Equity indices and IPOs – Mark Makepeace (IPO Stories, Ep. 18)

When a company becomes listed, index inclusion is a big deal. Beyond the stamp of approval, it brings in new passive investors, more liquidity, and ultimately more stability as a listed company. Yet, index inclusion rules are very technical, and not always easy to understand.

To open up the topic of equity indices, we have invited Mark Makepeace, the CEO of Wilshire Indexes. Mark built up and managed FTSE Russell from a small group that produced the UK equity benchmark FTSE 100, to one of the top 3 global equity index providers.

With Mark, we discuss what criteria index providers use to include companies, how this relates to the offer size and market capitalization of an IPO, how index rules have evolved to adapt to the market, and the evolution of index providers to also become ESG data providers.

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Disclaimer: this discussion is not financial advice, nor an investment recommendation, nor a solicitation to buy or sell any financial instruments, or an offer for financial services or any other transaction. The information contained in the recording have no contractual value and are destined for an informational purpose only. Amundsen Investment Management and the participants on this podcast may have holdings in the companies being discussed.

[0:06] Per Einar Ellefsen: When you become listed, index inclusion is a big deal—beyond the “stamp of approval” for your listing, it brings in new passive investors, more liquidity, and ultimately more stability as a listed company. 

[0:47] Per Einar Ellefsen: Yet index inclusion rules are very technical and not always easy to understand. To open up the topic of equity indices, we’ve invited Mark Makepeace, the CEO of Wilshire Indexes. Mark built and managed FTSE Russell, growing it from a small team that produced the U.K. equity benchmark FTSE 100 into one of the top three global equity index providers. 

[1:12] Per Einar Ellefsen: With Mark, we discuss what criteria index providers use to include companies, how this relates to the offer size and market capitalization of an IPO, how index rules have evolved to adapt to the market, and the evolution of index providers into ESG data providers.

Mark, thank you very much for joining us today. Can you introduce yourself and how you came to work with equity indices? 

[2:00] Mark Makepeace: It’s a pleasure to be here. I started in the City of London working on Big Bang, and after Big Bang—which I helped to coordinate—I was left looking for something to do. 

[2:12] Per Einar Ellefsen: For listeners who don’t know: what is Big Bang? 

[2:15] Mark Makepeace: Big Bang was the deregulation of the City of London in 1986. It led to the trading floor being replaced by technology and screens so that large investors could trade from their desks. It had a huge impact on the City. After I helped coordinate Big Bang, I was shown the FTSE 100 and asked to develop an index business from there. 

[2:51] Mark Makepeace: I became the de facto head of indices and learned the business. I developed a strong relationship with the Financial Times, and together with the London Stock Exchange, we set up FTSE as a company. I was its founder and chief executive, and we grew it into a large, successful business. The Stock Exchange later bought out the Financial Times’ stake. 

[3:22] Mark Makepeace: I then returned to being part of the Stock Exchange and—alongside running FTSE and then FTSE Russell—I ran all of their information services until I retired. Retirement wasn’t for me, so I came back into the industry and now I’m the chief executive of Wilshire Indexes. It’s a bit like going back in time—several colleagues from FTSE joined me. 

[3:47] Mark Makepeace: We’re now building indices for global markets but in a much more modern way—cloud-based, leveraging new technology and thinking about how computerization will change the industry. 

[4:04] Per Einar Ellefsen: When you started, FTSE 100 was basically the U.K. large-cap equity index—and the only FTSE product at the time? 

[4:11] Mark Makepeace: That’s all there was. The first thing I did was introduce a mid-cap index. Because the euro was being introduced, we tried to launch a Europe ex-U.K. index to compete, though competing outside the Eurozone was difficult. We grew, but the collaboration with the Financial Times—and, for those who know the U.K. market, the Institute of Actuaries—really helped launch indexation, not just in the U.K. but globally. 

[4:48] Mark Makepeace: FTSE Russell, along with MSCI and S&P, became one of the three big index providers. We’re trying to recreate some of that success at Wilshire Indexes. 

[5:00] Per Einar Ellefsen: For those unfamiliar—what’s the objective of an equity index? 

[5:06] Mark Makepeace: Indices are vital. One primary purpose is to serve as a benchmark for both active and passive funds. Broad-based indices aim to capture the investable opportunity set—the companies institutional investors can realistically own in a single market or globally. 

[5:47] Per Einar Ellefsen: Even if a fund holds only 50 names, you want to measure performance against all equities it could own? 

[5:55] Mark Makepeace: Exactly, because the index is a performance benchmark—are the manager’s decisions adding value? Indices also enable market analysis: index providers classify companies by industry (e.g., technology and sub-industries), by size (large, mid, small), and by factors such as growth or value. That classification underpins investment decisions. For companies, indices are a shop window—how you’re represented matters. Your industry classification shapes which investors you attract. 

[7:26] Per Einar Ellefsen: If you’re not in an index, for many investors you basically don’t exist. 

