MSCI Inc. (MSCI) Earnings Call Transcript & Summary

Okay. Thanks for joining. Thanks, everyone on the line, and welcome to this fireside chat with MSCI. It's my absolute pleasure to introduce Andy Wiechmann from MSCI, Group CFO. Andy, thank you very much for this opportunity.

No. Thank you, Russell, for having me today. I'm very excited to be here. And thank you all for joining.

It's our pleasure. And we're going to spend the next 50 minutes or so focused on the growth outlook for MSCI across the various business lines. [Operator Instructions] Andy, maybe let's jump by starting with the Index business, I guess is where we might be able to start. Many different avenues for growth here. Maybe just to set the scene, what are the 1 or 2 areas you're most excited about with respect to future growth potential and why is that? Derivatives, factor investing, ESG and climate investing -- excuse me, indices? What sort of avenues of growth excited you the most business in the Index business?

Yes. You are highlighting a number of the very exciting areas for us, and we are excited by all of them. The very exciting thing about what we have built on the Index side is that it has many different layers of growth. Sometimes I refer to them as dimensions of growth. And so you touched on a number of these, but it's worth underscoring we have dimensions of growth across client segments, and there are huge pools of investable assets which are growing rapidly, where we've historically been smaller. And those are areas like broker-dealers, hedge funds, wealth managers, insurance companies. And we see enormous growth on top of the more established segments like asset managers and asset owners where we continue to grow at very nice growth rates as well. We have dimensions of growth across asset classes, most notably, probably fixed income is an area that is a large asset class and a place where we historically have not had a presence. And we're starting to get some traction there, and that could be a massive opportunity for us, which we're very excited about. And then we have dimensions of growth across investment wrappers or investment vehicles. So as you alluded to, areas like derivatives, institutional passive products, direct indexing platforms, and those are on top of the areas where we have a stronger position today like active management, ETFs and mutual funds. And then the other area you touched on is content areas like ESG, climate factors, thematic indexes. And if you held my feet to a fire and forced me to pick one, which you are doing in this fireside chat, I would say probably ESG and Climate is an area that is very exciting but also transformative for us. And so a number of those new dimensions of growth that I touched on where we've historically been small and had trouble penetrating, ESG and Climate is allowing us to unlock many of those opportunities. And so the combination of our established Index franchise with our leading position in ESG research and ratings and our rapidly growing climate tools, and as a result, now our ESG and Climate Indexes, we are driving strong growth across nearly all those dimensions I highlighted. Just to dimension it, our ESG and Climate Index run rate is now $140 million. We have over $210 billion in equity ETFs linked to our ESG and Climate indexes. There's over $35 billion in fixed income ETFs linked to our and our partners' ESG and Climate indexes. And there is well over $400 billion in other index-linked products beyond ETFs that are tracking our ESG and Climate indexes. So it's an area that is large for us already but we believe can be very large in the future.

Yes. I mean, just maybe drill down into fixed income a bit more. I mean, I think finally we've done a few of these in the last couple of days and hearing the responses from [indiscernible] friends areas of growth are not dissimilar. Particularly in fixed income, that's a constant theme. I wondered if MSCI and, like you say, historically not being your area of focus, but I wondered if you could talk to how do you see the competition within fixed income indexation. And does MSCI have the necessary sophistication and the data to compete with the large incumbent players in that space now?

Yes. It's a good question in an where I'd say it's probably a mischaracterization to say we haven't been focused on in the past. We have been and we've been unsuccessful. Actually, there have been at least a couple of times where we have unsuccessfully tried to compete directly with the well-established fixed income index providers. I think we learned through those attempts that it is very difficult to compete with them even if we think we have a better approach or a better methodology and even though we have a well-established equity index franchise. They have very well-accepted standards that are very difficult to replace and unseat for many of the reasons we appreciate, know well on the equity side. The other point that we've really come to appreciate is it's probably difficult for us to meet the same economics as many of the large, well-established players who oftentimes have leading, evaluated pricing and terms and conditions, data sets that underlie the indexes and they're able to monetize those together with the indexes. And so we have learned painfully, and it's not only through fixed income indexes but many other areas within Index. That we need to lean on areas where we have sustainable competitive advantage and where we know there is unserved market demand. And as I alluded to in your prior question, that's in areas like ESG, Climate and Factors. And so we are, firstly, deciding to work with the incumbents to unlock value for both of us. We recognize they have very strong index franchises in the fixed income space. We have very strong ESG and climate franchises for ratings, research data used heavily by fixed income investors as well. And so we are partnering with those large, fixed income index providers to launch ESG versions of their flagship indexes, and those have been getting some nice traction. And we've developed these very mutualistic relationships. It's not too dissimilar from everything we do where we are open-minded about who we work with. If there's an opportunity to create value for us and our partner, we are usually very open to it. We have also launched proprietary indexes in areas where there are not established players, most notably in Climate and Factors, and those are feeding off the established climate franchise that we have and -- or the emerging climate franchise that we have as well as our factor analytics franchise. And so fixed income indexes are becoming a valuable component of our broader fixed income tool ecosystem. And so as I alluded to, they're not only attractive opportunity in their own right, but they help reinforce what we're trying to do on the fixed income analytics front as well as the fixed income ESG and climate insights front. And we think these collectively will reinforce each other to create enormous opportunity and arguably the largest asset class out there.

