Bringing Indexing into the 21st Century

Jeevan: My name is Jeevan Param, and I'm the founder and CEO of Alterest (alterest.co). Through the Alterest software platform, I help clients use data and AI to improve decision making, risk management, and understanding in the world of asset-based finance and private credit. In this series of interviews and discussions titled The Stepback, I attempt to unlock jargon, concepts, themes, and trends in private credit, and at times the wider economy for a general audience. Today's topic of discussion is indexing and indices. Indices have long been central to investing, shaping how markets measure performance, manage risk, and structure portfolios. While traditional stock and bond indices have dominated this space, I've been curious about how indexing might reshape other areas, particularly the rapidly expanding universe of private credit. Driven by investor demand and opportunities, leading asset managers are actively exploring strategies that bridge public and private markets. It seems reasonable to expect that indexing will play a transformative role in making private credit more accessible, transparent, and efficient. My guest for this episode is Tobias Sproehnle, who's building an index operating system at his latest startup, PANTA - aimed at streamlining how indices are developed and managed. We dive into the world of indexing, take a step back to understand some of the basics and appreciate the wide range of use cases for indices. Beyond this discussion, you can find more information about PANTA at pantaindex.com. Tobias is a serial entrepreneur, having successfully exited his previous startup, Moorgate Benchmarks, through an acquisition to Morningstar. In addition to his expertise on indexing, he also shares some start-up wisdom towards the end. So, without further ado, here's my discussion with Tobias. Jeevan: Hi, Tobias. It's great to have you here. Tobias: Hi, Jeevan. Great to be here. Jeevan: So before we dive deep into your current work, PANTA, it would be great if you could tell us a bit more about yourself, your background, a brief look back at your journey through your first startup, and what made you decide to start another company. Tobias: Sure. Thank you. I was born and raised in Germany, as you can probably tell from the accent. I'm a banker by trade, but I worked for trading platforms and data providers for most of my career. Started in Germany, working for Deutsche Borse, Eurex - the derivatives platform - in product design and strategy. Then moved to the UK. Working for markets, which was then IHS Markit, now part of S&P. Had a very short stint at the London Stock Exchange; the last role was Thomson Reuters. I entered the wonderful world of indices in 2007 when I joined Markit, which was quite an interesting journey because it was really just at the beginning of the financial crisis. So being responsible for credit derivative indices was quite an interesting stint. I left the corporate world in 2017. Did a lot of angel investing - in some really cool AI companies and later switched focus to FinTech and climate tech startups. In terms of my own startup journey, I'm a very late starter. It took me almost 25 years in the corporate world to find out that the corporate world isn't exactly what I was looking for. I started my first startup, Moorgate Benchmarks, in 2018 - really driven by an index industry that was very inflexible, very slow, and dominated by a couple of companies with inelastic structures. Exited that company in 2021. Went back onto the angel investing circuit - again with a focus on FinTech and climate tech - before I started PANTA. Jeevan: Although you might think it's a late start, I think with 20-25 years of experience it gave you the background and the tools that you needed to see that success very early on with Moorgate. So congrats on that, and we'll definitely deep-dive into PANTA. My next question is about PANTA itself. Before going into details, maybe we can start at the higher level. What is your goal and what is your vision with PANTA? Tobias: Quite simply - and the details later on will be not that simple - what the vision is: we want to build the operating system for the indexing industry. There's been explosive growth in passive investing over the last couple of years and decades, which has created unprecedented demand for the industry. On the other hand, legacy systems are really struggling to keep pace. There's no self-service tools for rapid back testing. And it creates a backlog where you have a really long delay for new complex indices, which is constraining innovation and driving IT costs up. What we're building with PANTA is the industry's first index operating system - a next-generation index technology platform that transforms how indices are created and managed. We empower index providers and financial institutions with enterprise-grade technology that delivers unmatched speed, scale, precision, and control over the index intellectual property. We're doing this with two pieces of technology: one, which we call the PANTA Lab - a front end that allows all sorts of users to design their indices, which can then be underlying for trading or investment products. And the second part, which we call the PANTA Engine - a very flexible tool that calculates and distributes indices at scale. Jeevan: One of the things you mentioned is the potential users - institutions and index providers. Later we'll get into how it can potentially help the end consumer and the general public as well. But maybe, to take a little step back, could we start with what indexing is? And how you would explain it to a seasoned finance professional - what that is and what are some of the typical use cases? Tobias: So indexing is something very simple, which at the same time makes it complicated to describe simply. I'll give it a go. It is designing, building, and distributing baskets of securities. And these baskets of securities can be equity, fixed income, currency, commodities, crypto, whatever - in order for them to be underlying for trading and investment products, but also tools that provide transparency and benchmarking for that relevant asset class. A typical value chain in indexing starts with the design. An asset owner, or an asset manager and asset owner together, designing an index. If the asset owner wants to get exposure to Moroccan forestry - you basically start with a universe of companies that have exposure to Moroccan forestry, define the universe, define the criteria for how you select names. That's the design process, where you also do back testing: how has this strategy performed against traditional indices or other benchmarks? When you've finalised the index, you go to the second part of the value chain: calculation - which is nothing else than