The operator introduces the MSCI Second Quarter 2024 Earnings Conference Call and turns it over to Jeremy Ulan, Head of Investors Relations and Treasurer. Ulan reminds listeners of the forward-looking statements and non-GAAP measures that will be discussed during the call. He also mentions the availability of the earnings presentation and brief quarterly update on the company's website. The call will feature Henry Fernandez, Chairman and CEO, Baer Pettit, President and COO, and Andy Wiechmann, Chief Financial Officer.

In the second quarter, MSCI had strong results, with 12% growth in adjusted earnings per share, 10% organic revenue growth, and 18% growth in asset based fee revenue. They also saw growth in subscription run rate, new recurring subscription sales, and a retention rate of 95%. They have also been actively repurchasing shares and have a consistent focus on creating value for shareholders. Their strategy remains focused on capturing the long term trends in the investment industry.

MSCI is making strides in commercializing trends in the financial industry, such as sustainability and private assets. They have seen success in their financial results and have engaged with clients globally to discuss potential collaborations. Recent partnerships and product launches, such as their partnership with Moody's and the launch of MSCI private capital closed end fund indices, demonstrate their strategy in action. MSCI AI Portfolio Insights and their technology platform acquired from Fabric have also been well-received by clients, particularly in the wealth management sector. This has led to a significant deal being closed during the second quarter.

In the second quarter, MSCI saw a 12% growth in wealth subscriptions and a 9% growth in Index subscriptions. They also saw strong growth in asset owners and hedge funds. Their strategy includes expanding their reach among large and growing client segments while maintaining their position among more traditional clients. MSCI plans to continue developing advanced solutions, including generative AI, to drive growth and profitability. In the Index product line, there was a 9% subscription run rate growth, with strong growth in EMEA and APAC and a 28% increase in direct investing AUM. MSCI also supported a client's launch of a new custom ETF climate series and completed the acquisition of Foxberry, with plans to enhance their custom index platform.

The global investment flows for ETF products linked to MSCI indexes have seen significant growth, with a record high of $28 billion in inflows during the second quarter. This has solidified MSCI's position as a top index provider for ETFs. In terms of Analytics, the company had a strong quarter, with a record high in new recurring subscription sales and retention rate. They also saw growth in sales from hedge funds and asset owners, particularly in the area of risk management. MSCI launched a new future risk product suite, including the MSCI AI Portfolio Insights tool, which utilizes their strengths in natural language processing and machine learning. The company also continues to focus on ESG and climate, with their offerings supporting various use cases in this area.

MSCI delivered strong growth for the combined segment, with a 14% run rate increase and 30% growth in climate products. The partnership with Moody's to offer ESG and sustainability data to their clients solidifies MSCI as the market standard. MSCI also launched new products to help with regulatory compliance and climate risk assessment. In private assets, they achieved significant milestones and are on track to become a standard setter in the private market.

In the second quarter, MSCI saw strong growth in its Real Assets division and continued demand for benchmark indexes in private markets. The company also delivered positive financial results, with 10% organic revenue growth, 14% adjusted EBITDA growth, and 21% free cash flow growth. While market headwinds may persist in the short term, MSCI remains focused on executing its long-term strategy and capitalizing on its competitive advantages. Additionally, the company saw growth in its index subscription run rate across various segments and modules.

In the second quarter, ABF revenues increased by 18% due to cash inflows and market appreciation. Non-U.S. exposures, particularly in developed and emerging markets, saw an increase in flows into ETFs linked to MSCI equity indexes. Fixed income ETFs linked to MSCI and Bloomberg partnership indexes also saw growth. AUM and ETFs and non-ETF passive products tracking MSCI indexes exceeded $5 trillion. In Analytics, organic subscription run rate growth was 7% and revenue growth was 11%. The ESG and climate segment saw organic run rate growth of 13%, excluding FX and Trove. Private Capital Solutions had a year-over-year run rate growth of 17%, with record sales in Europe and solid traction with GP clients.

The company has had a strong quarter with a high retention rate and significant revenue. They have seen growth in their Real Assets division but are facing challenges in their transaction data offerings. They have a strict approach to capital allocation and have repurchased a significant amount of shares. The company has increased their guidance for depreciation and amortization expenses and operating expenses due to the impact of an acquisition. They expect their effective tax rate to be between 20% to 22% in the next two quarters. The company sees opportunities for growth in the long term, despite facing some near-term headwinds and client pressures. They are confident in their ability to execute and remain a leader in their markets.

During a conference call, an operator introduces a question from Alex Kramm of UBS who asks about the strong sales growth in the quarter. He wants to understand what factors contributed to the increase, such as pricing, timing, or sales force engagement. The company's representative, Andy Wiechmann, responds by stating that sales and cancels can be unpredictable and that there has not been a significant change in market conditions. He also mentions that Q3 is typically a slower quarter and that sustained momentum in the equity markets can have a positive impact on sales. He notes that there is strong client engagement across the globe and in various product areas, which should eventually lead to sales momentum. Another question is then asked by Manav Patnaik from Barclays, regarding the company's partnership with Moody's.

MSCI and Moody's have formed a partnership that will benefit both companies. The deal was quickly put together and is based on a spirit of partnership. Moody's will use MSCI's expertise in ESG to enhance their products and services, while MSCI will gain access to Moody's private company database. The two companies see a lot of potential in this partnership and are pleased with the quick and collaborative process. The details of the revenue sharing and contribution from Moody's were also discussed.

The speaker discusses the impact of a recent partnership on new recurring sales in the second quarter, but is unable to provide specific details. They also address the ongoing debate about the asset management market being cyclical or secular and mention three main segments within the industry. They believe that the traditional active management segment will continue to grow, but at a slower pace compared to rules-based systematic index investing and private asset class management. This segment is currently facing challenges.

