The paragraph is an introduction to MSCI Inc.'s first quarter 2025 earnings conference call. The operator welcomes participants and introduces Jeremy Ulan, Head of Business Relationship and Treasurer, who provides an overview of the call. He mentions that the first quarter 2025 results were released earlier and are available on the MSCI website. Jeremy also highlights that the call will include forward-looking statements governed by specific cautionary language, and he advises caution in relying on these statements due to potential risks and uncertainties. Additionally, the discussion will cover both GAAP and non-GAAP financial measures, with reconciliations available in the earnings presentation, along with operating metrics like run rate and retention rate.

In the call, MSCI Inc.'s leadership, including Chairman and CEO Henry Fernandez, reported strong financial results for Q1, with 10% organic revenue growth, 11% adjusted EBITDA growth, and nearly 14% growth in adjusted EPS. The company repurchased $275 million in shares, demonstrating confidence in its stock value and commitment to capital allocation. Despite a dip in new recurring subscription sales compared to Q1 2024, MSCI Inc. maintained a retention rate above 95%, with 8% growth in organic subscription run rate and 18% in asset-based fee revenue. The company experienced strong growth in ETFs and non-ETF AUM linked to its indices, especially within hedge funds and other client segments. MSCI achieved high retention rates in its index and analytics products, with over 60% growth in recurring net new sales for each, while continuing to expand portfolio customization solutions.

The paragraph discusses MSCI Inc.'s progress and strategic initiatives. It highlights their momentum in custom indices and a 24% growth in net new recurring subscription sales for private capital solutions. MSCI recently partnered with Moody's to enhance credit risk assessments for private credit, utilizing Moody's modeling solutions and MSCI's data. The company emphasizes its resilience during global turmoil, noting that 88% of subscription run rates come from clients using multiple products. This diversified approach supports consistent financial performance despite market challenges. The segment concludes with Baer Pettit preparing to discuss MSCI's first-quarter performance and strategic business wins.

MSCI Inc. experienced significant growth across its hedge fund, bank, broker-dealer, and wealth manager segments, driven by its analytics and index products. The company saw a notable increase in hedge fund clients using its next-gen factor models, with more than 60 funds now onboard, up from 8 in 2022. MSCI also secured important multi-region deals, including custom index solutions for ETF-linked modules and sustainability and climate regulatory solutions for asset liability management. Among wealth managers, MSCI achieved 15% growth and secured a large renewal deal, expanding client relationships and displacing competitors' benchmarks. The overall demand highlights MSCI's strength in customization and risk analytics during market volatility.

MSCI Inc. achieved significant growth across various segments, including a multiyear sustainability agreement with a European wealth manager and a 30% increase in direct indexing AUM using MSCI indexes, reaching over $131 billion. Asset owners saw a 12% subscription run rate growth driven by analytics and private capital solutions, with particularly strong performance in the Americas. Climate strategy support drove a 50% increase in AUM linked to MSCI climate indexes, totaling $387 billion. Asset managers maintained a 5% subscription growth, with a retention rate rising to 96%. A notable win included a seven-figure deal with a European bank for exclusive index provision for passive ETFs. MSCI is focusing on product development to support active ETFs and fixed income as it continues to diversify its offerings and client base.

The paragraph details the financial performance and strategic positioning of MSCI Inc. in the investment market. Andy highlights the company's strong recurring revenue of 98%, robust margins, and high cash flow conversion, which contribute to a resilient financial model. The index subscription run rate shows growth across various client segments, with notable increases in asset managers, asset owners, hedge funds, wealth managers, and banks. MSCI Inc. has introduced a new categorization for its index subscription run rate to provide better insights into growth dynamics, especially in custom index offerings. Asset-based fee revenue grew by 18%, supported by flows into international exposure products. The company's non-ETF assets under management linked to its indexes increased to nearly $3.9 trillion, growing 20% year over year.

At the end of March, equity ETFs linked to MSCI Inc. saw a balance of $1.78 trillion, driven by $42 billion in inflows, with $37 billion entering MSCI-linked products. The quarter was the second strongest since 2022. Asset-based fee growth was bolstered by fixed income index products, with ETF assets under management tied to MSCI and partner indexes growing 20% to over $76 billion. Analytics saw a 7% subscription run rate growth, mainly through equity analytics and hedge funds. The sustainability and climate segment achieved nearly 10% growth, driven by large banking deals, despite the near-term environment affecting long-term targets. Notable traction in geospatial asset intelligence solutions was observed, with a retention rate of 94.5%. The upcoming second quarter will reflect previous contributions from a Moody's partnership in sustainability and climate sales.

