MSCI's Q3 2025: Contradictions Emerge on Asset Manager Momentum, Retention Rates, and Active ETFs

Guidance:

• Increased the low end of the expense guidance range due to higher AUM levels linked to MSCI indexes.
• Interest expense guidance increased to reflect notes issuance in Q3.
• Free cash flow guidance raised reflecting business growth and tax benefits.
• Expect near-term Sustainability & Climate dynamics/pressure to continue.
• No change to capital-allocation approach; opportunistic share repurchases planned.

Business Commentary:

• Strong Financial Performance and Share Repurchases:
• MSCI delivered a 9% organic revenue growth and 10% adjusted earnings per share growth over 15% in Q3.
• The company has been very active in share repurchases, with $1.25 billion worth of MSCI shares repurchased in the third quarter, bringing the year-to-date total to over $1.5 billion.

• MSCI’s Board of Directors authorized an additional $3 billion worth in share repurchases, demonstrating strong conviction in the value of the franchise.

• Index Franchise Growth:

• Total AUM in investment products linked to MSCI indexes reached $6.4 trillion globally, including $2.2 trillion in ETF products and $4.2 trillion in non-ETF products.
• MSCI achieved a 27% increase in recurring net new subscription sales growth in Index, led by a 43% growth in the Americas.

• The depth and versatility of the Index franchise were highlighted, showcasing the investment community's confidence in MSCI indices as foundational elements in their portfolios.

• Analytics and Private Assets Expansion:

• Analytics saw a 7% subscription run rate growth, driven by a 29% increase in Equity Solutions and strong sales of multi-asset class analytics, particularly to hedge funds.
• In Private Capital Solutions, MSCI closed about $6 million of new recurring subscription sales, with notable success in newer client segments like wealth and GPs alongside established segments.

• The growth was supported by new product introductions such as factor models for private credit, enhancing MSCI's presence in private asset classes.

• AI Integration and Product Innovation:

• MSCI has been actively leveraging AI to enhance product development, with about $15 million to $20 million in sales from AI-powered products this year.
• AI is being used to build new products like custom index factories and geospatial data sets, aiming to scale data sets 1,000x more over the next 5-7 years.
• The integration of AI is expected to reduce operating expenses by potentially 5% to 15%, allowing for increased investment in product development and innovation.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 9% organic revenue growth, 10% adjusted EBITDA growth and >15% adjusted EPS growth; announced $1.25B repurchases in Q3 and a $3B buyback authorization; CEO: "the dawn has arrived... we're turning the corner" and emphasized broad product and AI-driven momentum.

Q&A:

• Question from Manav Patnaik (Barclays Bank PLC): Strategy on private credit, key white spaces to fill and importance of the Moody's partnership?
  Response: MSCI is building end-to-end private credit transparency (proprietary fund/loan database, taxonomy, factor risk models, Moody's-licensed credit assessments, indices and valuation work) to be the trusted benchmark/valuation provider; Moody's partnership is used for credit assessments; commercialization is early but strategic.

• Question from Alex Kramm (UBS Investment Bank): What have you done in past 3 months on new products, marketing/sales, and when will these materially impact results?
  Response: Two-pronged push: help active managers create revenue-generating products (example: Private Equity Tracker Fund) and expand into nontraditional client segments; early signs of recovery from new-product engine but impact will come gradually.

• Question from Toni Kaplan (Morgan Stanley): Where are the greatest AI opportunities for revenue and cost savings and any quantification?
  Response: AI is applied across data capture, model building and productization; has produced ~ $15–20M of AI-powered product sales YTD and delivered tens of millions in efficiency savings so far, with further cost reduction and product-driven revenue expected.

• Question from Ashish Sabadra (RBC Capital Markets): Comment on the pipeline entering Q4 and sales-cycle dynamics for seasonally strong bookings?
  Response: Pipeline is healthy and product innovation is driving client engagement into Q4; market backdrop relatively stable though sustainability-segment pressures are expected to persist.

