SINGAPORE – The Singapore Exchange (SGX) has acquired a research-based index firm that will provide more diverse products for investors.
The deal involves the bourse buying a 93 per cent stake in Scientific Beta for euro 186 million (S$280 million)
Scientific Beta was set up by the EDHEC-Business School, an academic institution that does research for the investment industry.
The firm, which is present in Boston, London, Nice, Singapore and Tokyo, aims to help investors understand and use advanced beta equity strategies.
The acquisition will allow the SGX to bring new capabilities to its index business and cater to the increasing market interest for different ways to represent investment strategies and risks.
It can also broaden its index offerings, even expanding into green investing.
Indexes like the Straits Times Index use factors such as liquidity and market capitalisation to represent market risk.
But Scientific Beta deals with “smart beta” indices, which are factors that do not follow the norms of a market index, such as volatility, fundamentals and profitability, dividend yield and environmental, social and governance (ESG) metrics.
Mr Simon Karaban, the SGX's head of index services, said there has been a shift globally in recent decades to such indices that can be drivers of long-term risk and return.
Over 60 asset owners and managers now use Scientific Beta's indices to track or benchmark their investments.
There were about US$54.7 billion in assets replicating the firm's indices as of September last year, which represents a growth of more than 10-fold in under four years.
SGX managing director Ng Kin Yee, who is also head of data, connectivity and indices, said the abundance of data now available allows investors to use new indices that were previously not possible.
“With technology and the right data, we can develop more creative and sophisticated products. There is even the potential to use these indices to create exchange-traded funds for retail investors.”
SGX chief executive Loh Boon Chye said: “Our latest acquisition is a boost to our growing index business, enhancing our research capabilities to develop products for passive investing, which is trending globally.”
Scientific Beta chief executive Noel Amenc added: “Together we will drive continued development in the smart beta and sustainable finance space, leveraging Scientific Beta's academic rigour and SGX's product development capabilities.”
The proposed acquisition will be funded through external borrowings and is not expected to have a material impact on SGX's results in the 2020 financial year.
Meanwhile, SGX reported a net profit of $99 million for its second quarter, an increase of 3 per cent over the same period a year earlier. revenue hit $231 million, also a 3 per cent rise, it reported on Thursday (Jan 23).
Turnover in the data, connectivity and indices business edged up 4 per cent to $26.7 million, accounting for 12 per cent of total revenue.