MSCI's 17% Index-Based Fee Growth: A Structural Shift in Asset Management

In Q2 2025, MSCI Inc. (MSCI) reported a staggering 17% year-over-year growth in asset-based fees (ABF), driven by explosive inflows into exchange-traded funds (ETFs) and non-ETF indexed products tied to its benchmarks. This surge—bolstered by a 24% increase in notional ETF assets under management (AUM) linked to MSCI indexes, now exceeding $2 trillion—signals a seismic shift in the asset management industry. For investors, this development is not merely a quarterly win for MSCI but a harbinger of broader structural changes reshaping how capital is allocated, how fees are structured, and how competition plays out between active and passive strategies.

The Rise of Index-Linked Infrastructure

MSCI's dominance in global benchmarking has transformed it from a provider of international equity indexes into a foundational infrastructure company for institutional and retail investors alike. Its indexes, such as the MSCI ACWI and MSCI Emerging Markets, are now embedded in the DNA of global capital flows. The 17% ABF growth in Q2 2025 was fueled by two key trends:

1. Passive Investing's Acceleration: MSCI's ETFs captured 29% of all indexed equity ETF inflows in the quarter, with developed markets ex U.S. (DMXUS) products securing over 50% of flows in their category. This reflects a global migration of capital away from U.S.-centric portfolios and toward diversified, index-linked strategies.
2. Private and ESG Innovation: MSCI's expansion into private capital benchmarks and sustainability ratings has created new fee streams. For example, its private capital tools now cover $11 trillion in fund capitalizations, enabling institutional investors to benchmark performance in opaque markets.

Implications for Asset Managers

MSCI's growth underscores three critical shifts in the asset management landscape:

1. Fee Compression vs. Scale: While the industry grapples with declining fees due to competition and investor cost-consciousness, MSCI's ABF model demonstrates how scale and client retention can offset margin pressures. Its 96% revenue retention rate in the Index segment and 55% operating margin highlight the power of recurring, asset-linked revenue.
2. Active vs. Passive Rebalancing: The rise of index-linked products has eroded the dominance of active managers, particularly in international and ESG spaces. MSCI's macro-finance model, which integrates cash flows, discount rates, and inflation, now supports both passive and active strategies, but the data leans heavily toward passive adoption.
3. Regulatory and ESG Alignment: MSCI's sustainability indexes and private capital benchmarks are increasingly shaping regulatory compliance and investor reporting. This positions it as a gatekeeper for ESG and alternative asset strategies, further entrenching its influence.

Strategic Risks and Opportunities

Despite its strength, MSCI faces challenges. The 64.5% decline in net new recurring subscription sales in its Sustainability & Climate segment warns of softness in niche markets. However, its core Index business remains resilient, underpinned by record AUM levels and strategic partnerships, such as its collaboration with Moody's for private credit analytics.

For investors, the key question is whether MSCI can sustain its ABF growth as markets normalize. The company's focus on AI-driven analytics and market classification reviews (e.g., Bulgaria's potential reclassification to Frontier Market) suggests it is adapting to evolving investor needs.

Investment Advice

MSCI's 17% ABF growth in Q2 2025 is a bellwether for the future of asset management. For long-term investors, the company's sticky client base, recurring revenue model, and leadership in emerging markets and ESG make it a compelling play on the structural shift toward passive and data-driven investing. However, caution is warranted in overexposure to its ESG and Climate segments, which face regulatory and market volatility risks.

In conclusion, MSCI's benchmarking dominance is not just a win for the company—it's a testament to the irreversible trend of index-based investing. As capital flows increasingly align with MSCI's global frameworks, asset managers must adapt or risk obsolescence. For investors, this is a moment to align portfolios with the infrastructure of tomorrow.