The paragraph is the introduction to MSCI's fourth quarter 2024 earnings conference call. It begins with the operator's greeting and instructions for participants, indicating the call is in listen-only mode until a later Q&A session. Jeremy Ulan, Head of Investor Relations and Treasurer, then takes over, mentioning the release of the quarter's financial results earlier in the day, which are available on MSCI's website. He warns about the forward-looking statements on the call, emphasizing the uncertainties and risks that could lead to actual results differing from expectations. The call will also reference both GAAP and non-GAAP financial measures, with additional information available in the presentation's appendix, and operating metrics like run rate and retention rate will be discussed.

The paragraph details MSCI's strong financial performance in 2024, highlighting significant achievements such as organic revenue growth of nearly 10%, and adjusted earnings per share growth of 12.4%. The company repurchased $810 million in shares throughout the year, including $425 million in the fourth quarter. MSCI also reported an 8% organic subscription run rate growth excluding FX impacts, 15% asset-based fee run rate growth, and a retention rate of 93%. A notable factor was the high cash inflow into equity ETFs linked to MSCI indices, exceeding $48 billion. Client segments like hedge funds and wealth managers showed robust growth, while active asset managers experienced some pressures but still managed a 5% growth in subscription run rate and a 94% retention rate.

The paragraph highlights the success of MSCI's strategy in three key areas: index products, wealth management, and fixed income. In index products, MSCI's indices continue to be central to global investing, with significant milestones such as a large ETF launch linked to an MSCI climate index. The demand for climate-related investment products and MSCI's custom index capabilities is growing. In wealth management, MSCI achieved 12% subscription run rate growth, with increased assets under management (AUM) and the launch of the MSCI Wealth brand to help managers build personalized portfolios. Fixed income products saw a 15% growth in run rate, totaling $104 million.

In this paragraph, MSCI discusses recent achievements and progress in expanding its fixed income and wealth management capabilities. The company highlights a significant fixed income portfolio management deal with a U.S.-based asset manager and a federal government contract for mortgage-backed security analytics. These successes result from MSCI's enhanced capabilities in modeling complex assets. The company is confident that supportive market conditions will bolster client budgets, allowing MSCI to leverage its data, models, and technology to drive growth. Baer Pettit then discusses the growth in the wealth management segment, reporting a 12% increase in subscription run rate to $116 million, with a notable 14% growth in analytics subscriptions, and a key enterprise deal was closed for MSCI Wealth Manager.

In Q4, MSCI Wealth Manager experienced significant growth across various segments, particularly in ESG, Climate, and hedge funds. They achieved 28% climate run rate growth, totaling $7 million, and 67% ESG and Climate recurring sales growth, totaling $3 million, among wealth managers. MSCI also saw 15% subscription run rate growth among hedge funds, with notable conversions of one-time sales to recurring subscriptions, highlighting product value. In banks and broker dealers, MSCI delivered 7% subscription run rate growth and $7 million in new recurring sales, particularly strengthening relationships with investment banks for index data use in derivatives and structured products. Among asset owners, the company achieved an 11% subscription run rate growth and 40% recurring sales growth, with bolstered positions in climate and private assets.

The company recently secured a significant climate index mandate with a UK asset owner, resulting in $20 billion of assets under management linked to an MSCI Climate Index. Their private capital solutions for asset owners achieved a run rate of $78 million, growing 15% in Q4, alongside launching a private credit data set. They reported a firm-wide growth in subscription run rate by 5% despite FX challenges and maintained a 94% retention rate. They secured a major analytics deal in the Americas, aided by their AI Portfolio Insights, and expanded services with a key European client. They achieved a 95% retention rate for ESG and Climate products among asset manager clients and secured large deals in Europe for sustainability tools. These achievements highlight their growth and profitability across the capital markets ecosystem.

The paragraph reports on the positive financial performance of MSCI, highlighting significant growth in index subscription run rates across various client segments in the fourth quarter. Asset managers and asset owners experienced a run rate growth of almost 7% and 12%, respectively, while growth among hedge funds and broker-dealers was 22% and 8% respectively. Custom indexes showed growth in the mid-teens. MSCI reported a high overall retention rate of 95%, and strong cash inflows of $48 billion into equity ETFs linked to its indexes, particularly in developed markets outside the U.S. and ESG and climate sectors. Inflows into ESG and climate index-linked ETFs reached nearly $12 billion, the highest since early 2022, making up 70% of the global inflows in that sector. AUM for MSCI climate equity indexes grew over 50%, and factor index-linked ETF inflows were the highest since mid-2021, with nearly $6 billion in inflows.