Definitely. Operationally makes sense. Can I also just ask in terms of both private assets, you're actually doing up a business there, too. Is there an opportunity to leverage the data out of private assets, it within private assets that you've acquired into the Index business for private asset indexation? Or is that still very immature and growing market? What are you doing there?

Yes. Well, there's a couple of dimensions to that. There are, for sure, opportunities to create indexes. And many times, we will call them benchmarks, performance benchmarks for the private asset space. There are not well-established performance benchmarks across most private asset classes. And if you look at our real estate business today, a large part of the value that we're delivering is indexes or benchmarks that describe how the market is performing. So the market index can tell you how property values are shifting and different markets and why they're shifting in different asset classes. And they can also be used in a performance benchmarking sense to describe how a manager is performing relative to their market or relative to other funds or other peers. And so absolutely, we have ambitions to do that across private assets, assuming we can get access to the data and oftentimes work with the right partners to be able to do that. And I think we're doing it and probably a leader in real estate today. We partner with a player that has a very compelling offering in the private equity space, Burgiss, but they -- Burgiss also gets access to data across other private assets. And so we hope, over time, we can continue to broaden our suite of private assets, benchmarks or indexes. And we know there's big demand for it from the big investors in private assets, which are asset owners, pension funds, sovereign wealth funds, endowments foundations, who are also our clients in other areas. I would say getting access to the data, and we've seen this in real estate, also allows us to enhance the public benchmarks or indexes that we have. And so we do use some of the real estate insights and data that we get to enhance some of the public real estate products that we have out there, index products that we have out there. But it's also even used to launch things like risk models. So -- and that sits within our analytics product line, so things like a private real estate risk model, private equity risk model, private credit, infrastructure risk models as well as things like credit and liquidity and income insights and analytics. And so there is an enriching wealth of opportunities that we have not only within discrete private asset solutions but also within the existing segment capabilities that we have.

Definitely, want to come on to me and talk about that in a bit more detail in a second. Just sticking on the Index business for a second. You generated 76% adjusted EBITDA margin in '22, if I'm not wrong. Where do margins cap out in this business? I'm conscious that would be one of the -- as if it was a stand-alone business, one of the highest in the S&P 500 index. So where do you think the margins cap out in the Index business? And why, I guess?

Yes. It is important to your point about as a stand-alone business, it would be a relatively high margin or extremely high margin. It is important to keep in mind that this is part of our broader franchise. And so it's important to underscore that Index -- our Index segment benefits meaningfully from the content capabilities and client footprint that we have in other segments. So our Index segment, we like to say, is a net beneficiary of the tremendous franchises and oftentimes the C-level relationships that we've built across other areas. There are costs and investments that we're making into things like ESG and Climate and factor models that ultimately Index benefits from as we build those franchises, as I talked about in one of your prior questions. And we don't have cross-segment royalties for use of IP from other segments. We view it all as MSCI IP that can be shared and used by any part of the company to unlock value. On the point of margin trajectory, we do, as I alluded to before, seek tremendous opportunities across all the dimensions that we talked about. And our focus right now is really investing and continuing to invest. And so it's investing in sales and client service to drive growth in many of these new segments but also enhance the value and service that we're providing to existing clients with the existing indexes. But we're also investing heavily into research, data, technology, our product organization to support a faster pace of new index launches, innovation, particularly in areas like client-designed indexes or nonmarket cap indexes where we see tremendous demand. And you can see this in our long-term targets where the revenue -- long-term revenue growth target is in the same ballpark as long-term expense growth target. And so while the margin may fluctuate up and down with AUM fluctuations and FX movements and broader firm expense actions, we generally are not projecting significant additional margin expansion in the segment. And that's really a reflection of our interest in continuing to invest in growth and deliver value to our clients.

