MSCI Inc. (MSCI) Earnings Call Transcript & Summary

Hi. Good morning, everyone. Thanks for joining us, and happy Friday. My name is Kelsey Zhu. I'm the information services analyst at Autonomous. With me on stage today, we have Mr. Andy Wiechmann, who is the CFO of MSCI. Thank you for joining us today, Andy.

My pleasure. My pleasure. Thank you for having us.

Yes. Andy, why don't we dive in, I think top of mind question for every investor right now is basically your long-term ambition for the Index business is to achieve low double-digit type of growth, yet we're at high single-digit type of growth right now. So maybe just talk us through some of the key growth drivers to see that growth reacceleration for Index.

Sure. So you can't lose sight of the secular trends that are fueling our business. So if you look at one of the biggest transformations taking place in the investment process, granted transformations take a long time within the investment industry. But it's this move towards personalized systematic portfolios or strategies. Indexes are very, very efficient and effective means to implement a systematic strategy. And so you'll hear the trend of move towards passive, we say indexation and indexation is partially driven by that trend. The other thing I would highlight is our indexes are more than just indexes. They are tools. So we are licensing content sets that help investors understand what the investment universe looks like, understand how to segment it. It's the foundation for determining how you want to allocate across that opportunity set, track performance, understand what drives the performance and understand risk. So these are very, very high utility products that serve a multitude of use cases. And so the way we see that manifest itself in our growth rate is we're seeing tremendous opportunities in large pools of assets and large parts of the investment ecosystem where we have historically been relatively small. And so you're seeing growth with hedge funds where we're growing 22% growth with wealth managers, we're growing 16% growth with asset owners directly, which have always been huge influencers for us, but now are increasingly direct clients for us on the index side, growing 10% and broker-dealers growing 11%. So we have these meaningful opportunities where we are growing in the double-digit range. And then if you look at what we are selling to them, the range of solutions that we continue to deliver is opening up new opportunities for us. You'll hear us talk a lot about custom indexes and custom indexation. That's obviously one of them, but we're continually introducing content sets that help with critical parts of the investment process for this broader range of clients. And so there are tremendous opportunities for us, particularly as those client segments become a larger portion of the overall subscription run rate to continue to fuel double-digit growth into the future. We've been in a period here over the last couple of years where you've seen the growth rate with asset managers, active asset managers slow down. Obviously, there's been a secular trend going on with active management where you've seen muted flows and fee pressure that has been very acute over the last several years. Where in '22, '23, even much of '24, you saw outflows from active managers. And so you've seen the growth rate for us with active managers, our largest client segment within index go down to slightly below 7%. And obviously, that is a factor in determining the short-term growth for us is the health of that sector. But overall, we are doing more for them. We are doing more for the broader investment ecosystem. We have tremendous opportunities, as I said, across areas like fixed income, areas like additional content sets, customization. And so we continue to be very encouraged about the opportunity set that's going to fuel that double-digit growth for us well into the future.

Thank you, Andy. Yes, those are really helpful colors. One of the most common investor questions we receive is Index is a pretty established business, yet over the last few years, we were able to see double-digit type of growth. So maybe just talk us through some of the key growth drivers over the last 5 years.

Yes. I mean, to your point, it wasn't just last 5 years, there was a stretch of 8 years where we are consistently growing double-digit growth. And if you go back even to before that 8-year period, we were well established. We have licensed our indexes to most major investment institutions around the globe. And so to your point, we're established. We get the question, you're penetrated, where is growth going to come from. But as I was alluding to in the prior question, the utility of our products continues to grow. And we are -- you can think of almost the operating system for that investment process for many of these organizations. where, as I alluded to in the last question, for these investors to build a portfolio, to track the portfolio, ultimately decide on the bets that they want to make, our content is part and parcel with that. And so as they expand, we expand with them. And as I alluded to in the last question, we could do more and more for these organizations. And so over time, that's been licensing our content to more parts of the organization, licensing more modules as they move into additional investment strategies, as they start to look for more solutions and outcome-oriented strategies, we continue to license more content for these organizations. And so we increasingly become a partner to them, where we are helping them attract assets, helping them be more effective at their job, and we are helping them ultimately expand over time. And then on top of that, you see these big opportunities with parts of the investment industry where we've historically been small, but trends like the move towards model portfolios that you see in wealth management organizations. That is a move towards our bread and butter. That's what our indexes are used for by big asset owners like pension funds is developing those allocations for model portfolios. And so tremendous opportunities to license our content to wealth organizations. You see the trading community, so hedge funds, broker-dealers, trading firms, increasingly trading around the ecosystem of indexes. And so it's important to keep in mind that we are much more than just one index or a handful of indexes -- worth thousands, hundreds of thousands of indexes to achieve many objectives, that results in a rich ecosystem of trading opportunities for these firms. And so we see increasing demand from that fast money community, if you will. And then you're seeing in places like asset owners as they increasingly internalize and move towards a total portfolio approach, our indexes can be much more than just a policy benchmark or performance benchmark for them. So being penetrated or established in our mind is a good thing because we are that industry standard, and there's an ecosystem that's developed around it, and that creates opportunities for us to continue to grow with our clients.

