MSCI Inc. ($MSCI)

Good afternoon, everyone. Thank you so much for joining us today. My name is Kelsey Zhu. I'm the information services analyst at Autonomous. With me on stat today, I'm very pleased to welcome Andy Wiechmann, CFO of MSCI. Thank you so much for joining us today, Andy. Really appreciate that.

Very happy to be here. Very happy to be here. Great event. So thank you for having us. .

I guess there's a lot to chat about, but maybe a good place to start is really I think we've seen a pretty noticeable re-acceleration of growth since Q3 2025, give or take. So the new transformation data we track has definitely picked up globally and in Europe as well. And MSCI net new sales have been beating Street expectations for the last 2 quarters. So I was wondering if you can talk through some of the key changes you're seeing in the broad selling environment, the sales cycles that you're seeing as well as any additional insight on what's driving the strength in performance for MSCI?

Sure. Yes. So the dynamics are exciting, as you alluded to, we have some very good momentum across the business. And if you look at where that momentum is coming from, it's driven heavily by the actions that we've been taking on the new product development side, but also it's being driven by these big secular changes and transformations that are happening in the industry around systematic investing indexation, custom indexing, private asset indexing, multi-asset class investing, those are the components that are fueling the growth. So we continue to be very excited about industry trends, but also the actions and innovations that we're delivering to capitalize on that. So maybe if I can drill in across a couple of dimensions here. If you look at what's -- where we've seen the acceleration in growth, it's been in areas like index -- so we index subscription run rate growth has gone back above 10%. So organically, 10.4% organic description run rate growth in index. If you look at where that growth is coming from, it's around custom indexes and so custom indexes are a reflection of this growing trend of systematic investing indexation, personalization at scale, and we are uniquely suited to fill that demand. The other area where we've seen some acceleration is in private assets and PCS, particularly. So we've seen PCS, it's early days and it's small, but we've seen an acceleration there. And so not only have we seen this evolution of investing into private assets, but we've seen the evolution of people starting to become more thoughtful about how they measure the risk and performance of their private asset portfolios. How they understand a that they're getting for the fees they pay. And we are now at a stage where we have the tools that can help them on that journey. And so that's a very exciting frontier for us. And then if you look across client segment dimensions, you've seen us have tremendous growth and an acceleration in areas like hedge funds, trading firms, broker-dealers, these are all areas where a lot of that innovation that I talked about earlier, we're developing tools that are nicely suited for those client segments use cases, and we can monetize them quickly, but also these are tools that will help fuel other parts of the investment industry. And so we've had good momentum on a number of fronts and definitely excited about the outlook here.

How do you think about the future pipelines and the sustainable of the strong growth at MSCI.

Yes. So the -- I think we have alluded to in recent quarters that we've seen a notable pickup in new product development. So we are not only increasing the throughput of new products that we are developing, but we're also capturing more sales from new products. So new products are contributing a higher percentage of our overall sales as an organization. We do believe that a key driver of continued growth for us. And so there's a deliberate focus from the top down from Henry, from Alvise and continuing to fuel that new product machine for us. And AI is an exceptional accelerant. And so AI has dramatically enhanced our ability and reduce the cost of producing new solutions for us. And so we're just getting started on that journey. The new capabilities that we've been coming out with or on the cusp of coming out with here are things that can be really transformative for the industry and there are things that we historically would not have been able to do without AI. So we're really encouraged and confident about the new product generation machine we've created and the opportunity that will ensue from it. The other thing that I would highlight is we are also increasing our focus across client segment dimensions. And I've talked about this in the past where we've put a more deliberate effort around our go-to-market within client segments where we've historically been smaller like wealth management, as I alluded to, within the trading community and broker-dealers, insurance companies. And so we've tried to enhance our go to market, but we are also now organizing much of that product development to your question, along client segment needs and client segment demands more formally and that is putting us in a position where with AI, we can create these solutions that are geared towards specific use cases. So in addition to just selling products and content, that we've developed to these historically developed to these new client segments, we are now developing tailor-made type solutions for those opportunity sets, and that can be really, really impactful and transformational for us. So definitely excited about the pace of product innovation but also the impact we can have on the end client.

Got it. And speaking of Henry certainly caused us as a godsend to MSCI, and we heard that AI is a condition of employment at MSCI as well. Maybe talk us through some of the key initiatives related to AI implementation at MSCI that you're most excited about? And I know you alluded to like new product introductions, but is this also opening up new client segments for you? And how do you think about how that translates to stronger pricing power maybe -- but yes, help us think through.