And does that margin comment pertain to all divisions or simply just the Index divisions as there is [ not ] expecting margin expansion?

Yes. I mean, you can see from the long-term targets, there are some areas where we are expecting some margin expansion over time. You've seen it most notably in the Analytics segment. And I think a lot of it boils down to, leaving aside some of the FX factors at play, capitalization factors at play, broader expense actions at play, it boils down to our, what we call our internal capital allocation process and where we are prioritizing investments, and so areas like Index, like ESG and Climate, we are very much prioritizing reinvesting the growth in the business to fuel longer-term growth. And there are some areas like Analytics where we're not investing as heavily. And given the size of the Analytics segment and the cost base, that can help lead to the overall MSCI margin expansion.

Great. And then just in the Index business again, the dreaded topic of self-indexation, if I may. How much of your passive AUM tracking MSCI's indices come from the leading ETF providers, I mean, BlackRock and Vanguard, particularly.

Well, I think there are probably 2 questions there. So on the self-indexing side, maybe I can take that first. And this is probably a bit pedantic of me but self-indexing is a bit of a misnomer. I'd say most ETF providers do not want to produce their own indexes. It's oftentimes quite difficult to produce and maintain a global index suite, especially of quality. And further and this is an important point, it creates conflicts and other regulatory challenges, particularly outside the U.S. And so we believe generally, the category is probably best described as a low-cost indexing. And there are a number of low-cost white label index providers out there that can produce and calculate and maintain indexes at a very nominal fee. And related to that, I think there are going to be, and this is probably what you're getting at a little bit, there are large parts of the ETF market where the ETF provider is competing on and differentiating on their mass retail brand and distribution and ultimately, a low-cost offering. And so cost is a key component of their differentiation. In those cases, the index provider becomes a cost center to that value equation. And we believe in that instance, the index provider will not have meaningful sustainable long-term economics. And so those tend to be the areas that we shy away from, and we're probably not going to -- for what we charge, we're not going to add the value necessary to those ETF providers. However, there are very large, very fast growth parts of the ETF market and in particular, also the non-ETF passive market, where the quality of the index really matters. And those are the areas where we tend to focus. We like to refer to ourselves as a revenue center for our ETF partners. We believe our indexes help our ETF partners to attract assets that care about the underlying indexes, and as a result, enables them to provide to not only attract assets but ideally charge higher fees, ultimately on the products that they're issuing. And so that's driven -- that value that we are creating for them is driven through our industry-accepted high-quality frameworks and standards that we've created. The $13.5 trillion of assets that are benchmarked to our indexes, and ultimately, those assets are sticky to the underlying benchmark. But it's also our leadership and high growth, high demand areas like ESG, Climate, Factors, Thematics, where we see tremendous growth in passive assets and where we have leadership. And so on all those fronts and for all those reasons, ETF providers want to work with us because they recognize we will help them attract assets and sticky assets. And so that's why we say, we're a revenue center to them. And the way we like to characterize it internally is the barriers to entry in the index space may seem low, but the barriers to quality and value creation are quite high. Your second question about BlackRock and Vanguard. We have very strong partnerships with both of the 2 big players. Just specifically AUM in BlackRock and Vanguard ETFs linked to our indexes represent close to 75% of total equity ETF assets linked to our indexes. And so clearly from that, they are major partners. And we've disclosed quite a bit about our strong partnership with particularly iShares. But I do want to highlight we have strong relationships with a long line of dozens of other major ETF providers as well. And so we are in a unique position to create value for most of the participants in the indexed and vesting space.

Yes. Okay. That's great. That's 2 of my questions answered in one. I certainly agree with you both in terms of the gray area of someone doing and managing their own index. Are you seeing an increasingly competitive environment in the index space, which potentially capture ability to reprice? And how much is your growth actually price-driven in this -- in terms of your overall growth?

So I think you're probably referring to you on the subscription side, the index subscription side?

Subscription side, yes.

