Custom index mandates are won on delivery, not benchmark brand

Dr Christian Bahr runs index services for financial information at SIX, and the job as he describes it is a memory of a simpler trade: build a benchmark that represents a market, calculate it reliably and let investors measure themselves against it. Writing for ETF Express in a piece published on 25 September, he says that layer still matters because the big brand indices keep their recognition and the money already tracking them, while the work beneath it has turned into something closer to manufacturing on demand. A new tailor-made thematic index seems to arrive every week, and the motive is not hard to see: an asset manager launching an ETF or a structured product wants a strategy that gives investors one more reason to buy.

Current examples stretch from the companies supplying the infrastructure behind the data-centre build-out to a basket built around firms expected to benefit from a renewed emphasis on clean-energy investment in Europe; tomorrow's theme will be something else. What stays constant is the change in the provider's job, from getting an index right to turning the next investment craze into a functioning index and handing it over in a form the client can use.

Speed drives the sale, in Bahr's telling, because a fiscal or monetary surprise can pull investor attention into a sector within days, and a product provider answers by commissioning an index and a structured product around the theme. A product that reaches the market six months later has missed the interest it was built to serve. That compresses the value of everything upstream of a launch and puts a premium on an institution the industry has long filed under back office: the one that can build, calculate and distribute a bespoke index inside the window in which the theme is live.

Delivery is where Bahr is most concrete, and it is the least fashionable part of the business. One client wants the index on a website, another a data feed, a third a CSV file, and a fourth takes its index data through a different market data vendor; all four are ordinary requests against the same index, so the infrastructure behind the calculation has to reach each of them through the channel that client chose. A clever thematic index that cannot be reliably supported once it becomes a real investment product is a demonstration, not a product.

The pressure runs back up the chain as well: an issuer working to a distribution deadline will not sit in a provider's build queue, so turnaround becomes a term in the launch decision, and the index ends up as a variable in someone else's production schedule rather than the thing the product is named after.

In core beta, an incumbent benchmark walks into the room with brand recognition and the assets already tracking it; in a bespoke thematic mandate, the buyer is an asset manager on a launch deadline, shopping for turnaround, reliable calculation and a delivery path that matches its own distribution. That makes the custom lane a contest of operational fitness, where a provider with a documented pipeline can take mandates from firms whose index names are far better known.

Bahr writes from inside a firm that sells index services, so the column doubles as a case for the businesses that own both the calculation and the pipe. A commercial interest does not make the diagnosis wrong; it does mean the competitive claim reads best as a map, drawn by an interested party, of where the next index fees sit.

This publication has argued that the launch machine has outrun the shelf's capacity to quote and distribute new products, with market-making capacity rather than the regulatory calendar now the gatekeeper for complex listings. Bahr's argument points to a second gate just behind that one: a listed product with a willing desk still needs an index that is calculated, maintained and available through whichever pipe the data buyer prefers, and the ETF's existence does not supply any of it.

The economics deserve more scrutiny than a column written by an interested party will give them, because a bespoke index behaves like an engagement: a defined build, a delivery commitment, and an open-ended obligation to keep a calculation alive as a theme matures or fades. That is a services business sold to clients whose appetite churns with the theme, carrying a maintenance tail that a licensed benchmark does not. Revenue of that kind is worth having, but it is a harder thing to run at scale than the business the index industry has spent two decades optimising; firms that price and staff custom work as though it were a licence will find the mandates expensive to keep.

Concentration is the quieter exposure, because a bespoke index tends to exist to serve one product from one issuer, which ties the provider's revenue to the shelf space that product wins. Build fifty of them and the book looks diversified; build fifty around four themes, as the current cycle encourages, and the revenue is a handful of thematic bets written as service contracts.

None of this diminishes the big benchmarks, which Bahr says remain hugely important, with custom work additive to them. The marginal mandate is simply being fought in the custom lane, and the tells are administrative: whether a provider publishes feed options, support terms, and a build timeline quoted in weeks rather than quarters, and whether the firms winning themes are the best-known index names or the quickest builders. The provider that puts those terms in writing has already answered the question about what the index business now sells.