Got it. Super helpful. And just thinking through that growth reacceleration, one question I had for you, Andy, is the strength in equity markets always translate to stronger new sales for MSCI. And in this context, we're curious to hear more about your expectations on timing for when the strength we're seeing in Europe will translate to better new sales environment for MSCI.

Yes. So there are obviously a whole host of factors that feed into the buying environment. I would say probably the biggest factor that feeds into business cycles, investment cycles, are clients looking to expand is confidence ultimately, it's confidence in the outlook and confidence in the stability of the outlook. And so to the extent you have sustained momentum in equity markets, importantly, for active managers, stability of flows and you have confidence that there's not going to be volatility or a change in direction, that's constructive to confidence ultimately in buying decisions. And so as I said, sustained momentum in equity markets tends to be a constructive thing to our client base and helpful to buying behavior. Obviously, as I said, there are a whole host of factors that feed into when you start to see that take hold, and it differs by region and it differs by client type and use case. But we have seen a period now leaving aside the last couple of months and particularly April, where we've seen some momentum and good momentum in the equity markets. Obviously, there was some caution that came in, in April and early May, but seems to be some stability now. You've seen actually some stability in flows to many active managers. All those things are helpful. But every company has a different budget cycle. Their buying behavior changes at different paces. There are different sales cycles for each of our products. And so it takes time to work through. As you alluded to, the dynamics are different geography to geography. And actually, we had seen in Europe, probably a slower rebound. Obviously, the recent momentum in Europe is helpful. You are starting to see capital flows and even early signs of fund formation in Europe. Those are all helpful things for us, given that we've been in a period of sustained flows into the U.S. market outperformance of the U.S. market. We benefit there. Our largest client base is U.S. investors. But our bread and butter is international investing. And so to the extent you see more international investing, that's also a constructive thing for us. So we're hopeful that sustained momentum, assuming there's not that extreme volatility that we've seen through April that results in caution is constructive to our clients' buying behavior.

Got it. And you mentioned international investing, which is a perfect segue to our next question. So the way I think about it, MSCI is the biggest beneficiary of international investing or global investing mandates in general. And in our research, we're constantly looking for leading indicators to some of these market movements. So in your seat, are there leading indicators you find helpful to track when or how international mandates or global investing mandates are gaining traction? Like is it just a function of geopolitics, GDP growth of these countries? Or what are some of the other factors that you point out to investors?

Yes. And as I alluded to, it's been a while since we have seen a sustained rotation in the international markets. It's really been an extended period here of outperformance and net flows into the U.S. market. So it's different in each cycle, and it has been a while. But things that you tend to see when you start to see those rotations take place is a depreciating U.S. dollar. So if there's a view that the U.S. dollar is going to have a sustained depreciation relative to foreign currencies, international investing is a good way to protect and benefit from the relative value of those assets in U.S. dollar terms, as you alluded to, views on the macro cycles, so the comparative business cycles or economic cycles of the various geographies. valuations. Now obviously, it can take time and unclear what the trigger is, but we've seen a period now in recent years where U.S. valuations are significantly above particularly European valuations. And so that's something that can lead to a bit of a rotation of capital. And so these are all things that we keep an eye on. We're not calling a rotation, but we have seen for the last couple of quarters that pendulum start to swing. Just looking at our -- the flows into ETFs, which is one of the earliest indicators for our business, which we watch, obviously, very closely. We saw in the fourth quarter and the first quarter, the highest level of flows we've seen since 2021 into equity ETFs linked to our indexes. If you look in the first quarter, we captured 45% of flows into developed markets outside the U.S. and emerging market ETFs. And so that's an area where we are capturing a significant portion of those flows that go into international exposure funds. That represented about $37 billion of the $42 billion of flows that we saw in the first quarter. Put that together with the fourth quarter, and we've seen $90 billion or so of flows into ETFs. So as I alluded to, very healthy level of flows -- and then we've seen that continue here in April and in May, where through April and May, we've seen around $30 billion of flows in those 2 months continue. And a lot of that is driven by capital moving internationally, and that's a place where we are well positioned. Now as I alluded to, you see that typically first in the ETF market. If you see that sustained over time, you'll start to see it more in the non-ETF markets, where you'll see more international mandates as institutions and allocators rebalance a little bit more internationally, and you start to see it also come through in active mandates. So the pickup in active mandates for international strategies as well. So again, we're not calling a rotation here, but it's something where it creates opportunities for us as an organization.