Yes. Okay. So I did mention recently that price increases are generally higher than they have been in recent years. In the past, we've said that price increases represent about 1/3 of new subscription sales. In recent quarters, it's been closer to the high 30s, even 40%. And so while price is a meaningful driver of the overall subscription sales and growth, I do want to underscore that we are heavily focused on adding value to our clients in connection with the price increases that we deliver. We recognize many organizations are feeling pressure, given the environment and the broader market pressures. And we also importantly recognize that our future growth is going to come in large part from doing more with our existing clients. And so as a way to continue to differentiate relative to competitors, while we are doing price increases, we are always focused on enhancing and expanding the existing modules that our clients are getting but also continuing to innovate with new content and modules that are making our clients more effective. And very often, especially for many of our large clients and as we grow with clients, we oftentimes combine the price increase equation with doing more for our clients in terms of licensing them more. And so oftentimes, we can give them access to more modules at a discounted value or more usage of existing modules across broader parts of the firm at discounted values. And those discounts can step down over time, and those can be the ways that we get the price increases. And so we want to be very thoughtful about how we do it, and we want to do it in a way that is constructive for our clients and hopefully creates value for both of us over the long term.

Okay. And then just the second part of the question in terms of the competitive threat, is that increasing, staying the same, decreasing? I get sense from talking to some of your peers that are more aggressive in the market, trying to build market share right now. Just wonder what you're seeing.

I'd say we haven't seen notable changes, any that I would call out. I would say to your point that the competitive dynamics do fluctuate from time to time. We've seen some competitors being very aggressive. At times, as we see some competitors, and this is not new, we often see competitors who try to enter with extremely low cost. And that's their value proposition. And so those do fluctuate, and I think given the current pricing environment, there might be some that are trying to do that. But I think ultimately, we are focused on that value equation and ensuring that we're delivering value for any price increases that we are rolling out. And so you can see by our retention rates and index, we continue to have a very strong position with our existing clients and on the new business on the growth side, continue to get strong traction.

Okay. Let's perhaps move on to the Analytics business, delivering a good growth rate back in the -- at the end of last quarter. Are you seeing increased demand for your models and your data and your solutions there in terms of driven by, I guess, an increase in the number of risk factors that asset owners and asset managers need to manage for in the current environment?

Yes, is the punch line, and I'd even broaden it to say that we're seeing strong demand for our risk models and our risk management tools because of the volatile environment. And so to your point, market factors, factor rotations, repricings, all those are playing a meaningful role in asset flows. And ultimately, market valuations. And so investors are definitely heightening their focus on understanding risk, understanding factor dynamics. I think our leading position in providing equity risk models and increasingly our leading positions with not only our equity risk models but our multi-asset class or fixed income, some of the private asset risk models I alluded to earlier, all those are allowing us to capitalize on the strong demand and focus right now by helping our clients navigate some of these shifts that are taking place in the market. And specifically, you alluded to asset owners, even managers evolving in terms of their factor thinking. That creates additional opportunity for us. So as factor investing evolves and our tools continue to evolve to include new factors, new ways to think about factors, that creates upsell opportunities for us. And that's even starting to dovetail with areas like ESG and Climate where we now have ESG and Climate factors incorporated into our risk models. And so that's not only creating opportunities with existing clients for upsell but oftentimes unlocks opportunities with new clients that historically didn't like our very geeky quantitative factor models. And so we have made efforts to try to make them a little bit more palatable and digestible to a broader investment community. I would say that we also are making our models and our broader analytic content more accessible and easier to use, which is probably also fueling this. And so we've been leveraging more modern APIs, Power BI, relatively simple. But to my primary point, they kind of change how clients interact with our content Power BI Dashboards as well as access to our models via Snowflake, which we launched very recently. So we continue to see big opportunities on the factor side of the business.

Yes, okay. And then I guess what I was getting at in terms of the harder question there was, how structural is that growth rate that was delivered in Q3? Or is that more just cyclical due to the high volatility we've seen in the market?

I see. So I would say we are encouraged by the growth we've been seeing in Analytics. And the places where we've had success are the areas where we have been investing and where we have been keenly focused. And those areas are probably most strategic not only for Analytics but for MSCI more broadly as a firm. So it's success in the areas I highlighted, which is front -- I'll call them more front office tools, and that's a client base that is very strategic for us. All those factor opportunities are generally geared towards either a portfolio manager or a CIO. In certain instances, Chief Risk Officers as well. But those are areas that we have been investing and we're focused. And so it's encouraging that our investments and focus are leading to success. There's definitely a cyclical factor there, but it's also, to a certain degree, our investments more broadly across Analytics. The success we've seen in middle office is on the heels of the partnerships that we've created with firms like Charles River. We've definitely unlocked some opportunities there. And also on the Climate Lab Enterprise front, which has been in the market now for a year and still small for us but it's gaining real traction. And so we do believe there are some strategic successes there that are fueling the growth. There probably are some cyclical factors helping it. And I would say we're not declaring victory here. We know that there are certain parts of Analytics that we're not investing as much in. And we also know, given the breadth of clients and use cases across Analytics, it can be lumpy. And so we do -- we are cautious on the outlook. And think it could be lumpy going forward, but we're encouraged longer term that some of these successes that we're having are in those areas that we're focused on.