Yes. So it permeates every part of MSCI. To your point, Henry has made it a condition of employment. So every employee gets access to a wide range of AI tools, and we provide the training and the mandate that they need to be active users of these tools, and they need to be reinventing their day-to-day workflows and their day-to-day jobs. On a more coordinated basis, obviously, it's transforming production processes for us. If you think about what MSCI does, we've taken large amounts of unstructured data, client data, market data, fundamental data -- we standardize, we clean that information. We run it through analytics models to develop derived content like indexes, like risk models, like broader sustainability insights and climate insights across asset classes and then we deliver it to clients. And so at every stage of that value chain, AI is accelerating our pace to develop these tools. deliver them, making our processes more efficient. And so that also creates this virtuous circle of additional investment funding. And so part of the reason Henry says it's a godsend here. it is making us more efficient in what we do already. So I run the business cost, if you will, are lower, which allows us to invest more -- so the change of the business -- a portion of our expenditure is going to change the business are higher for us. And so that relates to your prior question about prop pace of product innovation, expansion into new markets. And so we've definitely seen AI as a boon on that front. But then if you look at a value delivered to clients standpoint, there are several layers to what AI is enabling us to do -- and so at a fundamental kind of baseline level it is allowing us to allow clients to get more value out of the tools that they're already using for us, from us. So think of our index AI insights offering, which if you're an index client, you get access to AI insights today. You can access our indexes via MCP, but you also have a natural language interface now where you can interrogate what happened within a specific market, what happened, what drove the performance of an index what's going on with certain sector dynamics. There's this rich content that our clients get as an index client, and most of them don't fully appreciate or use and so AI is just -- it's a very efficient mechanism now for us to bring more value to our clients in what they are doing today, make it also easier for them to integrate into their processes, workflows and to the extent they are moving more into a agentic, agentified workflow, we're making it easier for them and more efficient for them to operate. And so that's at a baseline. We are also coming out with new products that we otherwise could not come out -- so AI is allowing us to get deeper -- very rapidly deeper insights into the rich amount of private credit information that we have that we sit on. We have a long history of documents from private credit managers and AI has allowed us to very quickly extract, standardize and provide insights into private credit portfolio performance for end clients. Helping to do advanced analytics into some of the insights we get from client position data around trade crowding. And then more generally allow us to rapidly build out data sets using massive amounts of both proprietary, but also external data to give insights into. We call it asset location, geospatial data set that allows you to understand the full physical footprint of a security or an asset globally, which is a key input into assessing physical risk. It can also be very helpful into understanding supply chains. And this is all stuff that AI is enabling us to do and then the last layer getting at your question, it can transform how the investment process works. And so we are rapidly rolling out the first generation of tools that are really AI native, if you will, that are allowing clients to build baskets on the fly, our basket builder, our tool we call signal Library, which allows a investor to develop a custom factor, if you will, or a custom signal around our standard factor models with a very robust governed infrastructure around the factor content and factor frameworks. Ultimately, it's things that we are using to connect market participants. So connecting the rich information we have about client portfolios, what their strategy objectives are with those providers that want to launch a over-the-counter instrument to our trade old product that can fill that need. And so AI is a godsend across many layers for us. We can't move fast enough, but it's super exciting in terms of the layers of opportunity that it creates for us.

And I think you touched on a number of revenue opportunities enabled by AI. How should we think about the medium-term margin upside or the cost saving opportunities. And I think A lot of companies have talked about productivity uplift for their developers. So maybe the question of labor cost reduction, maybe it's a question of reducing data injection, cost and so on and so forth. So just help us think through the upside on margin.

Yes. So it is -- as I alluded to, it has absolutely been a productivity enhancer for us at almost every layer of our value chain and production process. Our goal, though, is not to pass those efficiencies through to the bottom line. Our goal is not to cause the margin to expand faster than it otherwise would, but it's to reinvest back in these tremendous opportunities that I was alluding to. So what we've said is there's no change to our financial model, our financial algorithm overall, but it should reinforce that virtuous circle flywheel of investment innovation fueling additional sales, which fuels more investment capacity and more sales in the future. And so -- we view it as an accelerant on driving that financial model faster than having a bigger impact over time, but the goal is not to pass through efficiencies in the short term.