[7:30] Mark Makepeace: That’s right—you’re perceived as higher risk. Indices capture broad risk and performance characteristics. Growth and value behave differently; small caps differ from large caps. Investors start by putting companies into “boxes” for further analysis—so being in the right box is crucial. If you think you’re a fast-growing company but you’re classified as value, something’s off—either your view or the index provider’s. Engage providers to understand and, if needed, challenge classifications—they have significant implications. 

[8:33] Per Einar Ellefsen: Beyond active funds benchmarking to indices, we’ve seen huge growth in passive investing. What’s driving that? 

[8:44] Mark Makepeace: Cost. Passive funds hold the index constituents at index weights—the whole market in simple terms—at lower cost. They’re not trying to outperform, just to match performance. Active managers are selective—often holding ~50 names versus thousands in a broad market—so their research and trading costs are higher. Over time, those cost differences compound. 

[10:08] Per Einar Ellefsen: And technology made holding thousands of stocks feasible, which wasn’t so easy in the 1990s. 

[10:25] Mark Makepeace: Exactly. Technology helps passive managers manage broad baskets. Indices have also expanded: beyond market-cap benchmarks, providers now replicate strategies (growth, momentum) and themes. Passive managers can track those at lower cost too. As indices challenge or replace active strategies on cost, it becomes even more important for companies to understand how and why providers classify them—your shop window and your peer set are defined there. 

[11:53] Per Einar Ellefsen: What share of listed equities is owned by passive funds today? 

[12:01] Mark Makepeace: Best estimates: 20%+ of holdings are passive. Add active managers who track indices closely because they benchmark against them, and nearly half of market weight is influenced by indices. 

[12:34] Per Einar Ellefsen: Many active managers won’t invest unless a company is already in the index—they’ll then over- or under-weight it. 

[12:46] Mark Makepeace: Right. Many pension mandates require managers to justify deviations from the index. So a lot of active money hugs the benchmark—another reason why index treatment matters for companies. 

[13:29] Per Einar Ellefsen: Will passive keep growing? Is there a natural limit? 

[13:40] Mark Makepeace: Passive has a long way to go—the cost case is compelling. But markets need active money—contrarian views, price discovery—so it’ll never be 100% passive. The healthy mix will persist, but from today’s levels, passive can still grow substantially. 

[14:37] Per Einar Ellefsen: Let’s connect index inclusion to the IPO. How do index providers view newly listed companies—include them quickly, or wait? 

[15:04] Mark Makepeace: It depends on materiality. Small-cap universes are often rebalanced annually; mid- and large-caps are typically reviewed quarterly. Exceptionally large IPOs can be added immediately on listing day—but that’s rare. 

[15:41] Per Einar Ellefsen: Few cases—Porsche in Europe last year was one. 

[15:45] Mark Makepeace: Exactly. If an IPO materially affects the index, providers add it quickly. Smaller names are added on the regular schedule to keep costs and turnover manageable. 

[16:09] Per Einar Ellefsen: What criteria determine inclusion? 

[16:15] Mark Makepeace: Primarily size and free float. Most providers want ≥25% free float (publicly available shares). Voting rights are also considered. The aim is to include as many investable companies as possible while ensuring sufficient liquidity and some investor influence over the company. 

[17:03] Per Einar Ellefsen: Size matters too—investors can’t hold everything. What are the typical thresholds? 

[17:21] Mark Makepeace: There’s often a minimum around $25 million market cap below which a stock is too small. To enter mid-cap indices, you’re often talking $1 billion+—varying by market. In the U.S. thresholds are higher given market size. 

[17:51] Per Einar Ellefsen: That ~$1bn mark resonates in Europe—but you need to stay there six months post-IPO. How long after IPO before inclusion? 

[18:14] Mark Makepeace: Providers want enough trading history to assess liquidity—often 30+ trading days before a review. For U.K. small caps, the annual review is typically September, so listing in early summer helps you qualify; listing in October likely means waiting almost a year. 

[19:10] Per Einar Ellefsen: Is there a human element—committees? 

[19:20] Mark Makepeace: Yes. Most providers have committees, including external practitioners, to ensure consistent rule application. Judgement calls arise around industry classification, voting rights, or listing structures. Consistency helps investors, especially passive funds, predict how IPOs will be treated. 

[20:28] Per Einar Ellefsen: In your book you tell the story of Glencore’s IPO and advisors discussing index rules with you. Do advisors often come to you on big deals? 

[20:48] Mark Makepeace: They do when something is unusual. Glencore was largely staff-owned with a relatively small free float at IPO. We worried about liquidity if we included it immediately, because passive funds would be forced buyers. Index providers must ensure their inclusion decisions don’t create artificial markets. 

[22:07] Per Einar Ellefsen: Very low free floats (e.g., ~5% or less) can cause odd effects. There’s been a trend to lower free floats in IPOs to create demand tension—that was true for Glencore. 

[22:29] Mark Makepeace: Right—and providers want to capture market change: new sectors, influential companies. But rules reflect past experience, so we must evolve them to accommodate novel structures while still protecting investors. We’re not regulators, but we do have to weigh quality and risk. 

[23:36] Per Einar Ellefsen: Rules evolve. Another public debate was Snap (2017) listing without public voting rights. What happened? 