Okay. And then I wanted to ask, do the -- do all new sales and existing customer relationships come because of cross-sell from the Index business? And how much of that, how much is the overlap there?

There tends to be a pretty heavy overlap by organizations, mainly because our Index client base is so broad. We serve many, many organizations globally. I'd say almost all major investment organizations globally are Index clients and so there is an overlap. There can be natural linkages and cross-sells. As you'd imagine, the linkages between our indexes and things like our analytics tools that we're just talking about, particularly our factor models as well as our ESG and Climate tools can be quite significant. And so that leads to some cross-selling. Although I would highlight that oftentimes it goes the other way. And this is not necessarily landing a new client logo or client organization. But generating a significant upsell on the heels of our Analytics franchise. And so very often, we have more strategic discussions with our large Analytics clients that can lead to these Index opportunities. And so especially with some of our enterprise solutions and analytics that are used by a CIO or a Chief Risk Officer and where we're sitting on every single position of their organization and the details of those positions, we can often engage in these more strategic conversations to help them understand how indexes as well as our ESG and Climate tools can be used to help them achieve broader investment objectives. And so that underscores, I think, another angle of why Analytics is such a strategic capability for us because it does allow us to engage oftentimes with the C-level investment professionals. And naturally leads to opportunities across other product segments for us.

And in terms of opportunities for other product growth, we've seen some competitors make heavy investments in both the portfolio management system offering and their execution management system offering. I was just wondering, do you think MSCI has disadvantages by not having an execution management system and sort of trained analytics offering for dealing this, is not a potential kind of area for growth?

Yes. We -- I would say on those 2 capabilities, so portfolio management, execution management, we don't really lose a lot of business because we don't have those capabilities. And I think you alluded to this. Typically, those capabilities are much more relevant to a trading desk. And we do some. We provide risk tools and other insights to trading desks. But generally, we're serving more of the investments, organizations. And so in those parts of the business they're not as much focused on PMS and EMS. But I think if I can broaden your question, I think you might be getting at this. There are some competitors that incorporate a much broader suite of services in their value proposition. So they have things like data management, accounting, order management as well as EMS and PMS and risk and performance management. And so their value proposition, oftentimes, is to help clients replace multiple internal and external systems and often teams that support those systems as a way to find significant efficiencies. That is something that we do occasionally run into. Although I would highlight that we remain a best-in-class analytics provider. And so given how important risk and performance management is to the investment process, we oftentimes will coexist with those providers, those broader providers. As the clients view our capabilities as mission-critical to what they do day-to-day, and while they want to save money, they're going to do it more in the, I'll call more workflow technology areas or kind of back-office type areas. I would say, and I alluded to this in the prior question, we've also partnered with leading workflow systems providers to help our clients get the benefits of seamless integration across systems. And I alluded to Charles River earlier where we have had some strong success with them, where if a client wants to use Charles River's order management and data management and broader capabilities together with our risk and performance management, it's a much more seamless process for them to use both tools. And so they get efficiency benefits and best-in-class capabilities, and that's an area where we have been having success and it's an area where we will continue to focus. And more generally, as technology evolves, we are making -- exposing our analytic engines, our analytic content through these modern APIs that will just make it much easier for clients to interact with everything we do and not have to go through multiple intensive system implementations. And I think that's something that over time will definitely become -- I think, allow us to further our competitive advantage on the quality front relative to some of these threats we see in organizations just trying to save costs.

And I wondered, if I could, you started to talk about this earlier, actually. If you can maybe lay out for us in terms of the product offering for private asset investing, what are you doing there? And what are the kind of significant areas of growth for MSCI within the Analytics business pertaining to private asset investing?