Got it. And in relation to this conversation about AI investments, I brought up the capital allocation question early. Maybe help us think about in this cycle, in particular, how are you prioritizing the different avenues of capital allocation -- is this the environment where you want to double down on organic or maybe inorganic investments and then there's all of these buyback opportunities and dividends and debt prepayments. So just help us think through some of those areas?

Yes. So firstly, no change to our approach to capital allocation. But to your question, being smart about capital allocation is a huge value generator over the long term here. So it is an area we spend a tremendous amount of time -- the biggest opportunities and core opportunities we see at MSCI are organic for us. We're in the advantageous position. As I alluded to earlier, we have secular trends that are fueling the demand for tools that we generate, we have secular trends that are helping with our pace of innovation and product development. So first thing, the highest returning use of our capital is fueling that growth. And so that doesn't change. We do view both share repurchases and targeted bolt-on acquisitions as accelerants to unlock in those opportunities. And so we will continue to be opportunistic on both fronts. We -- as we always have, we will do share repurchases when we have more excess liquidity when we see more volatility in the market and our share price. And when we see a higher degree of conviction around value. We believe the stock is a very attractive long-term opportunity. But in the short term, we can kind of calibrate the pace of spend and get a better return -- and so we will calibrate that based on the stock price at any point in time. And so we'll continue to be opportunistic there and that will be a key driver of long-term growth, and it's been tremendously successful for us over time. And then acquisitions, by their nature, are opportunistic. As I alluded to, we're not looking to diversify the business. if anything, we want to reinforce the existing franchise. And so acquisitions are accelerants to the organic strategy for us. So if you look at the acquisitions that we've been doing over the last couple of years, they've been in those key growth areas where it matters having differentiated data speed to market with certain technological capabilities, access to certain client channels can be dramatic accelerants and enhancements to that organic road map that we have -- and so we've done acquisitions around things like custom index now with the Compass acquisition, we brought in the ability to calculate digital asset, commodity derivative indexes. Together with our fixed income and equity capabilities. So the ability to do multi-asset class indexes with PM Insights, we now have 1 of -- it's not the best worst for private market stock pricing or share price information, which is truly proprietary and unique. And as you'd imagine, there's a key input into understanding the exposure and the value of your private portfolio, but also starting to introduce things like liquid indexes and other tools to hedge or gain exposure to the markets. And Advantager is a AI native tool that allows our clients to really do pre-investment analysis. So at the due diligence phase of a private asset investment. We can very easily allow them to extract all the relevant information from the fund documents and help them compare that to their existing portfolio to the index universe or the broader private market universe and make a more informed decision about whether they want to invest in a fund or not. And so that's a natural extension of what we've been today. They're all very small kind of targeted capabilities, but in MSCI's hands, they're incredibly valuable and we can unlock significant value. And so we'll continue to look for those types of opportunities, and we'll continue to be very financially disciplined. So it's got to be one that we're confident that generates an attractive return and we're always comparing that against buying our stock, which we believe is a very attractive long-term return. And it's got to be something that does not distract us. And as I alluded to earlier, really reinforces our competitive moat and our competitive advantage with the investment decision makers within the investment process. And so oftentimes, that will lead us to decide to partner with an organization as opposed to acquiring but we want to be very measured and disciplined. And we're confident that taking that very disciplined approach to capital allocation will generate attractive value over time.

That's very helpful. Thank you. So let's dive into each segment of MSCI for the Index segment, in my view, 2 of the biggest secular growth drivers, really custom index, as you mentioned, and active ETFs. So if we start from active ETFs, I guess 1 thing that's worth clarifying a little bit more is just the products and services you're able to offer to active ETF providers. And at the same time, I guess, -- if I look at the majority of the active ETFs that were launched over the last 2 years, they were mostly in the U.S. markets. So how do you think about your competitive advantage over some of the U.S.-based players like S&P and NASDAQ.

