A Sustained Competitive Advantage Created by California Based Firm, Reasearch Affiliates
744 WordsFeb 24, 20183 Pages
Research Affiliates (RA) is a California-based investment management firm that aims at creating a sustained competitive advantage in the investment industry mainly by developing innovative non-price-weighted indices through a clear focus on superior research. The specificities of this unique business model are outlined below, following the approach by Chesbrough .
RA developed its “Fundamental Index (FI) methodology”, which supports the use of firm´s fundamentals rather than their current, often widely fluctuating market capitalizations, to establish portfolio weights in an index. The underlying assumption is that due to market inefficiencies and the resulting pricing errors, market-cap-weighted indices are flawed as they overweight overvalued companies while underweighting undervalued companies. Thus, the value proposition of RA is to create value by providing customers with superior economy-centric passive investment approaches that capture more accurately true long-term value.
RA’s interacts with three customer groups, which actually often behave more like partners and affiliates, through three different distribution channels, thereby generating three distinctive revenue streams . First and most importantly, RA sells its patented FI solutions to third-party asset managers and receives an asset-based license fee for providing the intellectual property and the actual data. The asset managers, in return, act like distributors and manage the assets of their clients, who