The paragraph discusses the financial performance and strategic initiatives of MSCI Inc., highlighting a 24% increase in private capital solutions sales and ongoing growth in their data and benchmarking services. Despite challenges from client consolidation, particularly among brokers and developers, they maintain a strong balance sheet and have repurchased over $275 million of stock, demonstrating confidence in their franchise's long-term value. Their leverage ratio is at 2.6 times the adjusted EBITDA, with no change in financial guidance. They are prepared to adjust expenses as needed and expect their tax rate to be between 19% and 21% for the remainder of 2025, excluding discrete items. The company's Q1 performance supports their reputation for consistent financial results, and they remain focused on serving the investment community as market conditions evolve.

In the referenced paragraph, Toni Kaplan from Morgan Stanley poses a question about the current selling environment, particularly regarding new sales in areas like index and sustainability. Baer Pettit responds, acknowledging the uncertainty in the market but indicating that there is no current evidence of a change in client purchases. While some deals that didn't close in Q1 are expected to close in Q2, the pipeline remains robust with high client engagement. There is a notable demand for transparency, analytics, and stress testing, and an interest in opportunities outside the US. Pettit emphasizes ongoing communication with clients at various levels of the organization.

The paragraph discusses the company's strategy for managing expenses in response to different market conditions. Andy Wiechmann explains that they adjust spending based on market levels and business performance. In case of market improvement, they will increase spending, whereas they will reduce expenses if the market declines. They have several levers to manage costs, including adjusting incentive compensation (which can swing $20 million with a 10% performance change), delaying professional fees, and controlling non-compensation expenses (together impacting by $20 million annually), and pacing hiring (also affecting $20 million annually). These adjustments can impact financial results within a couple of quarters, and the company continually calibrates these measures, expecting markets to gradually improve throughout the year.

The paragraph discusses the potential impact of market levels on expenses and highlights various factors that influence expenses beyond just market and asset under management (AUM) levels, such as business opportunities and financial performance. The speaker, likely Andy, assures they will continuously adjust their approach based on the outlook and are confident in their financial model's ability to deliver strong results. Following this, a question from Alex Kramm of UBS is addressed, focusing on the changing selling environment, particularly around international investing. Alex notes a shift in asset flows away from the US towards international markets and inquires about its potential impact on the company's subscription-based indices business. Henry Fernandez responds, acknowledging a noticeable change in line with Alex's observations.

The paragraph discusses the shifting trends in global investment, with a significant increase in investments in Europe, Japan, and emerging markets due to declining interest rates and a weakening dollar. This shift has reversed the previous headwinds faced by the speaker's business, which relies heavily on international investments rather than U.S. markets. The speaker notes that the depreciation of the dollar and increased global market performance could benefit their asset-based fee structure. Additionally, there is a growing need for data among investors, particularly active managers and pension funds, as global investment dynamics change.

The paragraph discusses the increasing need for transparency and data analysis in understanding asset portfolios, particularly in the face of global economic challenges such as trade wars. It highlights the value of MSCI Inc.'s geospatial location product in assessing company vulnerabilities and the demand for models to facilitate stress testing and scenario planning. The text emphasizes the importance of transparency in private assets and the role of MSCI Inc. in providing insights into private credit portfolios through a database of funds and a partnership with Moody's for credit assessments. MSCI Inc. acknowledges the challenging economic environment but sees an opportunity to assist clients in understanding their investments better.

The paragraph features a discussion during an earnings call where Ashish Sabadra from RBC asks about pricing trends for renewals and new sales. Andy Wiechmann responds, stating that the contribution from pricing increases in the first quarter was similar to last year but slightly lower than in 2023. He notes that price increases vary by product line and client segment, and they consider client health and the overall pricing environment. The company aims to enhance client partnerships by offering improved solutions and services. Later, Owen Lau from Oppenheimer inquires about the sales environment, noting deal delays from the first to the second quarter, with the company remaining cautiously optimistic about securing these deals.