Yes. It's an exciting opportunity for us. So maybe just to level set on where the active ETF opportunity is for us. If a manager launches a new active ETF that doesn't certainly translate through to -- typically, it will not translate through to a new sale for us. They already have a license to use our index as a benchmark -- they're likely licensing EMCOR and DMR already from us. And so they have the right to actually to use our benchmark on that active ETF already. And so it's kind of net neutral to us. To the extent it helps them raise assets, and as a result, they expand as an organization, that's on the margin helpful to us. But just the move from a mutual fund to an ETF or even if they launch a new active ETF is not going to generate a new sale for us. It's helpful to us. We want the active managers to be healthy and raise capital. So it's good from that perspective. The opportunity for us comes when the managers are launching more systematic type strategies. And you do see many of these active ETFs that are taking a more systematic type approach to portfolio construction, not a stock picking type approach, but it's I'm going to get exposure to this region, these sectors, these factors, these sizes, these styles. And that's where our content sets or index frameworks can be differentiating for them. That is what our index content was designed for to do an asset allocation across all those dimensions, but then construct a portfolio systematically to achieve calculated exposures to countries, to sectors, the sizes, styles, the factors, to climate considerations. And so we are in a unique position to, if you will, deliver this toolkit to an active ETF provider that is doing a more systematic strategy. And that can be an additional subscription license -- so it can be a license where it's -- we'll give you the content you need to do that systematic calculation of the portfolio management of the portfolio over time. That's on top of just the benchmarking license. -- and that can be meaningful if they want to get access to all those different dimensions that I talked about. But then we also are in a position to actually play more ingrained role in the kind of calculation of that portfolio, an index at its core is portfolio. And so we can actually -- they need to give us the weights and tell us how they want to calculate it, but we can be almost the underlying portfolio, in which case, there are opportunities to charge asset-based fees. -- on that active ETF. It's early days, but we are engaging with a lot of clients, and we've had some wins where we are doing more than just being the benchmark for an active ETF and in these systematic strategies. And the value to the end client is not just that we can provide those systematic inputs and insights into those different dimensions but it's that we to help them gain credibility from a marketing standpoint. -- they typically want to be very targeted in how they mark product to their end clients. And so their end clients are thinking in terms of the same risk dimensions, industry exposures objectives that they have. And so being able to market tiers my strategy relative to MSCI frameworks is really valuable to them. And so Yes, we think active ETFs on that basis are an opportunity over time, and we're actively rolling out solutions and capabilities to do more on that front.

And your competitive advantages over S&P and other peers.

Yes. So a couple. We view our -- we have always viewed our indexes as a tool. It's an investment tool. Most of the index providers out there view an index as a market barometer. So I will give you the barometer that tells you how the largest stocks on this exchange moved on any given day or time period. And I'll give you the barometer for how the larger stocks in this country moved on any day or time period. You can use our indexes for that, how do the emerging markets perform. But at their core, a data set, a content set that is designed for that systematic asset allocation want to allocate between developed markets versus emerging markets. Here's how I want to allocate a large cap versus mid-cap peers, so I want to allocate across sectors and then the portfolio construction process around it ultimately used as a performance benchmark. And so the fact that we are licensing these content sets that are designed for that systematic portfolio construction is differentiated, and we do it globally. We start with the global opportunity set. We're not starting with here's the largest stocks in this country. We're starting with here is the total universe of investable equity securities, and here's all the ways you can segment it. That's very unique for MSCI. So that's a big advantage for us. then there's a lot of content capability service that goes around that. That's why we have the largest subscription base of any index provider. But then it's also, as I alluded to, we are a common language that is used by the end clients, whether that's a pension fund wealth driven process where they're building model portfolios, they're doing an asset allocation. It's not just that they are thinking about their policy benchmark MSCI Aqiqx-U.S., maybe it's that they're also thinking about the climate objective they have a risk tolerance that they might feel comfortable with, a planning objective that they have in MSCI terms. And no other index provider has that suite in those common languages of interoperable frameworks. And so that really lends itself to be truly differentiated within that systematic portfolio construction process, which you see underlying many active ETFs.

That's very helpful. So I had a question on my list around the net revenue impact for the same AUM to shift from active mutual funds to active ETFs -- but now I'm starting to think that maybe isn't the right question because I think your view active ETFs are avenue for expansion of the investment universe and investment industry. So that sounds like incremental revenue opportunity instead of replacing some of that.

Correct. Yes. All else equal, it's neutral. As I said before, but just the wrapper, the approach that many of these active ETFs are taking and the potential end users and use cases create additional opportunity sets for us to license more to do managed in active ETF versus a mutual fund. .

Got it. I guess, switching gears to custom index has been the fastest-growing subsegment within MSCI for a while now. In the last quarter, we saw a 24% subscription run rate growth, which is very impressive. Could you maybe talk us through what's driving the strength we've seen in custom index over the last few years? And what type of medium-term growth algorithm should we expect for custom index products?