Got it. Super helpful. Another common investor question we get is maybe just talk us through what you're seeing in the competitive landscape between the major index providers. I think when I look at some of the market share data, especially by AUM, it's been largely stable by region. However, from a global perspective, there's always flows between regions, and that makes the market share number more murky. So maybe just talk us through what you're seeing and hearing from customers in terms of your market share by each region.

Sure. Yes. So we continue to be well positioned, and we see strength in winning new mandates in areas where particularly we have strength, but even around the edges, nibbling and picking up some wins and mandates in areas where we historically have not been. As you alluded to, there can be noise in any given period because of retail launches, a specific type of strategy in a country, you could see a one specific country where we might not have as strong of a presence, an influx of new active mandates. But overall, we have been showing strength, and we continue to show strong market share, particularly in the institutional market, but even across institutional and retail markets and particularly for international mandates, particularly in Europe. And then when you throw in ETF launches, we've got a pretty healthy capture of market share in new ETF launches, again, particularly in Europe. And so those are things that we track closely. We haven't seen any major shifts in the competitive dynamics with any of our direct competitors, and we continue to be confident in our positioning in those historically strong areas. But also when you start to see the industry evolve into, as we talked about earlier, custom type of mandates, that's where we can pick up some share over time.

Got it. And I want to circle back to custom mandates in just a second. Just on pricing. Historically, pricing would sometimes account for 1/3 of new sales growth. And I know in '22 and '23, we've actually seen 40-plus percent contribution to new sales for MSCI's index business. And in '24 and '25, I think that number has come down a little bit from '22 and '23 levels. So maybe just talk us through your pricing philosophy there, kind of your thinking behind more modest price hikes in the last 2 years as well as some of the medium-term strategic thinking on pricing.

Sure. Yes. So we're in the long game here. We know others at times have been very aggressive in increasing price. But we recognize that over time, we are going to generate more sales by doing more for our clients and these investment organizations than by taking a toll and clipping high price increases. And so we are very thoughtful about how we roll out price increases. We do, do it differently by client segment, by use case, by product area. And so it is a mosaic of different approaches that we have across the business that feed into those comments that we gave and what you're seeing in the net impact of prices. But the things that we are looking at typically and that govern the price increases are the value that we are adding. So to the extent we are enhancing a certain product, we're adding more functionality, adding more content to it, that's something that on the margin cause us to increase price a little bit more. And oftentimes, the clients recognize the incremental value that they are getting for the money that they are paying. We do look at client health, and that is a factor that feeds in. And so we want it -- to the point of playing the long game, we want to be constructive partners to organizations. And as I alluded to earlier, you saw this period in '22, '23, where in parts of '24 compounding effects of outflows on many active managers. And many of them have been in a tougher position. And so that's part of the reason we've been a little bit more measured in spots. We do look at the overall pricing environment. And so we saw a period of higher inflation as well a couple of years ago. And so that fed into our approach to pricing. And so we're going to continue to be dynamic about it. We're going to continue to be thoughtful, but we are also keeping our eye always on doing more for these clients. Upselling and cross-selling is more important over the long term than extracting maximum price. In many areas, we have the ability probably to increase price more than we do. But we are looking at the whole picture to make sure that we're helping our clients succeed. We're creating value for them, and we're capturing price increases that are commensurate with that value that we're adding over the long term.

So to summarize, your philosophy around pricing for the index division does factor into your ability to cross-sell and upsell certain client.

Over the long term, absolutely. I mean there are times when we will -- especially with our largest clients, a price increase discussion or price discussion when a contract comes up for renewal gets merged into a broader cross-selling and upselling conversation, where together with a price increase, we will give them more access to content across their organization. And so as I alluded to earlier, they're getting more value together with the higher price that we are charging. And so absolutely, the 2 are factored in.

