The giant mutual fund and ETF company Vanguard announced yesterday that it is changing the benchmarks for a series of its funds totaling about $367 billion, including some of its largest, to those developed by University of Chicago's Center for Research in Security Prices. It's dropping benchmarks that had been developed by MSCI, a publicly traded Morgan Stanley spinoff.
This is a great example of how universities and other non-profits are now competing with private, for-profit companies in fields that have little to do with education. From the Center for Research in Security Prices Web site: "CRSP is located in the heart of the Chicago Loop in the Financial District and not on the Hyde Park Campus...Since 1998, our staff has more than tripled. Expansion plans include continued growth of our staff, which is currently at 70....The licensing of CRSP data requires a signed contract between CRSP and the subscriber as well as a receipt of payment for the full year of the subscription prior to shipping the data....Typical users include...Commercial users: quantitative analysts, equity derivatives traders, researchers and marketers, portfolio managers and research analysts, merger and acquisition groups and management consultants, attorneys, hedge fund and mutual fund managers, exchanges."
There's nothing inherently wrong with this competition, especially if, as Vanguard says, it results in lower fees for its shareholders. However, MSCI shareholders may be unhappy, with some justification, that they are being competed against in business by a firm that has the advantage of the University of Chicago's tax-exempt status. And as more and more activity finds its way into this tax-exempt world, the remaining taxpayers who are still paying taxes may seek ways, through taxes on university endowments, consumption taxes, or other ways, to spread the burden around. Finally, if the CRSP becomes a real business success, as it seems well on the way to doing, it may be a challenge to find ways to distribute the cash flow without creating jealousy from other parts of the university that are not as well funded, and without being so lucrative that it distracts the professors who are involved from their teaching work.
Anyway, it is an interesting tale of competition. You'd certainly think that the financial data industry is not underinvested, with players that include Bloomberg, FactSet, Reuters, MSCI, S&P/McGraw-Hill, Dow Jones/News Corp., and Pearson/FT. Yet some University of Chicago professors just beat them out for a huge contract. Incidentally, two of the professors involved with the CRSP, Eugene Fama and John Cochrane, are those whose work we've followed here at FutureOfCapitalism with interest.