MSCI's Q3 2025 Earnings Call: Contradictions Emerge on Market Volatility, Active ETFs, AI, and Private Credit Strategies

Guidance:

• Increased low end of expense guidance driven by strong growth in AUM linked to MSCI indexes.
• Interest expense guidance incorporates the notes issuance in Q3.
• Free cash flow guidance raised reflecting business growth and tax benefits.
• No change to capital allocation approach or leverage targets; buybacks to be funded via free cash flow and opportunistic debt (targeting up to ~3.5x).
• Expect sustainability segment pressures to continue in the near term; product pipeline remains constructive for Q4.

Business Commentary:

• Record Financial Performance and Share Repurchases:
• MSCI delivered organic revenue growth of 9%, adjusted earnings per share growth of over 15%, and total run rate growth over 10% in Q3 2025.
• The company repurchased $1.25 billion worth of MSCI shares in the quarter, bringing year-to-date share repurchases to over $1.5 billion.

• The growth and repurchases were driven by strong competitive advantages, increased asset-based fee performance, and strategic acquisitions.

• Index Franchise Expansion:

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

• Growth was fueled by strong adoption of MSCI indices and the use of investment strategies as foundational elements in portfolios.

• Private Assets and Analytics Growth:

• Analytics recorded subscription run rate growth of 7%, with strong sales in Equity Solutions and multi-asset class analytics.
• MSCI launched a private credit factor model powered by proprietary data, enhancing transparency in private credit funds.

• The expansion in these areas is supported by increased demand from multi-strategy hedge funds and rapid innovation in AI-driven solutions.

• Strategic Focus on New Client Segments:

• MSCI reported notable recurring net new sales growth across various segments, including 21% for hedge funds and 11% for wealth managers.
• The company is expanding its presence in newer client segments such as wealth management and GPs, while deepening penetration in established segments.
• This shift is driven by the need to cater to the growing allocation into private assets and the use of MSCI's tools to improve market risk assessments.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 9% organic revenue growth, 10% adjusted EBITDA growth and >15% adjusted EPS growth; Board authorized $3.0B additional buyback and YTD repurchases of $1.5B; ABF run-rate growth 17% and total AUM linked to MSCI indexes $6.4T. CEO: "it's darkest before it's dawn... the dawn has arrived."

Q&A:

• Question from Manav Patnaik (Barclays): Where are the white spaces in private credit data and how integral is the Moody's partnership?
  Response: Very bullish — MSCI built proprietary private-credit coverage (2,800 funds, 80k loans), licensed Moody's credit models to produce credit assessments, launched taxonomies, factor risk models and private-credit indices; monetization expected over time though current revenue contribution is limited.

• Question from Alex Kramm (UBS): What new products/marketing efforts have you done for nontraditional client segments and when will they materially impact results?
  Response: Two-pronged plan — help active managers create revenue-generating products (e.g., active ETF innovations like the Goldman Sachs Private Equity Tracker) and expand into hedge funds, wealth, GP/asset owners; product machine ramping over last 9 months shows early signs of turning prior softness into growth.

• Question from Toni Kaplan (Morgan Stanley): Where are the biggest AI opportunities on revenue and cost and any quantification?
  Response: AI is a 'godsend' — scaling proprietary data capture, model building and product delivery; saved tens of millions in operations, ~ $15–20M of revenue this year from ~25 new AI-powered products, and targeting 5–15% run‑the‑business cost reductions to fund reinvestment.

• Question from Ashish Sabadra (RBC): Commentary on the pipeline entering Q4 and seasonality for bookings?
  Response: Pipeline is healthy and product-driven; market/backdrop relatively stable, with strong client engagement led by recent product innovation; expect sustainability dynamics to persist near term.

• Question from Alexander EM Hess (JPMorgan): Why is non-ETF lagging ETF growth and what's fixed-income AUM/quarterly dip explanation?
  Response: Non‑ETF can be lumpy due to true‑ups, fee adjustments and timing; fixed‑income ETF AUM ≈ $90B; sustainability-related indexing is a key monetization channel, so don't overread short‑term lumpiness.

• Question from Kelsey Zhu (Autonomous): Economics and competitive advantages in active ETFs; net positive or negative if AUM shifts from active mutual funds to active ETFs?
  Response: MSCI monetizes across the spectrum (index, analytics, data); active ETF-linked assets ≈ $30B, up 10% QoQ — the shift is net positive as many ETFs require quantification/customization where MSCI provides tools and captures new revenue (data/index fees + potential AUM-linked fees).

• Question from Owen Lau (Clear Street): Could AI investments compress margins if revenue doesn't ramp as hoped?
  Response: Management expects AI to expand margins by cutting operating costs and enabling scalable product distribution; MSCI will buy/train LLMs against proprietary data (not build LLMs) and intends to reinvest margin gains into growth rather than accept margin compression.

• Question from Scott Wurtzel (Wolfe Research): Is sales momentum with asset managers incremental demand or release of pent-up demand?
  Response: Strength primarily reflects upsells to existing clients—especially in Index and Analytics in the Americas—supported by product development; retention is high (~97%), indicating durable engagement rather than only one‑off releases.

• Question from Faiza Alwy (Deutsche Bank): Why did net new sales decline in EMEA and is product innovation more U.S.-centric?
  Response: EMEA asset managers remain somewhat sluggish versus Americas; product development is global and MSCI sees strong index/ETF traction in Europe and positioning to unlock private-asset opportunities there despite near‑term softness.