And as you think about that long-term low double-digit type of growth in index, how much of that is expected to be driven by pricing, cross-selling and new logo?

Yes. So I think as I alluded to and we've said in the past, upselling existing clients is going to be the largest component. Price increase is important, and that's part of the importance of our continual innovation, enhancing the services that we're already delivering, adding new services is to support price increase and price will be an important component of that algorithm for generating double-digit growth. New logos is a piece of it. But as I alluded to earlier, we are licensing to most major investment institutions already. And so when we talk about newer client segments, they're oftentimes already clients, but there are opportunities to do a lot more for them over time. And so new logos is a component, but it's -- the big focus is on doing more for organizations overall.

Got it. Kind of coming back to the topic of custom index, I was just wondering, there were periods of time where factor index was the next big thing and then followed by a period of time where ESG was the next big thing. Is it fair to summarize that the future main growth driver for the Index business is custom index at this point?

So there are absolutely a number of attractive opportunities for us. We talked about many of them earlier. Custom indexes is one that is particularly exciting for us. And sustainable indexes, climate indexes, factor indexes, we -- to your point, we've had periods of very attractive growth in those areas. But those are early forms of what we call custom indexes today. They are indexes that are achieving some objective beyond just tracking the market. And so custom indexes is an expansion of that trend that we're seeing. And oftentimes, custom indexes have some sort of specific climate objective embedded in them. They have a factor objective embedded in them. They have some sort of geographic or sector that's embedded in them. And so you are going back to my earlier comments about one of these major trends you're seeing manifest itself in different ways across the being this move towards more systematic, personalized outcome-oriented type strategies, indexes are a very efficient mechanism to achieve those customized strategies. And given the nature of what our index content is in our index products, our tools are very well suited for these custom use cases. And so yes, when I talked about those opportunities with wealth organizations, when you talk about opportunities even with the fast money community, particularly with broker-dealers that are creating derivatives and structured products and basket type trades, it's oftentimes a custom index that is underlying those. And then you're seeing institutions that are increasingly allocating towards custom-type mandates as a very efficient mechanism for them to achieve some personalized objective. And so yes, it's a big opportunity. I mean, just to dimension that a little bit, if you look at the non-ETF passive category for us, which is relatively modest compared to our overall run rate, but it continues to grow at a nice attractive growth rate. The growth rate for market cap non-ETF mandates or assets. So nonmarket cap non-ETF assets has grown at 37% in the first quarter. That compares to market cap mandates that grow 16%. And so you're seeing this outsized growth of these non-market cap weighted mandates. And oftentimes, those are areas where we can charge higher fees. We play a more important role in that investment decision and investment process. And then obviously, you see it on the subscription side as well. As I talked about earlier, it is a key driver of the elevated growth we've seen on that custom index category. Again, these trends in the investment industry take time, but this is and seems like a secular trend where we're uniquely positioned to capitalize.

tAnd who are your main competitors in this space? Is it the usual suspects of AFA, S&P? Or is it actually lower-cost providers that may not have as big of a brand name as the usual suspects?

Yes. I mean part of the exciting thing about custom indexes is we are -- and I alluded to this earlier, we're touching on parts of the investment ecosystem and parts of the investment process that we historically have not played in. And so we do, if you will, bump up against a wider range of players, including the other major players. But oftentimes, it could be a broker-dealer that might be creating a basket themselves. It could be an asset manager that's got a custom idea. And to your point there, they want to use a low-cost provider. And so there's such a wide spectrum of opportunities. It's a dynamic landscape. Our focus, though, is in those areas where we have competitive advantage. And so we are really focused on licensing custom indexes for those organizations that want to develop products around our ecosystem, so get that institutional-grade credibility, really believe in the quality of our capabilities, institutional-grade quality, especially when you start to allocate across many of these dimensions where risk models matter, measure of risk, sectors matter, geographies matter. And so we tend to be -- and those are the areas where we will have sustained economics. We tend to be pretty focused on those areas where we are providing value above and beyond. For those use cases where somebody has a very tailored niche custom use case and they're just looking for an index calculator, we're probably not going to play there. My view is the economics are not sustainable for the index provider there. The index provider is just a white label service. And so our focus is really on those areas where we can help in a robust fashion, help our clients develop these outcome-oriented personalized strategies. And we think there are big parts of the market that are focused on that, and we think we're uniquely positioned in those areas.

