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London Stock Exchange Group is in exclusive talks to buy Seattle-based Russell Investments, but analysts suggest it may only want the segment that creates the well-known Russell 2000 and other stock indexes.

Russell, which has about 900 employees in Seattle and a similar number elsewhere, owns an index division that operates equity indexes and a money-management unit that has nearly $260 billion in assets. It competes with other large index providers, such as S&P Dow Jones Indices and MSCI.

LSE, which operates the dominant market for U.K.-listed stocks, said in a statement Tuesday it has begun “exclusive discussions” with Russell Investments owner Northwestern Mutual Life Insurance, but there is ”no certainty that a transaction will be forthcoming.”

The LSE Group has been seeking to diversify beyond its core business of collecting trading fees by acquiring index providers. In 2011, it bought the 50 percent it didn’t already own of FTSE International, which produces the FTSE 100 Index.

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Indexes such as the FTSE 100 and the S&P 500 are benchmarks around which traders and money managers make investment decisions and build financial products.

LSE Group Chief Executive Xavier Rolet said in a mid-May earnings call that demand for such products is “going through the roof.”

Russell’s indexes “kind of fit into that story,” said Morningstar analyst Gaston Ceron.

Less clear is what use LSE Group has for Russell’s other key business, managing billions in assets for other investors. It’s not a specialty of the group.

“There, I’m a lot less clear on the fit,” said Ceron.

He said LSE Group might spin off the asset-management part, or at least come up with a good explanation to shareholders on why it’s getting into the asset-management business.

LSE has trailed rivals such as Deutsche Boerse in providing derivatives to investors. Owning an index operator would make it easier to provide futures and options contracts based on different gauges.

The challenge in the index industry is that “branding is all important. If you want to offer retail product, you need brand. You can create something new. But if investors have never heard of it, the hurdle is almost insurmountable,” Rolet said on the earnings call.

That’s where the Russell indexes come in: They have pretty powerful name recognition.

They would help “move forward” the LSE Group’s booming index business, said Morningstar’s Ceron.

Peter Lenardos, analyst at RBC Capital Markets wrote in a note that “a potential acquisition of Russell’s index business makes both strategic and financial sense.”

He said combining Russell and FTSE “would propel LSE Group to the No. 3 provider of indices to ETFs (exchange traded funds) globally, behind S&P Dow Jones and MSCI, would add more recurring, predictable revenue, and would allow LSEG to fully penetrate the U.S. market, where half of the world’s assets under management resides.”

Russell Investments attracted interest from suitors including Blackstone Group and Bain Capital, people with knowledge of the matter said in March.

The business may fetch about $3 billion, according to two of the people, who asked not to be identified because the talks weren’t public.

Northwestern wants to keep it whole rather than split it up, two of the people said in March. But LSE hasn’t specified whether it’s interested in all or part of the business.

The London Stock Exchange Group traces its history back to 1801. It employs about 2,800 people worldwide and owns the eponymous stock exchange, one of the world’s oldest.

It also operates other exchanges where equities and bonds are traded, such as Borsa Italiana in Milan.

Russell was founded in Tacoma 1936 and transplanted to Seattle in 2010. The fact that Northwestern is now negotiating only with a suitor that may be interested only in part of Russell’s business could stoke uncertainty about the future of some of the company’s 1,800 employees.

Material from Bloomberg News is included in this report.

Ángel González: 206-464-2250 or On Twitter: @gonzalezseattle

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