• Question from Alexander EM Hess (JPMorgan Chase & Co): Why is non-ETF tracking behind ETF growth and what is fixed-income AUM/why a run-rate dip?
  Response: Non-ETF revenue can be lumpy due to true-ups and fee adjustments; fixed-income ETF AUM is ~ $90B; sustainability/climate monetization is largely occurring via equity and fixed-income indices.

• Question from Kelsey Zhu (Autonomous Research US LP): Economics and competitive advantages in active ETFs and net impact if AUM shifts from active mutual funds to active ETFs?
  Response: Active ETFs are additive—MSCI monetizes across a spectrum via Index and Analytics; ~ $30B linked AUM (10% QOQ) and category creates new revenue rather than cannibalizing existing business.

• Question from Owen Lau (Clear Street): Concern AI investments could compress margins—how do you ensure AI will maintain/accelerate revenue while driving margin expansion?
  Response: AI is expected to materially increase margins by automating systematic workflows and scaling products with limited infra capex (MSCI buys/trains LLMs rather than building them); gains will largely be redeployed into growth investments.

• Question from Scott Wurtzel (Wolfe Research, LLC): Is asset-manager sales momentum incremental demand or release of pent-up pipeline?
  Response: Momentum is largely driven by upselling existing asset-manager clients—notably Index in the Americas—with strong retention (~97%), rather than solely pent-up demand.

• Question from Craig Huber (Huber Research Partners, LLC): Will AI enable new entrants to take meaningful share—what is MSCI's competitive moat?
  Response: MSCI's moat is proprietary, trusted data and entrenched client relationships (large analytics footprints and private-assets datasets) plus validated investment/risk models and branded trust—creating high barriers for AI-only entrants.

• Question from Faiza Alwy (Deutsche Bank AG): Observed net new sales decline in EMEA—are innovations US-focused or ESG-related causes?
  Response: EMEA asset-manager demand is a bit slower than the Americas; product development is global and MSCI is well positioned in Europe (growing Index ETF ecosystem) though near-term EMEA sluggishness may continue.

• Question from Patrick O'Shaughnessy (Raymond James & Associates, Inc.): Timeline and funding mix to utilize $3B repurchase authorization—FCF vs incremental debt?
  Response: Plan to be opportunistic and aggressive when undervalued, using a mix of free cash flow and incremental debt while maintaining leverage philosophy (targeting up to ~3.5x at times); no change to capital-allocation approach.

• Question from Keen Fai Tong (Goldman Sachs Group, Inc.): How much did pricing contribute to net new bookings and overall pricing strategy?
  Response: Price increases contributed roughly in line with recent quarters; MSCI aligns price adjustments to delivered value while considering client health—no material change to pricing approach.

• Question from Jason Haas (Wells Fargo Securities, LLC): Timeline for new-product benefits showing up in sales and when AI efficiencies will improve margins?
  Response: Recently launched products have generated ~ $25M YTD (including ~$16M in Index) and those benefits are beginning to flow into sales; AI is expected to enhance scale and margins without materially depressing profitability.

• Question from Russell Quelch (Rothschild & Co Redburn): Why active ETF growth won't cannibalize active manager revenue and how do economics differ?
  Response: Active ETFs often become more rules-based/indexed where MSCI provides quantification/custom indices; MSCI earns data/analytics fees plus AUM-linked fees on systematized products, making the economics additive rather than cannibalistic.

• Question from Gregory Simpson (BNP Paribas Exane): Product offering, revenue and strategy with GPs and timeline to accelerate private-asset segment growth (~5.5% run-rate)?
  Response: Three-pronged approach: deepen institutional LP penetration, adapt PCS tools for wealth/retail LPs, and build GP-facing products leveraging MSCI's data; current GP revenue is small but represents a meaningful opportunity to accelerate private-assets growth.

Contradiction Point 1

Asset Manager Momentum and Growth Strategy

It highlights differing perspectives on the growth strategy and momentum within the asset manager segment, which is crucial for MSCI's revenue and market positioning.