Got it. And just to dig into this a little bit more, you mentioned that risk matrix matter, geographies matter, but you also talked about sometimes there is niche products that just utilize low-cost providers. So I guess I'm just wondering what percent of that custom index market is really more brand name focused versus more cost driven?

Yes. I mean it's tough to say because it is such a big universe. I would say the areas where we focus, we have a pretty good win rate. And just going back to some of the growth dynamics that I alluded to, we continue to see very healthy growth, both on the subscription side, which is an area where I think we are very unique and those use cases tend to be tied to our ecosystem. And so that's not areas where we're typically seeing one of those low-cost index calculators. But even on the asset-based fee side, as I alluded to, we're seeing tremendous growth in those nonmarket cap-weighted products. So we are very confident in our position and the opportunity there. And we think just interactions with clients, we know they want to work with us on these fronts because we can help them attract assets. We give them credibility with institutions. We can offer a broader service that allows for the continual rebalancing and recalculation. And so we're a very helpful partner on that journey for many organizations. But it is a big opportunity, as I alluded to, that lends itself to a whole host of players being involved.

Got it. Is there any profitability difference between kind of market cap-weighted type of products versus custom index since it seems so personalized. So just wondering.

Yes. Oftentimes, there is a more intensive selling process for setting up a custom index for our market cap indexes and our standard modules. That's content we already have. It's off the shelf. Not to say there can't be long sales cycles for those sales, but a custom index by its nature oftentimes is one that involves more time and effort from our research staff. Firstly, I would say there's a wide range of custom indexes. So some custom indexes are just I want to exclude these companies. I want to exclude this region. I just want this constraint. Those simple customizations are relatively easy for us to do and we can turn them around quickly and put them into production. But then you do have some that are more nuanced in nature, constraints on constraints involving, as you alluded to, risk models, factor bets, climate objectives. And so those oftentimes take more time from our sales organization and research staff where a client has an idea, we will do simulations on it, back test it. They might refine it. And then they say, yes, I want to put that into production. and then it takes a little bit more work to productionize that, if you will. And so it can be a little bit more costly to set it up. But once you set it up, very attractive margins. And overall, it's still a very attractive margin business, especially as assets grow and clients expand with us over time. And so this is something that does have very attractive margin dynamics and attractive operating leverage. But all else equal, it's probably a little bit more intensive to set up a custom index. Now offsetting that is sometimes we can get higher economics depending on the use case for those custom index products.

Meaning higher pricing?

Higher pricing, Yes. And as I alluded to, you'll see that in the non-ETF passive market, where relative to a plain vanilla market cap passive mandate, we oftentimes are getting more attractive pricing when it is a custom product and a custom mandate for them. And oftentimes, we're capturing part of that -- more of that value stream that an active organization or the asset manager previously would be providing. And so that lends itself to a larger portion of the economic pool.

Got it. Super helpful. Another emerging area in index is basically active ETFs. And this is a question we get a lot in terms of like how is MSCI positioned within the active ETF space. And one thing I've been curious about is if the same amount of AUM switch from active mutual funds into active ETFs, is that a net revenue benefit for MSCI?

That is probably neutral to us. So just using that example, if that client is licensing our indexes as a benchmark for an active mutual fund, they decide that's going to be reclassed or they're going to transition those assets to an active ETF, they're still going to be paying us that same amount for that benchmark for that active mandate. And so it's neutral. Now to the extent active ETFs are helpful to our client base such that it helps them attract more assets. We are not linked to the assets on the subscription side. But as they attract more assets, that could mean that they are expanding their investment teams, expanding their geographic footprint, being encouraged to invest more, launch more strategies, want broader usage of our tools, those can lead to up sales. And so to the extent active ETFs are helpful to the active industry, that is helpful to us today. But it is net neutral when you see assets just transition from mutual fund to active ETF. The other important thing to keep in mind here is we are also very actively developing a broader service and toolkit for that active ETF use case. So there's a wide range of active ETFs. If it is a more concentrated fundamental strategy, called the stock picker type of active ETF, we're probably just going to -- the opportunity is really just to be a benchmark there. But to the extent you're seeing this in a lot of active ETFs, it is more systematic in nature where that active manager is making systematic bets about geographies, sizes, sectors, styles, we can offer a toolkit for them that allows them -- will provide basically the foundation, and as I alluded to earlier, that institutional grade foundation for them to develop that active strategy and manage it over time. And so that's something we've been actively working on. We're very early days on that, but we're having very constructive conversations with many organizations that are looking to launch more of these active ETF strategies, which, as you know, is a very hot area of innovation and new product launches across the asset management industry. And so that's one where we are laser-focused and excited about our ability to play a broader role within active mandates beyond just being a performance benchmark.

