The Wealth Management Association (WMA) agreement with MSCI to deploy the index provider's Private Investor Index Series, which are a set of calculations tracking the returns which investors might expect from portfolios, could result in the development of a number of investable strategies to be used as underlyings of structured products aimed at wealth management providers, according to Deborah Yang (pictured), head of index products for Europe, Middle East & Africa (Emea).
"Whenever we design an index, even if the initial goal is to create a benchmark, we strive to ensure they are actually tradeable and can be replicated," said Yang. "For us, that is more important than having niche indexes which are performance benchmarks but cannot be used as a reference for investment products."
MSCI will offer the wealth management community a series of flexible multi-asset class indices that will be augmented and enhanced over time based on the changing needs of the private client sector.
This change is the culmination of a lengthy project initially undertaken by the WMA Private Indices Committee in which it considered those requirements and augmentations deemed necessary to ensure the Private Investor Index Series remain credible, useful and relevant to the Wealth Management community. Furthermore, the Committee debated what flexibility in an index provider is necessary so that these enhancements can be delivered when required.
"This agreement is an endorsement of the work MSCI does with the wealth management industry to address the benchmarking needs of their clients, and is also a very interesting development for us," said Yang. "The WMA's Private Investor Indices were created 20 years ago and encompass different asset classes such as equities, fixed income and alternatives. Under the new agreement, MSCI will be the index provider."
This new arrangement will ensure the delivery of a suite comprising of five indices: conservative, balanced, income, growth and global growth. The WMA said that further consultation with the WMA membership and Private Investor Indices Committee will take place and 'inform the ongoing development and refinement of the traditional indices, in addition to exploring with MSCI options for additional new indices'.
According to Yang, the agreement is very important for MSCI to expand engagement with the WMA and the wider wealth management community as well as to respond to their benchmarking and index needs. Although the initial focus will be on providing measures to compare the range of performance across a variety of portfolios; to review the asset allocation and structure of a portfolio; and to compare the performance of discretionary fund managers, "the goal is to create and design indexes that add value to their offering either in the form of a benchmark or an investible strategy", said Yang.
"Our deep understanding of the risk and return of assets means we can drill into those themes to build strategies that can be used for both benchmarking purposes and as underlyings for index-linked products," said Yang.
A competitive advantage for MSCI beyond its index offering is its 20 year track record building investment analytics, said Yang, adding that structured products remain a strong focus at MSCI.
"We are a leading provider in the professional investor segment and we want to continue to leverage that position and increase our tradable offering around futures and options aimed at structured products and exchange-traded funds (ETF) providers," said Yang. "One of the key strengths of MSCI's offering is the focus on investability, particularly when creating indexes that can serve as the basis for financial and investment products. We expect this agreement will enable MSCI to launch new indices and strategies to be deployed by wealth managers in their propositions."
There are more than 2,700 live products featuring MSCI indexes globally, according to SRP data.
The use of the new index series will begin on March 1, 2017.
The Wealth Management Association (WMA) represents 186 wealth management firms and associate members including advisory investment firms, brokers for retail market-related transactions, and discretionary managers looking after individual and family portfolios.
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