet at the same time hedging requirements (including liquidity, turnover, corporate events, risk, regulatory restrictions, constituent or sectorial constraints) and portfolio construction requirements that allow for alpha generation. We are specialized in the construction of such custom indices and all related services. We see this business overtaking the traditional structured investment product markets that is often based on opaque payout formulae hedged through exotic derivatives.