Got it. I would say another key debate on this topic in general is the continued shift from active to passive. While we understand that MSCI is positioned on both sides, I can't help wondering the real impact from the same AUM that shifted from active to passive. And obviously, based on just very rough calculation, it seems that passive has higher fee rates versus active. But at the same time, that active manager may be -- may provide MSCI opportunities to cross-sell into analytics and ESG and other things. So just help us think through the real impact of this continued shift from active to passive?

Yes. I mean you touched on a lot of them. I would say, firstly, it's important to keep in mind that we are cheering for growth in the investment industry ultimately. The largest and most significant highest level secular trend fueling our business is growth in global savings. So to the extent you continue to see global savings grow, those savings are channeled into the investment industry for those savers to achieve productive returns. And the investment industry needs those tools to navigate markets, and that's where MSCI comes in. And so over the long term, that's the most important trend. Now the structure of the industry evolves over time. And we are -- to your point, we're well positioned regardless of how it evolves. There will be impact to us in different parts of the business. And it's part of the reason why you're seeing the growth rate with asset managers being slower than the rest of the business that moved towards indexation that we've been seeing take place. But we are well positioned to capitalize when it moves to an index type of strategy. To your point, we do have a broader exposure to active managers beyond just indexes. So obviously, it's a large portion of every one of our product segments. But we also have the ability, as you said, to -- especially in different parts of the indexed investing universe, capture attractive economics. And so firstly, I think there is a significant place for active management. We are big believers in the role of active management. There needs to be evolution and changes in how those assets are managed, and you're seeing that take place. Where you're seeing those active managers evolve to are places where we can help them, as I alluded to earlier. So the places where they're looking to launch strategies grow, be more -- those are all areas where MSCI has solutions to help. And so we do think the secular trend of pressure on asset managers probably will continue. But as they evolve, there will be parts of the industry that are healthy. We do think indexation will continue to grow, and that's an area where we are poised to benefit strongly. And overall, the range of tools that we can offer that investment universe continues to grow. And so we're relatively agnostic. I wouldn't say we're cheering for one or the other. We have ways to make money from both regardless of the relative growth rates. But I think at least in the near term, our view is that indexed assets are going to continue to grow. Right now, globally, it's probably around 50% of equity assets are in index strategies today. That's up from where it was 5 years ago. There's -- if you look at the range of use cases and where that evolution is in other geographies like Europe and parts of Asia, there's definitely room for that to continue to grow and the value proposition remains compelling, and that's something that creates opportunity for us.

Got it. Maybe switching gears to talk about fixed income for a second. One of your main customers, BlackRock has spent a lot of time talking about fixed income ETFs. They've given out some big TAM numbers on their Investor Day. So maybe just talk us through MSCI's strategy. And I know you've made a lot of investment on the fixed income analytics side as well. So maybe just tell us a little bit more about MSCI's positioning on both the index side, the fixed income -- sorry, the analytics side, ESG side for fixed income.

Yes. So to your point, fixed income has been one of our key areas of focus over the last 6, 7 years, really started with an intense focus on the analytics side. As you alluded to, we've been investing. One of the key investment areas for us on analytics has been in building the quality of our fixed income curve, the breadth of coverage, the critical analytics like performance attribution and liquidity insights, analytics, models around things like corporate loans and our mortgage-backed capabilities to have a very formidable fixed income analytics offering. And you've heard us talk about that's been a catalyst for growth for us in analytics to this point. That's also given us some wherewithal and credibility to develop some differentiated fixed income indexes. We've had failed attempts in the past, at least a couple that I can think of to try to get into the fixed income index space. For the same reason why we are so formidable in equities, it's difficult for us to get into fixed income. But as I alluded to earlier, there are flanking opportunities for us. And so our focus has been really in those areas where we have differentiation. So on the heels of our analytics, it's factors or risk-driven fixed income indexes where there's not really a well-established framework. And I think we've been doing a good job starting to create a common language around fixed income factors, and that lends itself to certain indexes. Climate has been a key area of growth, sustainability more broadly. To be frank, most of the fixed income index revenue today comes from partnership indexes where we have partnered with the major fixed income providers to launch ESG and climate versions of their flagship indexes, and that's been an attractive growth area. But to this move of outcome-oriented strategies, more systematic strategies, fixed income indexes are a key ingredient for what we view as the future where you will see more cross-asset class indexes. It is a growth area today. A lot of that is really in blended type of indexes, but we think in the future, there will be more true multi-asset class indexes. And so having a solid fixed income franchise that's built on those same factor frameworks, the same climate frameworks will really position us well as this move towards customization and outcome-oriented investing continues to grow over time. And so it is a key strategic capability for us for where we believe the industry is going.