pricing the index. You have a universe of, say, 20 stocks, where you have to do daily pricing of all the stocks in that basket in order to make the index tick, whether it's end-of-day or real time. Next is administration - in this day and age where a lot of this activity is regulated, especially in Europe, where you build the governance and all the structures necessary to make this compliant with regulation. We always call it the boring part. It's a boring but important part. And it ends with the distribution - both technically and commercially. Technically, feeding the index into information systems, via APIs or FTP server. Yes, believe it or not, that's still very prominent. But also commercial distribution - essentially selling the IP and the data to people who use it. Jeevan: With PANTA, are you covering that whole chain, or are you focusing on one part more than the other? Tobias: Essentially we are not doing any of this - what we're doing is providing our customers with the technology to do this. So starting with design, we basically provide a front end - the PANTA Lab - where asset managers, asset owners, and index providers can do the full design on one platform, including back testing. And with the PANTA Engine, we're not getting involved in the actual day-to-day calculation, but providing our customers the technology in SaaS form to do the calculation and distribution. So we're not owning the IP, we're not generating the IP - we're providing the technology for our customers to do that in a very efficient and fast way. Jeevan: Is it also correct to say that new industries like crypto, and areas like private credit where the market is growing rapidly, should we expect more usage of indices? Would you say the growth of FinTech and the changing financial landscape is also a factor beyond the operational inefficiencies? Tobias: Yes, a hundred percent. The industry is a six and a half billion dollar revenue industry at the moment, growing year-over-year by 20 to 30%. There's a lot of organic growth, mainly driven by the move from active to passive management, but also by indexing really going into new asset classes. Indices are a great tool to provide investors and trading participants with easy access to new asset classes. That's definitely another driver of this growth. Jeevan: How would you simplify the concept of indexing to someone outside of finance - say, a 6-year-old? Tobias: That's a tough one. Technically it's nothing else than taking data, averaging, and really spitting out the average. I'll try a kids example: think of a world where you can play with all the toys in the world rather than only with the toys you have in your bedroom. Indices are really a tool where you can have, in a very easy and not very expensive way, access to all these toys - which is almost democratising toys. In the very same way that you make financial instruments accessible, you can make toys accessible as well. Does that work as an explanation for a 6-year-old? I'm not a hundred percent sure. Jeevan: I'm going to try it and give you feedback. But I think it's a good perspective - getting that holistic value that you could access beyond the limited set you currently have exposure to. Tobias: Let me know whether you were successful. Jeevan: Definitely. You also worked on Moorgate Benchmarks. What is it that you're doing at PANTA now differently - both from Moorgate and from other options in the market? Tobias: What we did with Moorgate was two things. We were a hybrid between a consulting company and a technology company. On the consulting side, really helping people in the market with design and administration. We helped a large aircraft manufacturer who wanted to make revenues from passenger flights tradable - we helped them bring an index family to life, which could be the underlying for passenger derivatives. Then we went into administration services - navigating the jungle of that regulated business. We then reinvented ourselves in 2019 to go into the technology part - pure white label calculations for anyone who wanted an index in place. PANTA is very different. We are not getting involved in index design, administration, or calculation operations. What we're doing at PANTA is really providing the rock solid, flexible, and fast technology that our customers demand - so that they can manage and operate index design and index calculation. With the PANTA Lab and the PANTA Engine. We're not really creating IP - we're providing the technology for our customers to do that in a very efficient and fast way. Jeevan: Is it right to say that your previous startup could have been a customer of PANTA? Tobias: Absolutely right. The customers we're targeting in the first stage are asset managers for the PANTA Lab front end, and index providers and anyone who needs to do index calculation at scale for the PANTA Engine. So anyone who does index calculations and really needs a scalable index calculation platform is a potential customer - whether they're doing their own branded indices or doing index calculation on behalf of others. Jeevan: Do you have a particular asset class focus at the moment? Tobias: It's a super wide use case, and one of our biggest challenges is really where to focus. In terms of asset class, our development is natural: we start with equity, go into fixed income, then commodities and crypto and other. We'd like to see our platform as an asset-agnostic platform - and whenever I use that word, people look at me and think I'm mad. But the reality is the index industry from a technology point of view is really dominated by silos created per asset class. Some of the big index providers have multiple index engines simply because that's how they were built. We're different - serving all potential asset classes with one platform. My CTO and co-founder Mark always says, "It doesn't really matter what you throw at me - whether it's stocks, bonds, loans, or bananas, I'm indexing it." In terms of focus: starting with equity, then fixed income. In terms of potential users - very wide use case. Asset owners, asset managers, custodians, index providers. We've narrowed it down to where the need is biggest: asset managers who need to react to market changes fast, and the ongoing index calculation process where a lot of the industry is driven by legacy technology. Jeevan: Without PANTA, if an asset manager wanted to launch a new index strategy, it's just a cumbersome process. Would you say that's the case? Tobias: Yes. If you look at even a very traditional asset class like equity - an asset owner has £100m to invest in North American equity, but they don't want Tesla in there, they want to exclude coal. The process at the moment: asset owner works with asset manager, asset manager calls up the index provider, product team does a first