In the paragraph, Baer Pettit addresses a question from Owen about the potential impact of the trade war on deal-making. Pettit explains that the deals in question are part of normal business operations and not necessarily affected by the trade war's escalation. While acknowledging current uncertainty and client caution, Pettit emphasizes that there is no significant change in the business environment affecting existing deals in the pipeline. Pettit's main point is that continuity prevails amid uncertainty, and despite some deals not closing in the last quarter, they are expected to close eventually based on the current situation. Following this discussion, the operator introduces the next question from Alex Hess of JPMorgan.

In the paragraph, Andy Wiechmann discusses the growth in the non-ETF passive category, noting that revenues can fluctuate due to adjustments when updated assets are reported. He highlights a 20% growth in average assets under management (AUM) for non-ETFs compared to the previous year, driven by new fund creations, particularly in climate and custom mandates. He mentions strong growth in direct indexing, although it's a small segment for them. Institutional passive also contributes to the growth, especially in custom indexes where they are differentiated and maintain stable economics. Alex Hess asks for clarification on the end-of-period AUM for the non-ETF business.

In the paragraph, Andy Wiechmann discusses retention rates, focusing on the index and analytics sides. In Q1 of this year, retention improved, with lower cancellation rates across most client segments, especially hedge funds and banks, compared to last year. This improvement is attributed to the large bank merger and elevated hedge fund events in the previous year's first quarter. The retention rates for the index and analytics segments were 96.5% and 95.5%, respectively. Asset managers had a retention rate of about 96%, and asset owners had over 95%. Despite these positive figures, client events remain the main cause of cancellations, with caution still advised in the European market.

The paragraph discusses the potential for fluctuations in client cancellations and elevated client events due to ongoing market uncertainty and volatility. Despite these challenges, the tools offered are considered essential, especially in uncertain environments, leading to encouraging client retention. However, there is some cautiousness about the outlook for the rest of the year. In response to a question from Kelsey Zhu regarding analytics growth expectations, Henry Fernandez explains that the first quarter did not experience significant turmoil and any previous perceptions of difficulty in Q1 might be overstated. The period carried some excitement from the new US administration and related market activities, although conditions began to deteriorate towards the end of Q1 and into April. He notes that periods of volatility involve complex dynamics that influence sales and growth, emphasizing that clients rely heavily on the company's tools.

The paragraph discusses the evolving needs of clients for more data, stress testing, factor decomposition, and transparency in investments, particularly in risk analytics and index offerings by MSCI Inc. It highlights a trend of asset reallocation to non-US markets, which is seen as positive compared to the previous focus on the US market. Despite this, client spending and budget constraints remain uncertain factors. While equity hedge funds, micro hedge funds, and index fund managers are expected to perform well, active managers face uncertainty, although some may thrive in the current environment. The paragraph concludes that the impact of these factors will only become clear over time.

The paragraph discusses a question posed by Scott Wurtzel from Wolfe Research about the potential inflection point in the growth of the sustainability and climate segment. Henry Fernandez responds, indicating that while sustainability (formerly ESG) is facing some cyclical challenges, its long-term growth prospects remain positive. He notes a shift in demand from clients—moving from simply relying on ESG ratings to wanting detailed insights into environmental and social factors, which benefits the service provider as they have the necessary data. Additionally, clients are seeking more assistance in adhering to global regulatory requirements related to sustainability, and the company offers packages to automate compliance.

The paragraph discusses the growing importance and demand for climate-related data and analysis, particularly in the context of sustainability and ESG (Environmental, Social, and Governance) issues. It notes that valuable data is collected on clients' operations, which can address various issues beyond sustainability. There is a shift in climate demand from long-term transition risks, like net-zero commitments, to more immediate physical risks, which are increasingly relevant to banks and insurance companies. The author mentions their extensive meetings with CEOs, noting a consistent focus on climate risk issues despite challenges, with an expectation of increased attention after an initial period of reduced momentum. The partnership with Swiss Re on physical risk models is highlighted as a step toward addressing these climate concerns.