Links back to something I said at the beginning, which is 1 of the largest trends, and I was just talking a lot about it on the active ETF question. But 1 of the largest trends you're seeing across the investment industry is this move towards systematic investing. And that manifests itself in many different forms and fashions. You see it in direct indexing. You see it in even managed account investing. You see it in what we call non-ETF payouts over institutional passive or an institution wants to systematically achieve some investment objective more generally in terms of how an asset owner manages their total portfolio, a move from strategic asset allocation to a total portfolio approach to how they manage their assets, which is by its nature, kind of a systematic type approach that's multi-asset class or asset class agnostic, generally, you see it manifest itself in the use of structured products over-the-counter derivatives and explosion of baskets, which I know everyone is familiar with up there. And so these systematic portfolios and investment tools that allow for customization at scale and allow for a specific objective very easily lend themselves to an index wrapper. And as I said earlier, an index really is a portfolio. It's a systematic portfolio. It's a basket of securities with specific weights and rules for how those weights will change over time. And so for the reasons I highlighted in your active ETF question, we're in a unique position to help on that custom index journey. And so we actually see it benefiting -- we're seeing growth across many different dimensions. We see it, obviously, on the asset-based fee side. So we've seen tremendous growth and outsized growth in assets in ETFs and non-ETF passive products linked to our custom indexes. We are seeing it within active managers that are launching some sort of more systematic or quantitative or solution-oriented strategy that want an active benchmark. But the area where we've seen probably the biggest growth and the biggest impact on the subscription side has been around the hedge fund and trading ecosystem recently. And so related to the growth in assets in ETFs linked to our custom indexes that is creating opportunities for market makers, for index rebalance funds for quantitative investors to arbitrage, make markets in this broad, diverse universe of tradable securities. And so we are creating data modules that allow them to get deeper insights into the constituents of these custom indexes, give them deeper insights into the methodologies. We used to wait the constituents. Those all become important inputs into their investment processes, their investment strategies. But then also areas like broker-dealers are creating things like total return swaps, index total return swaps or a, as I said before, a basket or an index-linked note to ultimately help that pension fund or maybe an asset manager or hedge a risk, put an overlay, help transition their portfolio. And because they are again thinking in the MSCI terms, because we have is interoperable global framework multi-asset class capabilities, we are a natural partner to help on that custom indexing journey. And so we think it's just getting started. It can be massive, and it's one that is one of our largest investment areas, and it's something that touches so many parts of the MSCI franchise and the standards and common languages that we have across the organization. We're super excited about the outlook and the opportunity around custom indexes.

How does AI change the competitive landscape in custom index? -- does it make it easier for smaller index providers to gain inroads into this market? Or how are you thinking about the competitive dynamics here?

Yes, they have -- so there have been low-cost white label custom index platforms out there for quite some time. Many of the big index providers do offer the kind of custom index white label service. You've seen some niche players that are willing to do it at a very low fee. And so AI, yes, does it make it easier? -- probably does make it faster? Does it make it cheaper, yes, although I wouldn't say there's a lot of economics already in doing that low-cost white label custom indexing because there are so many competitors there. And so AI doesn't really change that dynamic. The reason why people turn to MSCI because we are ultimately a revenue generator for them. Yes, we are the most trusted brand. We pride ourselves on the quality. We have the ability to do these interoperable frameworks together into a unified index better than anybody else. Those all matter and for sure, command a premium. But ultimately, clients work with us because we are going to help them attract the assets and we are going to help them attract assets that are willing to pay them a higher fee. And so AI for us is an opportunity to do that more in spades and make it easier for them. And so it's not something that increases -- decreases our competitive advantage on that front. It's not something that increases the abilities of other providers to do that. The reason why clients want to use us for custom index is something that can't be replicated by AI. It's those industry standards. It's proprietary data. It is the fact that we are ingrained in the investment process of world's biggest asset owners increasingly the wealth management organizations around there. And the objectives they're trying to achieve around our custom frameworks. And so we view AI as an enabler to allow us to do more, faster, better for our clients on the custom indexing front. And so I alluded to things like the basket builder, which we're coming out with very soon -- we have clients trialing it right now, which gives a natural language interface for a client to very easily build a basket of securities. The crude lean index, we do differentiate between them. And that's something that we could not do with AI, allowing us to do it across more dimensions in a very robust fashion. And so we think it's for us an accelerant more than anything, and we don't worry that it's something that's going to bring down any of our competitive advantages or enhance the positioning of these low-cost providers out there.

