Salomon Smith Barney Inc.wants to sell its global index division and is negotiating with Standard & Poor's Corp., which twice has backed away from previous offers it made.
The SSB unit had aggressively marketed its global equity indexes as alternatives to Morgan Stanley Capital International's Europe Australasia Far East index. But that marketing created a rift between SSB and Barclays Global Investors, San Francisco, from which it gets a lot of trading business (Pensions & Investments, April 30, 2001).
Several pension fund executives that switched to SSB indexes for their international benchmarks are upset with the service they've been getting from SSB since the decision was made to sell the indexes. None would go on record with their dissatisfaction.
But not all clients are complaining.
"We have not had a problem with service from the global index group," said Richard Holcomb, administrator of the quantitative analysis division of the $49 billion State of Michigan Retirement System, Lansing.
Mr. Holcomb pointed out that reconstitution of the SSB global indexes - "a large event for any index," - is due late this month. He doubts the indexes would be sold before then.
Mr. Holcomb has made his concerns about a transition plan to a new owner known to SSB officials. The SSB indexes "have been and remain a very valuable tool," said Mr. Holcomb. "I would really hate to see anything change it at all."
Said Herbert Blank, president of QED International Associates Inc., a New York consulting firm: "Word has it they (SSB and S&P) have come close to deals twice and then they fell apart."
He said the main sticking point is how many SSB people would join S&P. "The problem is how they reconcile the Salomon salary structure with the S&P salary structure," he said. Salomon pays much higher salaries, he said.
There also are reports that SSB has considered selling the Broad Market Index to S&P - and moving the affected employees - while keeping the custom benchmark business.
The SSB indexes are provided for free now, and the possibility of having to pay for them may have concerned some users.
Mary Ellen Hillary, a spokeswoman for SSB, declined to comment, as did Lynn Cohn, a spokeswoman for the S&P index group.
"Salomon made the decision to sell the indexes the day they fired Tom Nadbielny," said Mr. Blank. Mr. Nadbielny was head of the global index group. He had been aggressively promoting the SSB indexes and had criticized a BGI study that said the cost of switching from the old EAFE to the new EAFE would be cheaper than switching to the SSB indexes (P&I, Feb. 5, 2001) That created tension between SSB and BGI. Shortly after that, top SSB executives decided to put global indexes under the quantitative research group, and Mr. Nadbielny's job eventually was eliminated.
"Tom Nadbielny's legacy will be that he made MSCI respond to plan sponsors' need for better indexes," said Mr. Blank.
"Without competition there would have been no reason for MSCI to make changes, and the amount they could charge for the data was enormous," he added.
Pressured to sell
One source close to the global index group thinks pressure from BGI also might be behind the decision to sell. This source pointed out that BGI now sponsors an exchange-traded fund based on the EAFE index and has an interest in making sure it remains the most widely used index for international investing.
Tom Taggert, a spokesman for BGI, said, "BGI doesn't own any indexes, (it) manages money to third-party indexes and has always remained neutral. We constantly evaluate index methodology and issues to advise our clients based upon their needs and requirements."
"The two parties have been in talks for a very long time and haven't come to an agreement," said one member of the group. "We're all just waiting."