Is the asset manager momentum driven by incremental or pent-up demand? - Scott Wurtzel (Wolfe Research, LLC)

2025Q3: The momentum is consistent with prior periods, driven by product development and upselling to existing clients. The retention rate is over 97%, indicating stability in the asset manager segment. - Andrew Wiechmann(CFO)

How can MSCI accelerate subscription growth in the asset manager segment beyond its current rate? - Manav Shiv Patnaik (Barclays Bank PLC, Research Division)

2025Q2: Growth in non-active asset manager segments, such as banks, hedge funds, and wealth management, is crucial. Focus is on increasing sales and consultants in these areas. - Henry A. Fernandez(CEO)

Contradiction Point 2

Retention Rates and Client Engagement

It raises questions about client engagement and retention rates, which are vital for MSCI's long-term growth and customer relationships.

How is new product innovation affecting EMEA growth, particularly in asset management? - Faiza Alwy (Deutsche Bank AG, Research Division)

2025Q3: In the Americas, our EMEA client base is healthy, and we saw better than expected results in Asia. - Andrew Wiechmann(CFO)

What caused the lower retention rates in analytics, sustainability, and climate, and what's the outlook moving forward? - Ashish Sabadra (RBC Capital Markets, Research Division)

2025Q2: Retention in Q2 was driven by financial budget pressures and client events. Most notably, retention in hedge funds and corporate advisers in sustainability and climate is challenged. - Andrew Craig Wiechmann(CFO)

Contradiction Point 3

Active ETFs and Revenue Impact

It involves the perceived impact of active ETFs on MSCI's revenue, which is crucial for investor understanding of revenue streams and growth strategies.

Can you explain the economics and competitive advantages of active ETFs, and how will the shift from mutual funds to ETFs impact MSCI? - Kelsey Zhu (Autonomous Research US LP)

2025Q3: We don't expect ETFs to cannibalize our current revenue streams. Active ETFs is a new business for us and it's a completely different wrapper or vehicle that's often rules-based rather than manager-based. - C. Pettit(President, COO & Director)

Why were retention rates in line with historical trends and why are these levels expected to remain normal moving forward? - Faiza Alwy (Deutsche Bank AG, Research Division)

2025Q1: We're a leading index provider to the ETF market, which is growing. There's a lot of innovation going on there. - Henry Fernandez(Chairman & CEO)

Contradiction Point 4

Impact of Market Volatility on Business

It reflects differing perspectives on how market volatility affects MSCI's business, which is important for understanding revenue stability and growth potential.

What are your expectations for the Q4 pipeline and sales cycle? - Ashish Sabadra (RBC Capital Markets)

2025Q3: As you think about the pipeline and the future, there's still plenty of uncertainty out there. There's still a lot of things that are beyond our control. - Andrew Wiechmann(CFO)

What are clients saying about new purchases and are deals being delayed due to market volatility? - Toni Kaplan (Morgan Stanley)

2025Q1: We are not seeing a dramatic change in purchasing habits, and some deals not closed in Q1 are expected to close in Q2. - Baer Pettit(President & COO)

Contradiction Point 5

Pricing Strategy and Environment

It highlights differing perspectives on pricing strategy and market conditions, which are critical for financial forecasting and competitive positioning.

How has pricing contributed to net new bookings growth, and what is MSCI's pricing strategy? - Keen Fai Tong (Goldman Sachs Group, Inc., Research Division)

2025Q3: Price increases are consistent with recent quarters, aligned with value delivered and overall market conditions. We aim to be constructive with pricing to maintain long-term partnerships. - Andrew Wiechmann(CFO)

How do you assess 2025 pricing strategies and potential segment opportunities? - Alex Kramm (UBS)

2024Q4: We have delivered 2% price increase in 2024, driven by our value add and our product offerings. We expect to deliver a similar rate of price increase in 2025, driven by the same value proposition and overall market conditions. - Andy Wiechmann(CFO)