So yes, let me tackle it from 2 dimensions, and as you alluded to, I touched on this a bit earlier. We do see significant opportunities to deliver specific tools for the private asset space. Those tools end up looking very similar to what we do in the public asset space. And so we have, as part of our real estate offering today, as I alluded to, we have a suite of benchmarks and broader indexes to understand the real estate market. We have effectively a performance attribution service on top of those indexes so we can help either a manager or an asset owner understand why their portfolio is outperforming or underperforming the market, and what is driving their outperformance or underperformance relative to the market. So it ends up looking very similar to what we do in the Analytics side, but this sits within our private asset segment and we're serving private asset investors. And the approach is slightly different, just given the nuances of the market. But we are launching things like, I alluded to this earlier. Income, insights and analytics. So helping investors understand where they might be exposed to tenant risk or lease renewals and broader market movements, helping them understand the other dynamics and performance attributes of the market, funds, managers, helping them understand the value that managers are providing. And then also starting to launch some climate insights where we're get real traction for private asset investors and private real estate investors. And so as I alluded to, these are all things that exist in the public markets. It's part of the reason we're so focused on private assets. We know the investors in these GPs and in the private asset space are craving these same tools they get in the public space. And nobody is really focused on solving those problems or delivering solutions to help them on those fronts, and that's where MSCI steps in and where we see a big opportunity. Now within the other segments, I alluded to earlier on the Index side, we do get some unique real estate insights that help us generate public equity indexes and be smarter about the REIT space. But also on the Analytics side, we have used our unique access to data and market information in the private assets, both through our private real estate and infrastructure data but also in partnership with Burgiss, given the unique data they have to areas like private equity to create risk models. And those are very differentiated. Those products really don't exist in the market, at least not at the same quality level that we have. And so private assets, we believe, is a massive opportunity in its own right. And we hear that from the world's largest investors who we serve, who are allocating more to private assets. But it's also a capability that's going to reinforce our value proposition in the other segments that we have at MSCI.

And there may be some overlap with the answer you've just given, but in terms of your expansion with insurance companies, it's something you mentioned before and something you mentioned in your investor presentation. The insurance companies are an area of potential growth for MSCI. Can you explain exactly what MSCI looking to offer here and what the competitive advantage is currently with that client base?

Yes. And it touches on, as you alluded to, some of the discussion we had around fixed income. So as you know, insurance companies have a significant portion of their investment portfolio in fixed income securities. And so even though insurance companies are one of the largest pools of investable assets, I think it's around $30 trillion at least of assets within the insurance space. And those are investment assets. We have a much smaller presence with them. And I think a lot of that's attributable to our historical focus on equity and multi-asset class analytics solutions. But on the heels of the significant investments and progress that we've made in building out our coverage of fixed income instruments, the quality of our curves and models as well as broader capabilities in areas like liquidity and performance attribution, in other areas that are very relevant for fixed income investors, we now have quite a formidable, fixed income analytics offering. And that has enabled us to unlock meaningful opportunities with the investment teams at these organizations. I would say in addition to winning some analytics opportunities with the investment management teams, we are getting traction with insurance companies across areas like climate. And this has been, in part, fueled by growing regulation on this front of insurers as well as on the Index side. And so we're getting traction with our fixed income indexes, but also more generally as they are launching things like index-linked annuities and they oftentimes want some ESG or climate component of it. And so we're very excited about the insurance opportunity across all those dimensions. And with areas like ESG and Climate, it's not only the investment teams that these insurance companies but also even the general account that we're starting to serve. And so we believe this could be a massive long-term opportunity for us, particularly on the heels of our emerging fixed income franchise but also with our ESG and Climate franchise.

Yes. Let's jump into the ESG and Climate business, if I may. Starting off with -- starting with just a high-level view, really, if I can, on the growth outlook for that business. The growth slowed from I think 51% last year to 32% in Q3. You spoke on the conference call about new sales potentially being quite lumpy in that business. But just more broadly, I mean, how are you thinking about the [ fade ] rate of growth in that business as this industry matures?

