NASDAQ, S&P eye acquisitions to build index businesses

Jan 14 2014, 13:14 IST
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SummaryExchange operator Nasdaq OMX Group and index provider S&P Dow Jones Indices said they are interested in acquisitions to grow their index businesses, in a sign the sector could see a wave of deals as investors pour tens of billions of dollars into portfolios that track benchmarks.

Exchange operator Nasdaq OMX Group and index provider S&P Dow Jones Indices said they are interested in acquisitions to grow their index businesses, in a sign the sector could see a wave of deals as investors pour tens of billions of dollars into portfolios that track benchmarks.

Both Nasdaq Chief Executive Robert Greifeld and S&P Dow Jones Indices Chief Executive Alex Matturri told Reuters in recent interviews that they would be interested in looking at bidding on index businesses that come to market, including the index businesses run by Russell Investments and Barclays Plc .

"Growing the index business is at the top of our list for 2014, both organically or through acquisitions," Greifeld said last week. "We have this index engine and people don't realize that anything MSCI can do or S&P can do, we can do right now."

Nasdaq launched its first index, the Nasdaq Composite, in 1971 and today over $1 trillion in assets track Nasdaq indices. Greifeld said the company has spent the last 12 months integrating its indices with its data offerings. It launched 13,000 new indices on Monday.

Matturri said that S&P Dow Jones Indices would also look at any other assets in the index space that might come up for sale as well.

"Indexing as a whole has been on a good streak for a while as people are looking toward passive products for lower costs and good returns," Matturri said.

Nasdaq and S&P Dow Jones Indices' interest in acquisitions comes at a time when the business is seeing explosive growth but also increasing cost and regulatory pressures, attracting potential buyers and prompting would-be sellers to take the plunge.

Sources have said previously that the Barclays business is expected to be put up for sale this year and that Northwestern Mutual Life is exploring a sale of its entire Russell Investments asset management business . The insurer is considering spinning off the indexes in a separate sale, according to sources. All the sources wished to remain anonymous because they are not permitted to speak to the media.

"If you were ever going to sell your index business in the next 20 years, now is not a bad time to do it before margins get really terrible," said Dave Nadig, chief investment officer of IndexUniverse, a San Francisco-based company that tracks ETFs.

But the frenzy around indexing may lead to bidding wars. "There is a good chance that someone overpays," Nadig said.

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