Got it. That's super helpful. I guess last year at our SDC, we talked about the profitability difference between custom index products and traditional market cap weighted index products. This year, with now -- you've spent so much time talking about AI, AI implementation and how that helps customer index products. Does that change the way you think about the profitability comparison between custom index and traditional market cap-weighted products.

So I would say this. I think I mentioned this last year, all else equal, a custom index generally is a lower -- a lower margin or lower incremental margin. It involves sometimes more research, input and more involved selling process upfront. Having said that, it's still a very high-margin product for us, and it's one where you set it. And from that point forward. It's -- so there's the initial setup costs. But going forward, it's very high margin. It's also 1 that once you've created that IP, you can monetize it in many different fashions. As I was alluding to earlier. And so it's -- it creates a very compelling positive operating leverage for us to sell more custom indexes. Yes, it's a little bit lower than if somebody just says I want to license your EM core module, which is just off the shelf, and we can license it to them. But it's one that we believe is very strategic for us. Very high margin and 1 that also reinforces the broader standards that we have across the organization. So it's not something that we think changes the overall algorithm of the company it's something that, if anything, kind of fuels more firm-wide opportunities for us across all those dimensions that I alluded to.

Got it. I guess, switching gears to analytics. Analytics has had another really strong year last year. So maybe talk us through what's driving the strength there? And without conversation about AI, does that change the competitive landscape for analytics? Or are larger customers building in-house solutions to try to compete with MSCI solutions? Or what are you seeing in terms of competitive dynamics?

We're not seeing AI as a pressure. It's similar to other areas, we view it very much as an opportunity. Just to your first point about what's driving the growth of analytics. We've seen tremendous success with our -- we call it -- if you look at our investor presentation, equity analytics, underlying that is our risk models, our factor models. So our factor models, we've been getting tremendous success with again, it relates to this move towards systematic investing. Yes, we benefited from the growth in multi-strat hedge funds there, some of the biggest consumers of our equity analytics and our risk models. But we've also had traction across broader parts of the investment industry, whether that's broker-dealers as well as traditional asset managers who are starting to think more about bringing risk into the front office. We've always been in the middle office, kind of the risk function, but these organizations are starting to think about incorporating factor analytics and risk insights into the portfolio management process that creates opportunity for us. And so very encouraged about the momentum on the equity analytics side and a lot of innovation on that front to continue to fuel that. On the enterprise risk and performance or what we call multi-class analytics, we have been having success across a number of dimensions. One that I would call out that is very differentiated to relates to the AI question is, and I alluded to this earlier, our ability to analyze the private asset -- the best models analytics, insights and capabilities around the private asset parts of your portfolio, which are the toughest to model and toughest to analyze parts of the portfolio. that's something nobody else can do in AI cannot enable that because it's built on the very proprietary data that we have across our private asset franchise. More general your question about AI, and it's similar to what I said on the custom index question. Will AI enable clients to do analytics more efficiently, cheaper Yes. Can they do some of the basic analytics, risk analytics and performance analytics with AI probably. There have been players out there for a long time that can do it cheaper than us. We don't play as well in the smaller organizations if you are equities or equities and equity derivatives. We're probably not the right provider to you, you can go to a Bloomberg to a FactSet to an axioma and get lower cost analytics. Our bread and butter is those clients that have many different asset classes, many different securities across many different geographies where it is very hard to model and so we have a very unique service on that because we were able to source positions across every position they sit on, including the private. So we've got the connections into the fund admins into the custodians into the broker-dealers into oftentimes their order management and accounting systems to be able to source every position that they sit on. For each position, every security or every incident that they have. And this cuts across not just securities, it's commodities, it could be natural resources, exotic derivatives we have a pricing mechanism. Again, for equities, equity derivatives, even more liquid fixed income, very easy to come up with a price for those. For everything else, it is a very proprietary unique approach we take to pricing those instruments and then having the curves that allow us to do the risk analytics, so being able to understand covariance matrices factor exposures, being able to do scenario analysis sensitivities, if I put my entire organization through the financial crisis, that is a very mature, transparent, well-governed process that we use to do those calculations for clients. And so it's very difficult to see AI being able to do that firstly because it doesn't have all the ingredients and pieces around it, even if it could, it's not going to be economic for a client to do that on their own. And so we are viewing AI much more as an enabler for us to do more service for them to allow them to do it more efficiently as I was saying before, move more towards the front office as they move into those more systematic investment processes. And then it's important to underscore that many of our frameworks are industry standard as well and those things like our factor models, you have to pay attention to them because those are the factors that move markets. And so yes, could you -- for sure, you could go in the next 2 hours, develop your own factoring sites on Claude around your portfolio, but it's not going to give you the unique MSCI factors that actually you need to pay attention to, even though you might disagree with what's important to focus on, you need to pay attention to them. So those standards really do matter. And the most sophisticated investors are our biggest clients, clients that have been using AI for a long time are very advanced in developing their own AI-driven risk and factor models are our biggest clients. because we bring all those unique elements at scale to them and unique insights. So we're excited about what AI can do. If you think about the needs in that future genetic-driven investment process, it is the need for trusted, well-governed transparent ways to do these analytic calculations. These are finciaries that we are selling to, they're going to have an agent making a portfolio decision or giving an insight that is used to make a portfolio decision. They better be able to stand up for a regulator before a litigator and being able to say, I had a well-governed process to understand what the machine was doing, and that's where we can come in and provide more services and a trusted agentic layer to that systematic process in the future. so long-winded answer, but we get very excited about the prospects on the analytics side.