In the Analytics segment, subscription run rate growth was 7%, supported by wealth and fixed income mandates, with organic revenue growth at 5% due to variability in implementation-related revenues. Near-term recurring revenue growth is expected to be slightly below run rate growth. In the ESG and climate segment, run rate growth was 10%, boosting to 14% in Europe, 11% in Asia, and 4% in the Americas, with a 93% retention rate. Recent success was driven by investments in data quality and content. Private Capital Solutions saw a 15% run rate growth and a 92% retention rate, while real assets showed improved sales despite some large cancels.

The paragraph outlines the company's financial performance and expectations. In 2024, they experienced a 21% increase in free cash flow and maintained a strong capital position with a gross leverage of 2.6x EBITDA. For 2025, they anticipate rising market levels and plan continued reinvestment in their business. They expect adjusted EBITDA expenses to rise in Q1 2025, driven mainly by higher compensation costs. CapEx will focus on software development, and free cash flow will be impacted by deferred tax payments from 2024, leading to higher payments in 2025. Their interest expense is based on current debt levels without assuming new financing, and they expect a Q1 effective tax rate benefit from discrete items, with a rate of 19-21% beyond Q1. The company is optimistic about 2025, with a solid foundation for growth. The paragraph concludes with an introduction to a Q&A session, where a question from Toni Kaplan about ESG strategies was initiated.

Henry Fernandez discusses the long-term growth potential of the business, emphasizing the strong commitment of European financial institutions to sustainability. After visiting numerous clients across Europe, he notes that regulations are leading to a temporary pause in launching new products, but investors are unlikely to abandon sustainable investment practices. The company aims to adapt its product line from just providing ratings to offering in-depth data and insights on ESG signals. Despite a current cyclical downturn, the demand for sustainable investment solutions persists, necessitating product evolution to meet this demand.

The paragraph discusses the importance of complying with heavy disclosure and regulatory requirements in Europe for financial institutions operating there, a trend spreading to Asia-Pacific countries like Australia, Japan, Hong Kong, and Singapore. Despite the U.S. government's current lack of focus on sustainability and climate issues, there is a secular trend among private sector clients to consider these factors in their portfolios. The speaker anticipates that demand for sustainable practices will continue to grow, driven by private sector initiatives. The company is reevaluating its long-term targets, acknowledging that these are still in progress and subject to change. The paragraph concludes with a transition to a question from Manav Patnaik of Barclays about the speaker's optimistic outlook for the upcoming year.

The paragraph features Andy Wiechmann discussing the current market environment compared to the previous year. He notes that rising markets are generally positive for clients and have led to increased buying behaviors, particularly in the U.S. There are positive signs and innovations in areas such as custom indexes, analytics, private asset solutions, and climate, contributing to an optimistic outlook. While some pressures remain, especially for active managers in Europe, the overall environment is improving, and the pipeline is showing growth in certain areas. Regarding cancellations, Wiechmann does not anticipate the same level as seen the previous year, but acknowledges some ongoing challenges. He advises against placing too much emphasis on quarterly fluctuations in the market.

In the paragraph, Andy Wiechmann discusses pricing strategies for 2024, noting that price increases are expected to contribute slightly less to sales compared to 2023. While they have moderated price hikes in some areas, the company continues to enhance its products and provide broader access, justifying these increases in terms of added value to clients. Wiechmann emphasizes the importance of assessing the overall pricing environment, client health, and the company's value delivery to clients. Although he believes the company is well-positioned relative to competitors, he refrains from detailing specific pricing dynamics across different segments, highlighting a long-term partnership approach to pricing.

The paragraph discusses a company's competitive advantages, emphasizing their strong value proposition due to high-quality offerings, interoperability of tools, and a supportive ecosystem for clients, particularly in areas like ESG. The company feels well-positioned against competitors and highlights an improving sales pipeline, with constructive trends in markets and AUM levels leading to higher revenue confidence for asset managers. Sales cycles are showing some improvement but remain lengthy, with varying dynamics between the U.S. and Europe. The U.S. market is experiencing positive momentum across various client segments.

The paragraph discusses strong growth in various financial areas like hedge funds, wealth management, and asset ownership. It highlights the evolution and innovation in custom indexes, noting mid-teens growth in that area. There is significant progress in non-ETF passive investments, particularly non-market cap weighted products, with a 35% growth in assets under management (AUM) linked to non-market cap indexes, including ESG, climate, and factor indexes. This compares to 20% growth in the overall non-ETF category and roughly 50% in custom indexes. The company is capitalizing on these trends in institutional passive investments, direct indexing, structured products, and over-the-counter derivatives, aiming to lead in the custom index segment. The paragraph concludes with a transition to a Q&A session, with a question from Alexander Hess of JPMorgan about subscription business trends, specifically noting an 8% organic subscription run rate growth in the quarter.