Yes. Well, firstly, I would say we remain very bullish on the long-term opportunities for ESG and particularly, Climate, which we profiled in our third quarter earnings call, which continues to charge forward at a very rapid growth rate. I would say the opportunity and the growth rate is dynamic. As you alluded to in Q3, we did see some softer sales relative to recent quarters. We think there are some environmental factors at play as we saw fewer large ticket deals and we saw several deals pushed. We do see some caution related to the environment from some of our clients. That's not only the case in ESG and Climate but it's across all segments. I think it's just natural and we've seen this before. When you have sustained equity market pullbacks, you do see caution from clients. And we've seen some of that show up in ESG and Climate. I do want to highlight also that the Q3 figure you mentioned is skewed a bit by FX. If you look at the growth rate adjusted for FX, we delivered run rate growth of 42% and revenue growth of 46%. Now we do recognize that the subscription sales were a bit softer, but just the headline growth figures, especially if you're comparing to competitors, continue to be quite high. Taking a step back though, if you look at the big picture, there are very exciting, very large ESG and Climate opportunities for us across so many different layers. And this is another area where you can use the term dimensions. Dimensions across product areas, client segments, users, use cases, asset classes, regulations, geographies. I could even go into other dimensions. But things like pending regulation can actually delay sales. New regulations can be a catalyst for sales. The level of penetration, and this is probably what you're alluding to, the level of penetration in certain offerings can impact the growth rate but also the level of traction in new products and client segments can also affect the growth rate. I mean, you have seen the growth rate fluctuate over times. Though over time, as we have launched new solutions and the market has evolved in their thinking, the historical offering for ESG and Climate segment was a screening tool. And if you dial the clock back 8 years, the business was growing in the 20% type range. And it, over the last 4 or 5 years, accelerated up and you've seen in the recent quarter, it came down slightly. And I think you will see the growth rate fluctuate. As certain areas get more traction, other areas become more broad. I think there's going to be a number of competing dynamics that play out that will cause that growth rate to just continue to fluctuate. But I wanted to underscore, we don't hear a client saying they care less about it today. In fact, we see them continuing to evolve in terms of how they use and incorporate tools into their investment process. And we believe the long-term opportunity is really massive in the space. I do want to underscore, as I've alluded to at the beginning, Climate continues to be growing at a very attractive growth rate and becoming a more meaningful contributor. And so that will likely become a larger and larger contributor in that. That is just an example of how different areas, different product areas will contribute more or less and ultimately cause the growth rate to fluctuate over time.

Okay. And then maybe, could I probably talk to how proprietary is the data? And I'm thinking particularly in Climate, which you just mentioned, how is your product offering better than peers because lots of people are talking to how good their climate data is, how big their growth is. So just wondering how -- what makes your offering better than some of your peers?

Yes. I would say that underlying data is, for the most part, not truly a proprietary. I would say our value proposition and competitive advantage lies in the breadth of the underlying data, the quality of that data and the manner in which we normalize, standardize, ultimately interpret that data to derive insights and investment signals for our clients across a broad range of solutions that support many different ESG and Climate and sustainability objectives. And just to double-click on that, we collect data to support ratings for nearly 17,000 equity and fixed income issuer entities across the globe. That data is sourced from everything from governments, regulatory, NGO data sets to company disclosures, both mandatory and voluntary filings. We scrape and actively follow new sources and obscure information databases, and we do incorporate alternative data sets as well. And so we have a very robust process for gathering the data, which leverages both a large team of data professionals with expertise across both industries and subject matters, together with enhanced cutting-edge NLP and machine learning technology that both makes it more efficient to collect this data but also enhance the quality of the data and normalize and standardize it. I would say, given the varying levels of disclosure across companies and geographies, we have processes to make the data and ultimately the interpretation of it standardized. And that is a big area where we add value. And we further use partnerships to enrich the data as well. And so we've worked with firms like ELEVATE to get access to supply chain data and GeoQuant to enhance geopolitical risk data. And I would -- the last point I would make on the data front is we also benefit from, given our leadership position, strong issuer response rates to the data we're using. And so we share with issuers the data that we're using to develop the insights and the ratings. And a larger and larger percentage of those issuers are replying to us and pointing out where we might have a stale data point or might be missing a data point. And that's something that reinforces the quality of what we have relative to other providers out there. And then ultimately, we have the strong researchers, well-established frameworks and because we are focused intensely on the investment process, translating this unique data into insights around how sustainability considerations impact risk and return, and that is something that is very differentiated relative to other providers out there.

Yes. And then I wanted to pose a question around, if we get to the point of which you thus seem we're moving quite quickly in this direction. Standardization in respect of the data output from a corporate perspective in respect to ESG, such that we can all go into a 10-K equivalent filing and core data from corporates in respect of ESG and Climate. I wondered how that then leads MSCI's rating products because then we can all go and pull that standardized data, but it's through our own internal field system. And everyone should therefore have their own proprietary ESG rating such that there is perhaps no need to go consume an ESG rating product from an MSCI or a peer. So therefore, in that situation, perhaps the value to -- or the growth in respect to ESG and Climate more sits on the corporate side and not potentially on the asset management side. I just wanted -- what your thoughts on that. That's one simple scenario, but I just wondered what your thoughts would that be on that, given MSCI's weighting towards asset management and less towards corporates in some of its peers.

