After working in derivatives at a bank and for a consulting company, he acquired Solactive in 2007 via a management buy-out and has built it into one of the most innovative and successful index providers in Europe. Today the company has more than 10,000 indexes in the roster, linked to an estimated €300-400 billion in assets.
Scheuble talks about his life on the road, being a pioneer in ESG and the need to always be one step ahead of the curve.
How did you get into the finance industry?
When I was doing work experience as a teenager, I earned some money and thought I should invest that, so I was buying and trading stocks early on. It was clear I would go into the financial industry after that, with my experience as a small trader.
What led you to Solactive?
In fact, I was the first client of Solactive. Back in 2006 I was working for Deutsche Bank and we had a pretty intense competitor, ABN AMRO: they launched structured products based on thematic indices. We tried to find an index provider to help us build our thematic business too, and we initiated a new index provider called S-BOX, which was a cooperation between a Swiss consulting company and the Stuttgart Stock Exchange. Later on I joined the Swiss consulting company – and made a management buyout in 2007. That was the starting point of Solactive. The first index was created in April 2006 - the Solactive Sports Betting Index – and is still up and running today. Actually I was the first licensee of that index – being at Deutsche Bank.
Two years later we acquired the index business from the Stuttgart Stock Exchange.
Was there a moment you realised the index business was going to become really successful?
It was a natural evolution. In 2009 we decided to focus on the index side of the business. It started to grow and accelerate. To some extent this happened as the structuring business wasn’t working so well at the start and we really focused on the area where we could see substantial growth.
Was there one moment in your own life where you realised you were successful?
Life as an entrepreneur means you have many ups and downs. There are many things that are fantastic, and there are times where you learn your lessons. We are always there for our clients, we are focused on doing what we do best – hard work, and being a reliable business partner. That’s what I think our clients appreciate, and we’ve done it that way since the start.
Solactive really built up over time. It wasn’t about this or that particular index being the accelerator. The first five or six years were really hard as we were the new kid on the block. But we’ve always put our clients at the forefront of what we do, and that has worked.
And since those more difficult, early years, has the way you worked or approached business changed?
Nothing has changed materially. I worked hard from the start. You try to be a role model for the company, and for your employees. On a recent public holiday in Germany, for example, I was in London because it wasn’t a holiday there.
But I don’t think of it as work as such, it’s rather something that fascinates me. I’m trying to build and grow a company. On the road in London I’ve got 10 meetings a day with clients. All this exchanging and sharing of views is pushing me towards what I’m trying to advocate internally and externally: radical transparency. Whether it’s a problem, an opinion, or an opportunity – having an open conversation about it, sharing information and treating the situation as it is, is the only thing that will build a client relationship or enables you to get a company internally on the next level.
To me the most important thing is not to forget who we are. We are a service provider, so our clients pay our bills and if they don’t trust us, we are out of business.
What have you learnt from failure?
You launch indices: some of them raise assets and some don’t. We launched indices in the ESG space in 2008-09 and during that time the total amount of assets these raised were around €100,000. So, if you want to be first to market, you will make mistakes and launch products that don’t work. We’ve always launched products with the best intentions, and we believe in them, however it turns out.
You recently acquired an equity stake in European advisory firm Minerva. What is the rationale there?
The overall rationale is we have the index business, our core business, but we are a strong believer in the power of data. In 2018 we invested in an ESG data provider and we are continuously looking at businesses where we can get access to interesting data points. At Minerva, they’re in a relatively similar situation to where Solactive was 10 years ago: they are up against two global dominant players in the proxy voting space – ISS and Glass Lewis. There is an opportunity here.
The second rationale is that Minerva has very interesting data points around governance, environmental and social areas. I’m fully convinced that access here gives us interesting opportunities.
How do you predict the ETF and index industry will change in the next few years?
From my perspective we are in a world of dramatic change. If you are looking at the big index shops, they run their business at very high margins and these margins are not accepted anymore by the asset management industry, which is living in a world of intense competition and fee compression and therefore a drive towards cost efficiency. The business model of index providers needs to change dramatically, with different fee models and a different approach to working with clients and really changing that ecosystem in a fundamental way. I think we’re at the forefront of that.
Do you think we’ve reached a peak of new ideas?
Innovation never dies. Every day there is a new market situation and a new opportunity. Just look at ESG: its growth was not foreseeable a few years ago and it’s now becoming very important. For a very long time, there was more talk than assets. People were talking about ESG but not really investing there. That is now changing, and we are seeing real assets enter this space.
Second, it’s about education. I don’t want to pin everything on the need for education, but a few years ago, people were saying ‘investing in ESG means worse results in my performance’, and we needed to explain the topic to people and make them realise you can achieve the same or even better results with ESG. Regulation and education are often drivers for certain areas.
Remember when the internet was invented, and how sceptical people were? Every new innovation needs a little bit of time.
Is there a risk and a pressure that you will miss a trend or not be the first to market?
As CEO of Solactive, it’s part of my role to make sure that we’re not being caught flat footed, unable to serve our clients when a new trend emerges. One very helpful character trait for that is a positive and highly functional paranoia, where a noise in the forest or an interesting headline in the newspaper makes you think of the sabre-tooth tiger that may be behind the next tree.
We all remember Nokia as the mobile phone manufacturer, and they missed the trend for the whole smartphone industry.
So, there’s always a chance you miss certain things. One tool I use to lower the likelihood of missing a trend is creating a strong leadership team and having an open culture of discussion, where the CEO can be and is being challenged, where people share their own views.