Andy Wiechmann discusses MSCI's growth potential amidst recent challenges. Despite past fluctuations due to various client and product dynamics, Wiechmann expresses optimism about future opportunities. In the short term, existing pressures and impacts, such as asset management outflows and elevated client events, persist. However, there is noted momentum in areas like index products, recurring sales, and key growth areas such as wealth management, PCS, and private assets. Additionally, fixed income and analytics present promising growth prospects. Overall, Wiechmann believes these factors position MSCI well for future growth acceleration.

Andy Wiechmann addresses a question about the Analytics segment's performance, noting a slight decline in the reported subscription run rate due to foreign exchange (FX) impacts, despite consistent organic growth of around 7% across quarters. The appreciation of the U.S. dollar against currencies like the euro and pound caused the stated run rate to appear lower. Nevertheless, the core business shows strong momentum, particularly in areas like fixed income and wealth, with the insights offering driving new opportunities and improving client efficiency. While there has been an increase in cancellations, reflecting broader company trends, the overall outlook for analytics remains positive with continued growth and opportunity.

The revenue for this quarter was impacted by the timing of implementation-related revenues, resulting in growth slightly below the run rate. This was expected, as last year had more implementation-related revenue, making current growth appear lower. This trend is anticipated to continue into the next quarter, but the focus should be on the overall run rate growth for long-term direction. Kelsey Zhu from Autonomous asked about declines in retention rates and net new sales in private assets, and the timeline to achieve a 20% revenue growth target for private capital solutions. Andy Wiechmann explained that for private capital solutions (PCS), while the subscription run rate slightly slowed, growth remained steady at 15%. Real assets and PCS have different dynamics and are now being reported together for the first time.

The paragraph discusses the volatility in sales and cancellations, noting some softness in recurring net new sales, but highlights positive momentum in acquiring new clients and opportunities within the PCS segment, particularly in EMEA and APAC. MSCI is leveraging opportunities with asset owners and managers, and driving awareness and adoption of private asset benchmarks and indexes. The company is also releasing innovative and AI-driven content related to private credit and data insights. While sales can be unpredictable, there is overall optimism about PCS opportunities. In real assets, a significant down sale has impacted performance, and pressure from brokers and agents has affected data and Property Intel products, though there is continued momentum in Index Intel for market insights.

The paragraph discusses early signs of increased institutional investment in the Americas and Europe, which could lead to more transaction activity in the future. However, in the fourth quarter, previous trends continued with a notable number of cancellations. During a Q&A, Scott Wurtzel from Wolfe Research inquires about the company's strategic priorities for its Wealth segment looking toward 2025. Henry Fernandez responds, indicating opportunities across their product lines, especially in scaling wealth portfolios and balancing risk management with providing advisers with better tools. He mentions the demand for improved analytical tools for central offices and advisers due to existing legacy systems, sharing insights from meetings with large wealth players.

The paragraph discusses the opportunity to integrate private asset products and analytics into the wealth segment, as significant wealth managers act as both limited partners and general partners in private markets. There's a focus on leveraging high engagement levels and solutions to establish credibility and growth in this sector by 2025. The speaker is confident that their capabilities will lead to significant deals with larger players, enhancing their reputation as a provider of solutions, data, and content to wealth managers. Following this, Craig Huber from Huber Research Partners asks about the role of AI in cost efficiency, product enhancement, revenue benefits, and potential impacts on pricing for AI-enhanced products.

In the paragraph, Henry Fernandez discusses the advancements in data operations, emphasizing the significant reduction in data acquisition costs through AI and the ability to scale up new data categories efficiently. The use of AI has accelerated processes and reduced the need for more human resources, leading to quicker product development and enhanced analytics capabilities. Upcoming transformations projected for 2025 involve incorporating AI efficiencies in software engineering and product innovations, such as AI analytics insights and thematic driver discovery for indexes, which have received positive feedback in beta testing.

The paragraph discusses the role of AI in data acquisition and product innovation, particularly in the climate and ESG areas. It highlights a geospatial data project with Google that incorporates AI, and anticipates 2025 to be significant for AI advancements. While AI is seen as enhancing efficiency and enabling new products, it's uncertain if it will provide direct pricing power. Additionally, the paragraph touches on geographic differences in client behavior, noting that asset managers in Europe are experiencing more pressure compared to those in the U.S. Faiza Alwy from Deutsche Bank inquires about these geographic differences and whether the conversion of onetime data into subscriptions was unusually high, with Henry Fernandez acknowledging these nuanced differences.