Got it. And I think that's a perfect segue into talking about analytics. So analytics has had another strong year in 2024. And part of that is probably with the help of fixed income analytics. But maybe just talk us through the other key growth drivers that you've seen in the analytics business in 2024. And I know it's been a minute since we had an update on competitive landscape in the analytics business, but maybe talk us through that as well.

Sure. So yes, we've been encouraged by the performance in analytics. It's had pretty steady growth here for a couple of years. That is driven by a few factors. As I alluded to, when you mentioned, fixed income has been an area. It's small for us today, but it's been an area of elevated growth. Those investments that we've made have allowed us to expand our footprint with clients that might be using our multi-asset class enterprise risk and performance solutions where we can give them content to help in their fixed income investment process as well as that multi-asset class kind of total plan, total portfolio enterprise view factor models. So our risk models, we've seen tremendous growth. Now some of that is in fixed income factors that's small, but our equity risk models have seen tremendous growth. And you can see that in our investor materials that equity analytics line, you'll see has had elevated growth for the last couple of years. To be honest, a lot of that is coming from multi-strat hedge funds. Multi-strat hedge funds use our risk models as a critical part of how they manage their strategies, manage risk across their organization. So with the success that you've seen of many of those hedge funds, we've had tremendous opportunities to expand our licensing as well as we have innovated. So we've released new risk models that continue to provide additional insights, help them be more effective at how they manage risk-adjusted returns. And so risk models have been -- that equity analytics has been a key engine of growth for us. One encouraging thing is we are seeing and this goes back to that trend that I was talking about, we are seeing some traditional active managers increasingly start to embrace factors the way a multi-strat would. Now this is early days. I don't want to overstate it, but we have been always an important part of the risk teams at traditional active managers. But as the investment process starts to become more factor aware and active managers are thinking a lot about the drivers of individual security performance beyond the idiosyncratic fundamental drivers that creates opportunities for us to upsell. And so our strength in factor models is critical. And then also just making it easier for clients to work with us. So we know implementing an enterprise risk solution from us is an intensive effort, can be costly. So we've increasingly been integrating with partners, enhancing our API, providing our content on platforms like Snowflake. We call it our Insights offering, and that's just making it easier and cheaper for clients not only to work with us, but extract more value and information from the wealth of content that we deliver to them and analytics. And so from a competitive standpoint, we're seeing the same players. You can imagine who the big players are on the fixed income side. Their names start with B mostly. And there's enough of a market there where we can oftentimes coexist with them. More broadly, on multi-asset class risk, we are seeing BlackRock's Aladdin out there. I wouldn't say they're a direct competitor to us, but we do get displaced by them, and we sometimes have opportunities to displace them when an organization say, I'm going to outsource my full front-to-back investment technology architecture. So I'm using Aladdin for data management, accounting, order management, performance management, reporting and risk management. In those cases, our risk system might be displaced. We oftentimes coexist with them where the client says, I need best-in-class risk and performance. That's a key part of my business. And so yes, I'm using Aladdin, but I'm also going to use you. And so we think the investments we've made in making it easier to use our tools positions us well. And then you see some of the platform providers who have multi-asset class risk or even equity risk models, and they're tending to compete on breadth of offering and cost, low cost, where, say, you're already using a lot of terminals and workstations for a very minimal cost, you can use our risk model or risk tools. That tends to be end of the market where the clients have more concentrated, fewer assets in their portfolios, that's probably not the areas where our value proposition resonates. And so our strength is really in best-in-class models, robust analytics that cut across the most securities in a nuanced way. And so we are competing on best-in-class. We tend to be the premium price provider. And we think given that, that's such an integral part of the investment process, it's a compelling value proposition for us.

Super helpful. We have a few minutes left, and I do really want to get your thoughts on ESG. Sure. I would say in Europe, even if the long-term potential for ESG is clearer than rest of the regions. And I know 2024, we have some headwinds around what I call regulatory markiness, a lot of lack of clarification on what is really ESG, what can be classified as sustainable investing and things like that. But we did get some clarity on those topics early part of 2025. So just curious to get your thoughts around why new fund formation for ESG remains pretty low in Europe and when we'll see a more sustained recovery there?

