‘Index 2.0’ allows investors to define what they own and why. We examine a route to index customisation that aims to keep the discipline of an index while minimising the administrative frictions of an index provider.

Institutional appetite for customisation has been building for some time. Passive UCITS grew from 13% of the European market in 2015 to 30% at the end of 2025, and expectations of what they should deliver have risen alongside that growth. In a recent industry survey of 300 senior investment professionals in Europe and the US, a quarter of respondents said they wanted index providers to develop more customised indices.

The market usually offers two ways to meet that demand. The first is to license a custom index from a major provider, bringing the advantages of third-party governance. However, this governance comes at a cost. This route often carries higher licensing fees and a greater initial outlay of effort, with limited flexibility to update criteria once the index is live. Build times can extend to multiple quarters, as can subsequent changes, because each one re-enters the same governance process that produced the original.

The second is self-indexing. The manager constructs, owns and calculates its own index. This is fast and inexpensive but also invites the question from an investment committee: if one firm builds the benchmark, calculates the benchmark and is measured against the benchmark, who is responsible for oversight?

There is a third route. Here, the manager constructs the portfolio, an independent calculation agent maintains and calculates the basket and the manager’s indexation team tracks it, applying the same tracking-error discipline as any indexed mandate.

The third route

Whenever an index is published, there is automatically a layer of administration. That means a documented methodology, a change-control process, a committee to approve amendments, consultation where constituents are affected and, depending on the index, a set of regulatory obligations attached. An index that many investors track must be stable and predictable, and governance exists to make changes slow and deliberate.

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