The paragraph discusses trends in the asset management sector, noting a shift from significant outflows to more positive momentum, particularly in the Americas, due to improved market conditions and growing confidence. However, there are expected lingering impacts in EMEA and potential mergers that might influence the environment differently across regions. Additionally, the paragraph touches on the sale of free float data, which is part of their business model. Sales often start as one-time purchases but can lead to ongoing subscriptions. The impact of these sales in the quarter was not significant, and this model of converting samples into longer-term relationships is a typical business practice. The paragraph concludes with the introduction of the next question from George Tong of Goldman Sachs.

The paragraph is a discussion about subscription sales and cancellation trends for the fourth quarter. Andy Wiechmann notes that the trends were generally in line with expectations, with no major surprises. Cancellations were elevated in areas like real assets due to client events and budget constraints, while retention in ESG and climate sectors remained stable, though slightly elevated cancellations were noted among corporates and corporate advisers. Analytics experienced typical elevated cancellations due to client renewals. Despite these challenges, the overall outlook remains encouraging, although some noise and impacts are anticipated to persist.

The paragraph discusses a partnership between Henry Fernandez's company and Moody's in the ESG segment. The partnership involves three key components. First, Moody's Analytics will utilize the company's ESG data to enhance their products for clients, including banks and insurance companies. Second, the company will use Moody's Bureau Van Dijk database to generate ESG scores for over 100 million entities, integrating these with both companies' products. The third component is an intention to collaborate on private credit, combining Moody's expertise in credit analysis with the company's strengths in databases and risk analysis, to explore new opportunities in the private credit sector.

The paragraph discusses an inquiry about expense guidance for 2024 and 2025, specifically why expenses came in lower than expected despite an increase in assets under management (AUM). The response highlights that various factors, such as bonus accruals and severance levels, can cause expenses to fluctuate. It also mentions anticipated expense increases in the first quarter, driven primarily by compensation and benefits-related expenses. The discussion provides insights into the components affecting expense predictions, with expectations of AUM levels gradually rising in 2025.

The paragraph focuses on the company's financial guidance for the year, driven by the assumption of gradually increasing markets. The strategy remains unchanged, aiming to maximize investment for top-line, profitability, and cash flow growth. Investments are planned in key growth areas like rules-based investing, private markets, front office analytics, modern architecture, and AI enhancements. The company remains focused on achieving efficiencies and will adjust spending based on various factors, including market conditions and business performance. In response to a question about pricing, the response suggests that 2024's price increases were moderated compared to 2023 and refrains from providing detailed comparisons to historical levels.

In the paragraph, it is highlighted that the contribution to recurring sales from price increases in 2024 was slightly lower than in 2023, which saw elevated levels due to the broader pricing environment. The approach remains consistent, focusing on areas with pricing power and enhancing product value for clients in a thoughtful manner. Gregory Simpson from BNP Paribas asks about the potential impact on MSCI if actively managed ETFs begin to replace mutual funds. Baer Pettit responds positively, stating that this shift aligns well with MSCI's strengths in providing indices and portfolio analytics. The transition represents a move towards more rules-based active strategies, which MSCI can support by helping asset managers "indexify" their strategies.

The paragraph discusses MSCI's focus on inorganic growth opportunities, particularly through mergers and acquisitions (M&A). Henry Fernandez of MSCI highlights that their primary mode is to enhance new use cases, client bases, product development, and the integration of their existing data sets and analytics. They aim to combine their resources, such as climate and ESG data, with private assets and indices, to offer better risk analysis and portfolio creation services. Overall, the company sees significant potential in expanding their capabilities and adding value to clients through these strategies.

The paragraph discusses MSCI's approach to growth and investment strategies, focusing mainly on organic growth while being open to acquisitions if they provide high returns and strategic value, as demonstrated by past acquisitions of companies like Burgiss and Real Capital Analytics. The CEO, Henry Fernandez, emphasizes the company's strong financial performance, client-centric approach, and innovation efforts. He highlights the importance of understanding client needs, expanding key client segments, and being strategic with pricing to ensure continued value for clients, reinforcing MSCI's long-term growth potential.

The paragraph emphasizes the company's commitment to being a long-term partner to its clients by leveraging strengths in data, models, and technology. It expresses gratitude for the audience's time and indicates an intention to keep them informed about future activities and developments. The Operator thanks participants and closes the interaction.

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