Got it. That's very helpful. I guess before we dive into private asset, I do want to ask 1 quick ESG question. A year ago, when we sat here at our SEC, we talked about 1 of the major -- or 1 of the headwinds to sustainability and climate portfolio, and the MSCI is really this regulatory marines that wasn't resolved a year ago. So maybe just tell us more about where we are or what are you seeing in that regulatory landscape today?

Sure. Yes, there has some -- there has been some fluidity there continues to be some degree of uncertainty. There have been some clarifications around various regulations in Europe. But there are back discussions taking place around others. It continues to be an area of complexity. Some of the ones that have been clarified do create opportunities for us. And we've -- I think Henry mentioned on the earnings call, -- we've won some big mandates to support large government organizations, institution, regulatory-driven mandates in Europe. . And so it continues to be an opportunity, but it is also an area that is evolving. And so there are different -- continue to be different views on how to think about reality, how to think about impact or double materiality investing, what's important from a climate perspective, all those things are creating opportunities for us to sell more to our clients. And so we are continuing to upsell. You see outsized growth with us on the climate side climate continues to be a big focal point. I think the big advantage that MSCI is at is we've always been focused on that materiality point. So what matters from a financial risk standpoint and we are doubling down on that and providing deeper insights into physical risk transition risk. Some of the areas that clients are worried about their supply chain exposures. I alluded to earlier, some of the geospatial asset location content sets that we've come out with. So we are evolving. There's going to be these shifting dynamics, as I've alluded to in the past. We think the dynamics that we've seen in recent quarters will continue in the near term. There are areas of caution hesitancy around parts of sustainable investing, but there are definitely opportunities and long-term opportunities that we're very excited about and have conviction that we're uniquely positioned to capitalize on one regulation that is going into effect very soon in the second half of this year is as most regulation of ESG ratings providers. And so ESMA is formally going to regulate ESG ratings and more generally ESG analytic or data providers and that is something that is helpful to us. It makes it tougher for many of the broad ESG data providers to compete that is a standard that will require governance, strong governance, transparency, strong risk management practices, ensuring being free from conflicts, these are all things and consistency around pricing. These are all things that MSCI does well naturally and we are well positioned to thrive in that regulatory environment. And so that should help us continue to solidify our position as a standard, which you are starting to see where clients are consolidating providers, and we tend to be the provider of choice. And I think that regulation is something that should solidify our position even more.

Okay. Switching gears to private assets. The Berger's acquisition is almost 3 years ago now, I guess, where are we in the process of accelerating Berger's growth to 20% type top line growth? And are there any cost synergies that you want to highlight?