The company has relied on a certain segment for 50% of its subscription revenues, but is rapidly increasing its penetration in other areas such as quantitative and index investing, active management, and private assets. The CEO does not see the company's growth rate slowing down in the future, as they plan to continue penetrating traditional active management and increasing growth in systematic rules based investing and private asset class investing. The next question from an analyst asked about the company's plans for growth in the index sector, specifically market cap versus custom and direct indexing, factor and thematic indices, and direct custom indices. The CEO mentioned recent wins for Fabric and AUM for direct indexing, and stated that direct custom indices currently make up 15% of Index subscription revenue, but did not provide a specific growth projection for the next three to five years.

The speaker is discussing the growth of Index subscriptions and how it has slowed down due to a tougher environment. However, they are still seeing resilience and momentum in the second quarter results, which reinforces the long term opportunity for them. They attribute the growth to the market cap modules and custom and special packages, as well as the increasing trend towards indexation in different client segments. They also mention the potential for growth in direct indexing, which is mainly seen in the non-ETF passive line.

MSCI is well positioned to benefit from direct indexing solutions for wealth managers and asset managers. They have a strong presence in the non-ETF passive line and are expanding into broader solutions such as Fabric, Analytics tools, and ESG content. There was a large deal in the private asset space involving one of MSCI's clients this quarter and MSCI sees a big opportunity for Private Capital Indexes. They have already launched 130 private capital indices and have about 80 real asset indices. MSCI is excited about this launch.

The technical challenges and opportunities in creating private capital indices first involve accessing high-quality data, which MSCI has $15 trillion worth of. MSCI is also an expert in index construction and methodologies, and has a wide distribution network for reaching asset owners and managers. MSCI's independence and transparent methodology make it a leader in providing tools for private assets, including benchmark indices, performance attribution, risk models, liquidity, evaluated prices, portfolio construction, and asset allocation.

The speaker discusses the company's recent acquisitions and their positive impact on the company's position. The operator then asks about the company's cash flow and the potential for increasing their full year free cash flow guidance. The speaker explains that cash flow can be impacted by various factors and that they are focused on driving strong growth and conversion. The next question is about margin expansion and the speaker clarifies that they do not have a specific target for margin levels and are focused on reinvesting in the company.

The speaker discusses the company's focus on balancing long-term investments and profitability, with a particular emphasis on growth in the ESG and Climate sectors. They mention a potential increase in expenses if AUM levels continue to rise, but highlight their investments in key areas such as custom index solutions and private assets. The speaker also mentions a recent partnership with Moody's and potential new products related to CSRD.

The speaker discusses the current trends in ESG and how they are similar to previous quarters. The Americas, EMEA, and APAC regions have consistent growth rates and themes. In the U.S., investors are taking a measured approach to integrating ESG, while in EMEA, regulations are creating both opportunities and challenges. In Asia, there is solid engagement and earlier adoption of ESG. The industry pressures affecting all parts of the business may have a greater impact on ESG and Climate segments. The speaker expects these trends to continue in the short term, but remains optimistic about the long-term outlook for ESG.

The company's Analytics business has had a strong quarter, with double digit organic growth in recurring subscription sales and retention rates. This is due to factors such as strong client engagement, increased focus on investment risk, and innovations in their risk analytics and visualization tools. The company expects this momentum to continue in the short term.

The company has integrated AI capabilities into their services and have seen strong client engagement and sales in their fixed income and equity analytics businesses. They expect continued opportunities for growth, but acknowledge that there may be some challenges due to external pressures. The Analytics segment has seen notable margin expansion due to factors such as capitalized software and expense efficiencies, but the company has also invested less in certain areas.

The company has been strategic in investing in certain parts of Analytics while investing less in others to prioritize other areas of the company. This has led to an increase in the Analytics margin over time. The company sees opportunities for growth and will continue to invest in Analytics. They are also actively using AI to drive revenue and improve cost efficiency, particularly in data management and extraction. The company is seeing positive results in this area and is receiving guidance from members of the Board of Directors who have expertise in AI.

The speaker discusses the use of AI in various areas of the business and its impact on efficiency and new product development. They mention two examples of AI being used in GeoSpatial data and the future of risk. They also state that AI is being used in all parts of the business and they hope to provide more information on its specific impact in the future. The next question asks about private asset benchmarks, including the size of the market, growth rate, and competition. The speaker mentions two sources of value in these benchmarks and states that they have all the necessary data assets for growth but may also consider inorganic growth opportunities.

The paragraph discusses two potential revenue opportunities for the company in the private asset class benchmarking sector. The first opportunity is through sales to institutional LPs and wealth management clients, while the second opportunity involves expanding into performance attribution, risk management, and other related services. This will put the company in a strong position to provide data and improve transparency in the private asset investing world.

The speaker explains that risk units can be easily compared across different industries, and that the company is focused on aligning price increases with the value they provide. They also mention that most of their growth comes from existing clients and they are focused on being a strong long-term partner. They are continually balancing value with price increases. The next question is about the sales environment.

The speaker discusses the company's sales in the second half of the year and compares it to last year. They mention that the third quarter is typically softer but the fourth quarter is strong. They are cautious but see opportunities for growth. The CEO emphasizes the company's consistent execution of their strategy and their strong trend of compounding growth and profitability.

The speaker is optimistic about the company's future growth opportunities and mentions high levels of client engagement as a positive indicator. They thank the listeners for joining the conference call and wish them a pleasant summer. The call is now concluded.

This summary was generated with AI and may contain some inaccuracies.