In February, Germany’s investment funds association, BVI, celebrated a record-breaking rise in assets under management (€4.5 trillion at the end of 2024) with €60 billion in new fund mandates – all achieved in what the association’s chief executive Thomas Richter called a “challenging year”.
However, amid this success, Richter still found cause for concern – namely the costly expense of market data. “Companies can unilaterally set the terms of the contract because customers, such as fund companies, cannot function without this data,” said Richter.
Richter called for an EU Data Vendor Act in order to regulate the data providers. “If we do not do this, the already significant cost pressure in the funds industry will increase even further – also to the detriment of investors.”
15% prices increase
Richter’s comments come amid a continued increase in the price of market data. The latest report from Substantive Research found that average market data renewal increases across major index, ratings and terminals providers hit 15% in 2024.
This pushed overall consumer spend levels to increase by more than 8%, yet firms’ market data budgets only increased by 2% during the same period.
The report also found significant discrepancies in market data provision with some firms paying 12 times more than their peers for the same index products from the same providers.
Mike Carrodus, CEO at Substantive Research, says: “It’s remarkable how a small group of index, ratings, terminal and ESG providers have become so integral to market infrastructure, and many would say that they are entitled to ensure they price robustly given their have-to-have status.”
He adds: “But the opacity and inconsistency in pricing models means that market data consumers are flying blind with a ‘top 3’ cost line item, doing their best to mitigate year-on-year price increases, without any understanding of how their payments compare to the wider market.
“The numbers are not adding up. As it is, financial institutions are either having to deal with budget overspend, juggling costly inputs into other budget lines, or shrinking their provider list, just when they want to be making the most of the growth in value-add datasets to improve performance and processes.”
Increased collaboration
The answer to this dilemma is increased collaboration within the industry, according to a number of operational leaders at asset managers.
“Market data costs have become an increasing burden for asset managers, which creates both a challenge and an opportunity for greater industry collaboration,” says Darren Johnson, global chief operating officer at Impax Asset Management.
“The rising expense of essential data threatens to squeeze margins, while also limiting innovation and competition. To address this, the industry must work together to drive pricing transparency and explore alternative solutions.”
Collective bargaining, industry consortia, and more shared infrastructure could help secure more equitable terms, while regulatory engagement will be crucial in ensuring fair access to market data, says Johnson.
AI-driven sourcing
Another potential solution is greater use of emerging technologies, says Johnson. For example, AI-driven data sourcing and alternative providers offer new opportunities to reduce the reliance on dominant players. And a cloud-first approach has reinforced the importance of cost-effective data access in supporting both operational efficiency and business growth, says Johnson.
“The industry must act decisively. If asset managers fail to challenge the status quo, data costs will continue to rise unchecked, to the detriment of the entire ecosystem.”
Greater use of cloud technology will also help to make collaborative efforts, such as data sharing more operationally effective, says Mathias Heiss, chief operating officer at German funds distribution platform Universal Investment.
“Cloud solutions will significantly simplify collaboration between various partners, mainly by enabling direct access to each other’s systems. This will minimise the reliance on interfaces and overnight reports, providing real-time access for issue resolution and status tracking within workflow management,” says Heiss.
However, when it comes to market data, it is the act of collaboration itself that is proving to be the greatest challenge, says Heiss.
“Due to the rising costs of market data, there is an increasing demand for direct data sharing between market participants, many of whom produce some of the data themselves,” he says. “While the cloud supports this exchange of market data, the challenge in the past has been getting key players to commit to data sharing and agree on quality standards. Therefore, key market players need to agree to collaborate at scale and make the first move to make it happen.”
Reality check
According to Aman Thind, executive vice president and global chief architect at State Street, collaboration over market data continues to be an aspiration for the funds industry and there have been numerous attempts with different levels of success.
“But the reality is asset managers compete with each other and hence are always suspicious if their trading strategies could be reverse engineered from their data,” says Thind.
“This has historically made it hard for firms to bilaterally share data. The other challenge continues to be that the firms rely heavily on high quality and high availability, which requires considerable investment and needs an entity that can put considerable resources behind that.”
Greater collaboration over data could also bring benefits beyond making market data more affordable, says Thind. “Pooling data that can help train foundation models to be more usable for the asset management industry is a huge opportunity.
“The managers themselves don’t have enough data to train the models and the frontier model providers don’t have access to this data at all. So, this is an opportunity for the industry to work together and ensure a giant leap for everyone, especially our clients.”