Yes. So -- as you alluded to, and I said this when we announced the acquisition of Berges, we believe this Berges can be a 20% plus grower. It has not been there. So it's not perform to the level that we've been looking for. I think there have been a few factors at play. One is our pace of product innovation has probably taken longer related to that, getting the right management team integrated within MSCI in the right fashion that's probably taken longer and then just the adoption of the industry of many of the new standards is just something that naturally takes longer. We are very encouraged, as I alluded to earlier, you've seen an acceleration now for the last couple of quarters in the PCS, which is mostly that Berges franchise subscription run rate growth, and we're seeing good momentum across those dimensions of getting traction internationally, which is underpenetrated market for burgers, but also a less evolved private asset market. So we're seeing very strong growth outside the U.S. So we're confident we're hoping to drive. We're seeing strong traction behind many of the new solutions and capabilities that we've been developing. And those are actually enabling us to do more for existing clients as well. But then last and importantly, we're at this period where we are starting to see that adoption take place. The investment industry moves very slowly. We like to say overnight change takes 10 years in the investment industry because people have policies risk practices, strong governance, their fiduciaries, regulations, it's not easy for them to change the way they invest overnight, but we are seeing strong engagement, and that is accelerating from things like concerns around private credit exposure in private credit portfolios, things around concerns within growth equity portfolios to SaaS companies and how they're being marked, deeper insights into market liquidity and distribution curves -- these are all things that many market participants are paying attention to, and we are truly differentiated in our ability to help on that journey. So we think we've got the pieces to start to really evangelize the industry we're super excited. And as I said, we've got some good momentum that we're confident will continue across private assets.

Got it. I guess we're running out of time. Maybe just 1 last question from me today. What's your next key focus area in private assets help us think through that product road map for the next 5 to 10 years?

Yes. So we have -- it's probably our most fertile area of innovation right now. And so it's tough to say it is 1 thing because it cuts across many dimensions of content areas but also services that we're delivering. And so maybe I can highlight a few quickly here. I alluded private credit. We've historically been much more prevalent, including our -- the legacy franchises of Berges and RCA around private equity and private real estate -- we have built out infrastructure insights and an infrastructure risk model, but we have very rapidly, as I alluded to earlier, with AI built out a private credit capability that allows us to do transparency in the private credit portfolios. We have a partnership with Moody's that allows us to do private credit risk scoring for clients. And so there is tremendous growth for us to expand our service across asset classes with clients. And that's not just private credit. That's a big area for us. But it's also, as I said, natural resources infrastructure, it's also moving for closed-end fund vehicles, which is our bread and butter into many of the continuation funds and more open-ended vehicle structures. And so just expanding the breadth of fund types, fund structures, assets that we cover is a tremendous growth opportunity for us. I alluded to this earlier in analytics, but it's the case in private assets with many of the capabilities that we brought to bear together with the MSCI franchise, we're having tremendous success on the total portfolio side. And so many of these big private asset investors like an endowment foundation, a family office, huge portions of their portfolio into private assets, and they historically have not been as robust in thinking about factor risk market sensitivities, tracking errors, and they are starting to awake into those things, and we have the ability to do that for them across their total portfolio really anchored to the private asset exposure that they have, which is the bulk of the fees that they're paying in many instances, the bulk of their assets. And so we have an offering we call Total Plan Manager, TPM, which is getting tremendous traction and it's one that we think has a long way to go in penetrating a long tail of asset owners. Also from a client segment dimension standpoint, we've been very big with the LPs, those asset owners. -- but we are starting to get traction with wealth organizations who are saying, "I need to do a better job qualifying my end client, but also this fund. So as part of their diligence process. helping them understand the risk that's associated with a specific asset class. How that is interoperable or how that risk relates to the risk in the broader portfolio that they have. help them understand the value that they're getting for the fees that their clients are paying to these private asset managers, which can be very sizable -- as they taking a fiduciary standard, you better make sure you understand the value your clients are getting for the fees that they're paying and the risk that they are taking. And those are things that we can help them with. And then even the managers themselves, alternative managers the GPs are recognizing that their clients care about these things more and more clients are hesitating to book more money into a private credit fund. They're hesitating to put more money into a growth equity fund that's exposed to software companies unless they can get a better feel for what is -- why is this an uncorrelated risk? What is the value that you're bringing? Is it really just leverage and industry exposure. And so we can actually help them tell their story to the LPs. And so tremendous opportunities for us to grow across additional client segments. I also -- I mentioned earlier, the geographic opportunities for us outside the U.S. And then there's a whole host of innovations coming down the pipe from now casting evaluated pricing, liquid benchmarks, a whole host of risk insights and analytics that are super exciting. So long-winded answer to, we are super excited about the opportunity across private assets going forward here.

Very exciting. Thank you so much for sharing with us today. Thanks, everyone for joining us.

Thank you. Appreciate it.