[23:57] Mark Makepeace: We consulted practitioners and investors. The strong view was not to include Snap initially—no voting rights meant higher governance risk and no investor influence. Over time, as the market adapted, Snap was added to many indices. Often the right approach with novel structures is to wait, let the market digest—or for the company to change—before inclusion. 

[25:22] Per Einar Ellefsen: Index providers generally want broad inclusion; exchanges and regulators want more listings too, for transparency and access to capital. Do listing rules also need to evolve (e.g., current U.K. debate)? 

[26:02] Mark Makepeace: Yes. The U.K. used to have premium vs standard listings; only premium were index-eligible for a long time. Another complexity is nationality assignment—important for investors—usually tied to the main trading venue, but not always. Exchanges compete for listings and companies can dual-list, so index providers sometimes make independent judgments to avoid double counting or omissions across countries. We rely on regulators and exchanges where possible, but must ensure global consistency for investors. 

[28:09] Per Einar Ellefsen: You’ve watched markets and exchanges evolve. What are the key ingredients of a thriving capital market? 

[28:29] Mark Makepeace: Make listings attractive to global investors. That encompasses risk, market infrastructure, taxes, and—critically—the types of companies you attract. The U.K. market was very successful pre-2000—heavy in mining, oil, energy—but those sectors underperformed after 2000, affecting valuations. Governments and exchanges should court growth sectors. The Middle East is growing fast; Saudi Arabia is diversifying beyond energy, creating new industries and attracting listings, which in turn attracts more investors and companies—a virtuous cycle. 

[30:42] Per Einar Ellefsen: Saudi modernized the market structure before the broader economic program—the stock market followed the local evolution. 

[30:55] Mark Makepeace: The stock market is a key part of economic strategy—raising capital creates jobs and wealth. Governments—not just exchanges—need a plan and should take responsibility for developing their markets. 

[31:23] Per Einar Ellefsen: Let’s touch on ESG. Major index providers have also become ESG data providers. You already cover the full universe, and clients want custom portfolios that overlay ESG criteria. At FTSE, you were the first to launch ESG-focused indices. What are investors asking for today? 

[32:05] Mark Makepeace: ESG matters because environmental impact, social policies, and governance practices all affect risk and valuation. Early ESG frameworks were aimed at companies—to help them assess strategies and impacts, and improve. Now the trend is investors identifying which ESG characteristics drive investment risk or value creation and integrating those into portfolios. Climate is a clear example: regulation impacts sectors globally, so investors assess who’s ahead or behind and price that into valuations. 

[35:39] Per Einar Ellefsen: What do companies need to disclose for index providers to provide ESG analytics—emissions, etc.? 

[35:53] Mark Makepeace: Disclosure is mixed. Environmental disclosure is pretty good; social is weak; governance is strong. Not enough companies disclose carbon emissions across Scope 1, Scope 2, and Scope 3. It’s improving, but faster disclosure helps investors make better decisions. 

[36:45] Per Einar Ellefsen: A common IPO challenge: companies aren’t ready to disclose yet, but they want index inclusion—and more investors now use climate-focused indices. So you need that data early. 

[37:07] Mark Makepeace: Index providers use data science to fill gaps by comparing peers and making estimates—reasonable quality, but conservative. If you leave it to estimates, you’ll likely be marked down. It’s in the company’s interest to disclose and capture the benefits. 

[38:01] Per Einar Ellefsen: How will the ESG ratings landscape evolve over the next five years? 

[38:06] Mark Makepeace: It must align with investor needs—linking ESG factors to valuation and risk, short- and long-term. Simple scorecards aren’t enough; we need clearer evidence of financial impact. 

[38:47] Per Einar Ellefsen: We’re seeing a relationship between ESG and cost of capital: better ESG and transparency broaden the investor base, lowering capital costs; opacity does the opposite. 

[39:14] Mark Makepeace: Exactly. If you’re in the bottom quartile on ESG—whether due to poor disclosure or performance—raising capital is harder and more expensive. I’m not sure the very best always get notably cheaper capital, but the bottom cohort definitely pays more. 

[39:46] Per Einar Ellefsen: Any fun facts from your experience? 

[39:49] Mark Makepeace: When I first announced FTSE4Good, one of the first ESG index families, we set expert criteria and applied them to the FTSE 100—and only 2 of the top 10 companies met the criteria. It took a year of engagement before we could launch because we didn’t have enough constituents. A year later, 8 of the top 10 met the criteria, and the remaining two followed soon after. It shows how influential index providers can be. 

[41:00] Per Einar Ellefsen: It’s huge in listed markets. Thank you very much, Mark, and thanks for coming on the show. 

[41:05] Mark Makepeace: Thank you, Per. 

[41:08] Per Einar Ellefsen: Thank you for listening to IPO Stories. In future episodes, we’ll host CEOs, CFOs, advisors, and other participants in the IPO process to learn from their experience—like from Mark today. If you like the show, please follow us on Spotify or Apple Podcasts and share it with people around you. If you have questions about the IPO process that you’d like us to address with future guests, please get in touch at contact@ipostories.com and follow our LinkedIn account, Amundsen Investment Management S.A.