Yes. Yes. For sure. That is the case. I guess following on the comments I just made your prior question, our value proposition is much more than just collecting certain data sets. And in fact, we've publicly advocated for standardized reporting of key data points like emissions data. We actually think this standardization will enhance the accuracy of our models and ultimately, the insights that come from the tools and ultimately, allow climate and ESG considerations to be more effective within the investment process, which we think is good. I would say, while we agree there is likely more standardization in reporting coming. It's unlikely that those will be consistent across countries. And our insights and tools are based on a lot more than just 1 data set as well. And so there is going to be a huge value add to normalizing data, filling in the holes for data that's not reported in certain regions as well as there's going to be -- the required disclosures are going to be in very standardized subset of areas. To get proper insights, you're going to need to supplement it with these dozens, if not hundreds of additional data sets and data points to fill out the picture, and then ultimately, the interpretation and comparison of it across companies. And importantly, regulation is very unlikely to apply to both private companies and non-equity securities. And so ultimately, our ability to cover, glean insights, collect data across asset classes, across geographies, across public and private companies on a quality basis and then creating useful tools from it is not going to go away. If anything, we think it will be enhanced. And so it's not something that we worry about. As I alluded to, we're advocating for standardized reporting. On the corporate opportunity, the only thing I would point out because I know we're coming up on time here, I agree there is an opportunity there. You see many other ESG and climate providers benefiting from serving corporates and helping them develop their emissions footprint and Net Zero strategies. That is not our primary focus, although we do -- going back to my comments earlier about partnerships. We do work with many advisers and consultants who are serving the corporates. And they're licensing our data to be able to help them on those journeys. And so we can benefit on those opportunities even if we're not directly serving those corporates through much more of a service -- high-touch service model. And I think there are a number of areas where we'll continue to touch corporates, both directly and indirectly, that there will be a big opportunity there but we think a massive opportunity also with investors. This is something that's going to continue to grow in its focus and importance, and we are uniquely positioned to help the investment community on this front.

Just want to squeeze one at the end, if I may, just around your Private Asset business. I mean, we have spoken a lot about -- in the conversation, in our discussions around the other businesses. But what does growth look like in this business going forward? Is this an area where you're going to be adding further capabilities? Are you investing in it now because you see further opportunities further down the line? You've been hugely successful and always being ahead of the game in terms of product innovation. Are you investing in private assets now because you see the 3, 5 years down the line, this is where all the big growth is coming in, in analytics and indexation and there's big links to ESG? And you're -- we're going to see you do much more here, both organically or inorganically? Just maybe if I can just also breath-hold and ask you to talk about that quickly before we...

Yes. It is a big important topic, so I'll try to give you the summary version of the answer here. But yes, absolutely. The reason that we are focused on it, both organically but also inorganically, is we see asset owners. And I alluded to this earlier, allocating a larger portion of their portfolio to private assets, paying oftentimes the majority of their fees. So the majority -- and oftentimes, a large majority of the fees that they pay to managers are going to Private Asset managers. And they don't have basic tools and insights to understand where the return is coming from, how the risk of those investments correlate with other investments that they have or even just more narrowly, understanding what drives the risk of those investments. And so they're looking for basic insights and tools to understand what drives value, how managers are adding value, what's driving the markets, how do those markets perform relative to other markets. And so that is where MSCI can step in and deliver solutions. Now it requires unique access to data. The nature of private markets is the data is now public. And so we have been successful in starting to gather that data. But it will be a long journey, but we're confident there is a massive opportunity there. And we are really the only ones focused on developing these types of investment decision tools for the market. And so we're very excited about it long term. It will be a bumpy road along the way, but we're confident there's going to be a massive opportunity, and MSCI is uniquely suited to fill that opportunity.

Andy, thank you very much. And yes, we've got runover a couple of minutes there. So thanks for sticking with us, everyone on the line. And if there are any questions, please send them our way and we will fulfill it on to Andy. But Andy, an absolute pleasure, as always. Thank you very much for your time and thank you to the IR team for helping set this up.

Absolutely. Thank you so much for hosting us, Russell, and thank you, everyone, for joining. Appreciate it.