• Question from Patrick O'Shaughnessy (Raymond James): Timeline and funding approach for the $3B repurchase authorization—free cash flow vs. debt?
  Response: MSCI will be opportunistic and aggressive if valuation permits, funding repurchases via a mix of free cash flow and incremental debt while maintaining leverage targets (around up to ~3.5x) and prior capital-allocation approach.

• Question from Keen Fai Tong (Goldman Sachs): How much did pricing contribute to net new bookings and what's the pricing strategy?
  Response: Price increases contributed roughly in line with recent quarters; strategy is to align price with delivered value, vary by product/client, and monetize enhancements while remaining mindful of client health.

• Question from Jason Haas (Wells Fargo): Timeline for product improvements to show up in net new sales and when AI efficiencies hit margins?
  Response: New products have started to contribute—~$25M YTD from recent releases (about $16M from Index); AI is expected to enhance scale and margins over time with a smooth impact on the financial model rather than a sudden hit.

• Question from Russell Quelch (Redburn): Why won't active ETFs cannibalize revenue from active asset managers and how do economics differ?
  Response: Conversion to ETFs often involves quantification/customization where MSCI provides index/analytics and adds new revenue streams; systematized/indexed products also create AUM-linked fees on top of subscription/data fees, so economics are additive rather than cannibalistic.

• Question from Gregory Simpson (BNP Paribas Exane): What's MSCI's product/revenue strategy for GPs and timeline to accelerate private-asset growth from 5.5% run‑rate?
  Response: PCS currently serves institutional LPs; near-term priorities are expanding tools for wealth LPs and building GP-facing products (e.g., asset/deal info); direct GP revenue today is minimal but represents a large multi-year opportunity as MSCI launches tailored GP products.

Contradiction Point 1

Impact of Market Volatility on Sales

It involves differing perspectives on how market volatility affects MSCI's sales and subscription growth, which are crucial for investor expectations.

What is the current state of the recurring subscription sales pipeline for Index and Analytics? How is the sales cycle progressing? - Ashish Sabadra (RBC Capital Markets, Research Division)

2025Q3: The overall market environment is stable, and we're seeing good results from Index and Analytics sales. - Andrew Wiechmann(CFO)

Can you address the sales outlook despite the year-over-year sales decline? - Owen Lau (Oppenheimer & Co. Inc., Research Division)

2025Q2: Markets remain stable, with consistent dynamics, and MSCI's sales are not significantly affected by market volatility. - Andrew Craig Wiechmann(CFO)

Contradiction Point 2

Growth Opportunities in Active ETFs

It highlights differing views on the impact of active ETFs on MSCI's growth, which is essential for assessing potential revenue streams.

Can you explain the economics of active ETFs and your competitive advantages in this space? - Kelsey Zhu (Autonomous Research US LP)

2025Q3: Active ETFs are growing with nearly $30 billion in assets, up 10% quarter-on-quarter. They are not cannibalizing existing revenue streams but rather offering new opportunities. - C. Pettit(President, COO & Director)

What is MSCI's position in the active ETF market, and what are the economics of its services? - Wenting Zhu (Autonomous Research US LP)

2025Q2: Active ETFs are not a major trend, at least in our opinion, as there are very few active ETFs that are material in size. - Henry A. Fernandez(Chairman & CEO)

Contradiction Point 3

AI Impact on Product Development and Cost Savings

It addresses the role of AI in product development and cost savings, which are crucial for the company's competitive advantages and efficiency.

How are you using AI to develop new products, and what revenue and cost savings do you expect from it? - Toni Kaplan (Morgan Stanley, Research Division)

2025Q3: AI will lead to significant cost reductions, enhancing our ability to invest in new product development and maintain profitability. - Henry Fernandez(CEO)

What is your downturn playbook and the range of outcomes you're preparing for? - Manav Patnaik (Barclays)

2025Q1: We've integrated AI into our operations, reducing employee hires, and AI is driving new products with $15-$20 million in sales this year. - Henry Fernandez(CEO)

Contradiction Point 4

Private Credit Growth and Strategy

It involves the company's strategic direction and growth expectations in the private credit market, which could impact revenue and investor perceptions of the company's growth potential.

What is your strategy for private credit and how does the Moody's partnership fit into it? - Manav Patnaik (Barclays Bank PLC)

2025Q3: We are optimistic about the growth in private credit funds. Private credit provision is moving to private funds, not just banks, and institutional capital is needed to sustain this. We are working on credit assessments, market risk measurement, and evaluated pricing for private credit funds. - Henry Fernandez(CEO)

What is driving the decline in net new sales in EMEA? Are new product innovations focused on the Americas? - Faiza Alwy (Deutsche Bank AG, Research Division)

2025Q1: Our business model is the same across all asset classes. We are not involved in credit provision. We do not underwrite credit. - Henry Fernandez(CEO)

Contradiction Point 5

Private Assets Growth and Client Activity

It highlights differing perspectives on the growth and client activity within the private assets segment, which is crucial for understanding MSCI's strategic positioning and revenue expectations.

What are the economics of active ETF products and your competitive advantages in this area? - Kelsey Zhu (Autonomous Research US LP)

2025Q3: PCS showed steady growth, with strong traction in new logos. - Andrew Wiechmann(CFO)

Can you explain the decline in Private Assets and Retention Rates? What's the timeline for achieving revenue growth targets? - Kelsey Zhu (Autonomous Research US LP)

2024Q4: PCS was up 20% organically, with good results across client segments. - Andrew Wiechmann(CFO)