Yes. So in Europe, on that last point, the fund naming rules, there has been clarification around that. As a result of that, you have seen many organizations that have some hesitancy to brand the fund ESG or sustainable. Those funds and those managers are still embracing sustainability principles and responsible investment principles as part of their investment mandates. They might not just be naming the fund necessarily we're having a strategy that is explicitly tied to a sustainability factor. And so sustainability is still front and center and a critical part of the investment process in Europe. But you are seeing fewer funds that are labeled sustainability and ESG. More generally, there is still complexity there on what the various regulations objectives are. I think there's been some recent noise and shifts around things like CSRD, which had a focus on double materiality, a little bit more focus on do no harm type of principles versus the SFDR, which was more single materiality, financial materiality, which is our bread and butter. We can help on all fronts, but really, our framework is built on that financial materiality pillar, a whole host of climate objectives. So that still persists. And so we're in a period of, I'd say, caution and clarification in sustainable investing right now, where for various reasons in Europe, slightly different in the U.S., investors are cautious about being explicit about what their ESG strategy, how they're using ESG, and then there's a lot of noise around what it is. And so that's an opportunity for us to really differentiate. So we've always been anchored to that financial materiality pillar. And so we are in the process of helping the industry understand how these can help you make better investment decisions that achieve better outcomes. And so you see us, I think, winning versus competitors, continuing to outpace others in the industry and helping the industry on this journey. These are ultimately critical inputs into the investment process. There are going to be cycles. We're in a pressured cycle right now where investors are hesitant around it. but we are in a position to help that industry through this period and help them understand how they can be more effective achieving better risk-adjusted returns, understanding climate risk, understanding sustainability principles, understanding how ESG makes them better investors. And so this is an opportunity for us to shine granted against a choppy background.

And Andy, you touched on the cautiousness in the U.S. as well, which is my next question. We just want to get your thoughts around how are you thinking about the TAM for ESG in the U.S. now given the new administration has a slightly different focus than sustainability.

Yes. Well, we talked about a TAM in the past, multibillion-dollar TAM. The way we came up with that is looking at what clients are able and willing to pay for our tools, and we looked at that by client cohorts within segments and geographies, that will still holds. I mean you can see our retention rate in sustainability and climate is 94.5% in the last quarter. Clients are hesitant. They're cautious without a doubt. That is pressuring new sales for us. But they are still saying this is an important part of the investment process for us. And so that means that there's still a compelling long-term opportunity to do more for them on these fronts. And their thinking is evolving, and we can innovate to help them evolve in that thinking. and that creates new opportunities for us. So we continue to believe there is a big TAM over time. This creates a bigger opportunity for us to capture market share, but it's going to be a cycle here, and we expect these dynamics to persist in the near term. And so we're cautious in the near term, but continue to be encouraged about the long-term opportunity.

Got it. I know we're running out of time. Maybe just one last question from me. The second that I find most exciting about MSCI over the long term is actually private assets. So just curious to get your perspective on the road map for MSCI's private asset strategy for the next 5 to 10 years.

Yes, it's an area we are excited about as well. Maybe just to hit a few components of it. We've now integrated Burgiss, we call PCS today. So we are starting to unlock those cross-selling benefits. We're seeing traction in Europe, a place where Burgiss was relatively small, good engagement in Asia, where there are big pools of money invested in private assets and helping them to understand how they can use our tools to get a better understanding of what they are investing in. We're just starting to unlock the value of that unique data set that Burgiss has, cutting across $12 trillion of committed capital, 15,000 funds, hundreds of thousands of underlying assets is a rich, rich data set for us to start to create these tools that we know the industry needs over time. And so those are tools like risk insights, liquidity insights, better insights into what's driving the market, performance analysis tools, which we do some of today, but expanding that into performance attribution and then things like benchmarks and evaluated prices. And so there's this rich product road map that we are working on actively. And then we're starting that evangelization process. So talking to the investment community, particularly the LPs or asset owners about how they can use these tools to be more effective at private asset investing. And that's how over time, you create a common language. It will take time. These transformations take time, but we believe we are best positioned and uniquely positioned to help on that journey, and that could be a huge opportunity for us.

Got it. This is all super helpful. Thank you so much for sharing with us today, and thanks, everyone, for joining us.

Thank you. Appreciate it.