The paragraph discusses the growth rates of ESG (Environmental, Social, and Governance) and climate-related revenues across different regions over the past year. In EMEA (Europe, Middle East, and Africa), the growth rate for sustainability and climate was 14%, compared to 4% in the Americas and 8.5% in the APAC region (Asia-Pacific). Overall, each region contributes a certain percentage to the company's operations, with EMEA at 52%, the Americas at 34%, and APAC at 14%. The climate-related growth rate for the entire company is 20%, while within the sustainability and climate segment, it is 17%. The segment's climate-related revenue run rate is approximately $75-$76 million. Additionally, the first-quarter EBITDA expenses were below expectations due to variable costs related to compensation, benefits, and year-end expenses.

The paragraph discusses a company's financial performance and sales activity. The company maintains its annual financial guidance despite potential market fluctuations and mentions that expenses in the first quarter are on track. During a Q&A session, David Motemaden from Evercore ISI inquires about significant sales that didn't close in Q1 but are expected to close in Q2. Baer Pettit clarifies that this is normal sales activity and not indicative of any specific trend or issue. The deals span various product lines, with some larger ones just missing the Q1 deadline but expected to close in Q2.

In the paragraph, the speaker discusses the context of a business partnership with Moody's. Initially, they approached Moody's with the idea of collaborating on ESG (Environmental, Social, and Governance) capabilities, suggesting that Moody's could leverage their expertise rather than developing separate ESG services. This led to a formal partnership announced last summer. Following the success of this collaboration, they explored additional opportunities, leading to a focus on private credit starting the previous July. The partnership is seen as mutually beneficial, allowing both companies to avoid duplicating efforts while enhancing their offerings.

The paragraph describes a collaborative effort between two companies, focusing on leveraging each other's strengths in private credit and risk assessment models. They combined their probability of default models and databases to create a joint product for assessing the creditworthiness of private credit funds. Additionally, they are exploring further partnerships, particularly in climate and real estate data, to capitalize on each other's expertise and databases instead of developing competing products. This collaboration allows both companies to enhance their offerings and reach broader markets.

In the paragraph, Andy Wiechmann discusses the decline in net new sales in the sustainability and climate segment. He notes that, despite a strong retention rate and client commitment to sustainability, there is muted demand, particularly in the U.S., where investors are hesitant to launch sustainability strategies. Europe is facing regulatory complexities, adding to the challenges in this sector. The potential for reduced scope on CSRD is also mentioned as a less promising opportunity. The tools offered remain critical to clients, but caution and headwinds are expected to continue in the near term. Despite this, there is optimism about long-term growth, as investors are shifting focus from emissions to physical climate risk.

The paragraph discusses how investors are expanding their focus on sustainability to include resilience, emphasizing all aspects of risk related to sustainability. The speaker, presumably from a company, mentions that they are well-positioned in this area and see attractive opportunities, particularly in the climate sector, despite some short-term cyclical challenges. Following this, there is a dialogue involving Russell Quelch from Redburn Atlantic, who asks if improvements in retention rates in Q1 were due to lapping one-off client consolidations rather than pricing or discounting strategies. Andy Wiechmann responds by saying that the strong retention rate was not specifically due to pricing, but rather to the critical nature of their tools, proactive client engagement, and a strong market position. The improved retention compared to last year is attributed to some significant client events in the first quarter of the previous year.

The paragraph discusses the growth and development of private capital solutions, originally stemming from the Burgess acquisition. These solutions primarily offer transparency to institutional investors, or LPs, regarding their investments in general partners (GPs) across private assets. Despite having over 1,000 institutional LP clients, there's significant potential for expansion, especially outside the US. The focus is on providing detailed transparency, including portfolio performance and risks, to help LPs better understand their investments. The company is optimistic about growth and is also targeting another segment: wealth LPs, or individual investors advised by wealth managers, by offering them enhanced transparency in private assets. Private credit is highlighted as a major product in demand. Furthermore, the company plans to develop products specifically tailored for GPs.

The paragraph discusses the strong leadership and growth of MSCI Inc. in the market, particularly in the area of private capital solutions. Despite experiencing some global turmoil, MSCI Inc. remains confident in its ability to provide crucial tools for understanding investment risk and performance, which are essential during volatile periods. The company believes its services are most needed during such times, leading to greater expansion opportunities as clients increasingly rely on them. Henry Fernandez emphasizes MSCI Inc.'s resilience and adaptability as its clients seek guidance in navigating market cycles.

The paragraph expresses gratitude to the participants for attending the event and mentions that the conference call has concluded, inviting them to disconnect.

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