back test, sends it back to the asset manager, who sends it to the asset owner, who says: "Good start, but change this and that." The Excel sheet goes back to the index provider. This process can take up to six weeks. What we're doing with our technology is really narrowing that timeframe - the asset manager can sit down with the asset owner and change parameters on the fly during the meeting, with back tests updating in real time. Time to market for index design can be reduced dramatically. And with the PANTA Engine, when the index starts ticking can be reduced massively as well. It really is bringing asset manager processes into the 21st century. Jeevan: What is the wildest realistic application you've thought of for PANTA? Tobias: I wouldn't really describe any of the applications as wild. We can facilitate very wild products that fall out of our technology, but at the end of the day we're not really creating super exotic products - it's really making everyday products more accessible. Whether that means an ETF on 5G technology or passive instruments based on crypto - but that's as exotic as it gets. It's a very down-to-earth process which just makes access to new asset classes and new topics easier and cheaper. Jeevan: Are you using AI in the mix? Tobias: Yes, we do. To be perfectly honest, not as much as other technology companies because the heart of what we build is a very powerful factory. But there are three areas where we're using AI: One is methodology design - AI will suggest methodologies based on user-defined criteria and is helping users to streamline the process. Two is data querying - AI helps users retrieve data and analytics using conversational prompts. We're changing how our users interact with the technology. Three is insight generation - after a user runs a back test, AI will highlight patterns and provide insights around those back tests. There's more to come. On the front end, AI tools could really build your indices - you tell an AI tool to go out and get all the insights and data necessary to design an index. On the back end, I think AI will play a very important role in manipulation detection and quality control. We're moving a lot of data, so machine learning will really help there. Jeevan: Could you go into the regulation side a bit more - how Europe differs from other jurisdictions and how technology built for a strongly regulated market can benefit others? Tobias: That would almost be a different podcast. Very simply: what we've seen in Europe is really manipulation in a lot of areas. The most prominent ones - LIBOR and FX market manipulations - where the process was a black box. A handful of players in a smoke-filled room determining where certain LIBORs or metal or FX fixings were. That drove the whole regulatory process in the UK and the EU. The regulators created a monster, simply because the idea was: we're regulating LIBOR, so we can regulate every index out there. Everyone underestimated this, because it's a very complex industry - you have indices underlying trillions of dollars in structured products all the way down to your student loan. Other jurisdictions dealt with it much more pragmatically. Australia, Japan said: "We'll focus on the most significant benchmarks." And I think what we're seeing now in the EU is that lawmakers are seeing that approach is much better. If I look into the crystal ball, within two or three years, regulation in Europe will be condensed to the set of significant indices - your local IBORs, equity indices, overnight indices. Jeevan: How does what PANTA is doing benefit the end consumer - the general public? Tobias: Very good question - the only other instance where I've been asked that was when we went for the Smart Grant, because governments are very interested in how technology changes the life of the man on the street. Essentially, A) we're democratising investment - providing easy access to strategies which previously might only have been accessible to high net worth individuals or institutional investors. My son always says, "I can customise everything on my phone. Investing, I can't." With our technology, an individual investor with a modest portfolio can say: "I want exposure to X but exclude Y." That's now possible. And two, we're helping to make these investments cheaper. The whole ETF success story would never have been possible without an index industry. We're helping to evolve the index industry to enable mass customisation and therefore making access cheaper - to new asset classes, but also to new themes. Jeevan: This is your second startup. What are you keeping from the previous experience and what are you doing differently? Tobias: What am I keeping? Two things: people and focus. It's about really surrounding yourself with the right calibre of people - people who are better than you in certain or most areas. People who have a mindset of getting things done and not wanting to have it a hundred percent perfect before rolling out. And the second area is focus. When we did Moorgate we basically said we do three things: we design, we manage, and we calculate indices. That simple way of describing what we do was really the result of months of focusing and condensing our offering down. So that's definitely something I do in a very similar fashion at PANTA. What's different? One thing I had completely underestimated is how many people in our industry struggle to make the move from corporate thinking to startup thinking - and are really not able to change anymore. I've been in the corporate world myself for 20-plus years. I know how difficult it is. But I find many people in the industry struggle to make that shift. So we now have a very close eye on the people we're hiring, to really see whether they're able to make that shift. The second thing - and this is for further down the line - is the post-exit process. I always thought building and exiting is the difficult part, and everything after is easy. What we realised is it's almost the other way around. Building and exiting the company was the easier part than the post-exit. We had quite some challenges - some expected, when you're integrating a small flexible FinTech into a big data company - but some very unexpected. I will definitely plan the post-exit process better and plan it more in detail with the buyer to be absolutely aligned on what synergies you realise and in what priority. Jeevan: And the integration challenges - not just technology, but cultural? Tobias: The technology integration was the easy part, comparatively. Yes, it's more about culture, strategy - pragmatic, fast, flexible solutions versus corporate processes which have to be followed. Jeevan: Amazing. Thank you, Tobias, again for your thoughts and startup wisdom towards the end as well. Tobias: Thank you very much, Jeevan.