With little public transparency into market data vendors’ pricing, one asset manager may be paying far more than 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 Substantive Research, which provides analytics on the investment research market. What’s more, vendors tacked on increases due to inflation haphazardly, “and the inconsistency of percentage increases applied due to inflation become greater through 2020, 2021 and 2022.”
Some pricing and reference data providers are charging certain clients almost 11 times more than other clients for equivalent services. Ratings agencies charge some managers three times the price of others for comparable products, according to the report. The new report builds on last year’s investigation where Substantive Research found that some firms were paying more than twice as much as peers to license an index.
The only bright spot is in the research and analytics market. According to the report, at least a minority of data providers in this sector use a standardized pricing model. But the lowest to highest pricing for similar products can still vary as much as three and a half times.
Substantive Research based the results on a survey of 40 asset management firms with $5 trillion in combined assets. Thirty percent of the firms are hedge funds, while the rest are long-only managers. Sixty percent of the managers are based in Europe and 40 percent are based in North America.
“The power dynamics of market data are fundamentally different from the research market – the leverage in market data often sits entirely with the provider. We can’t change that, but it’s clear that this market is maturing and providers are changing their behavior gradually,” wrote Mike Carrodus, CEO of Substantive Research, in the report. “Incumbent providers have ensured dominance in certain key areas, but they also acknowledge that transparency can only be a good thing for the industry.”
In the current environment, the pricing power almost completely belongs to data vendors, according to the report. Even after accounting for the differences in structures, needs, and requirements, prices still vary greatly across different managers.
Although negotiations usually don’t lead to huge price decreases, they can help reduce annual increases and have a significant impact on a buyers’ budget, according to the report.
“Many incumbent vendors have been extremely successful in becoming ‘have-to-have’ through investment in their products, technology, and marketing capabilities, so their leverage in pricing can be seen as a natural reward for these efforts,” Carrodus said. “However, within a volatile market climate, procurers are more focused than ever on ensuring efficiency in their market data budgets, creating an adversarial negotiation dynamic, which is exacerbated in tough times.”