All right. Good afternoon, everybody. Thank you for sticking around. My name is Manav Patnaik. I'm Barclays' Business and Information Services Analyst, and I'm very pleased to have with us Baer Pettit, who is the COO of MSCI. Thank you for being here again, Baer. My pleasure. You know, obviously, you know, the room's nicely crowded. You had some good meetings. There's a lot to talk about here. Just to start off with, you know, I think on the last earnings call. Sure. You know, not that it was particularly, you know, new insights necessarily, but I think the tone of the call was a bit more cautious than perhaps what you intended on saying. I was just hoping to use the first part of the chat just to, you know, go through some of those and maybe level set, you know, what is the kind of message there? Yeah, look, I think you're right. First of all, you know, there's three of us, and we said various different things. Actually, I recall being asked, and one of my responses was still 30% growth on ESG. I do think that there was a little bit of a disconnect between maybe the tone and the results, which were, you know, a bit, certainly a bit less than we expected, but which were, you know, by no means, you know, shabby in any regards. I think really, we're just in a combination of what's been kind of a slightly choppy environment, which is hard to read. You know, we had this sort of semi-banking crisis, which was sometimes now referred to as a banking crisis, but I'm not even sure if it was. It was kind of some episodes, I would say, bad bank episodes. We're clearly in a choppy environment generally in terms of markets and valuations. I think that all of that just makes us, I hope also partly cautious in a, in a positive sense that, you know, we've been trying to balance our longer-term growth objectives with our kind of shorter-term shareholder objectives. I think we're doing a, you know, I think we're pretty happy about where we are with all of that. You know, we clearly, you know, in terms of this quarter, I'm not gonna start speculating because we're right in the middle of it, and it's remarkable how much of our business always closes in the last few weeks of the quarter. We're certainly not seeing anything unusual. The nature of the discussions we're having with our clients has been pretty consistent. I think that the danger sometimes in this type of environment is that you try to do excessive performance attribution when in fact, you're not always 100% clear yourself. W hat it is, in what circumstances are driving, you know, a little bit of noise or difference here or there. Got it. Yeah. Maybe before going specifically into ESG segment. Sure, sure. Broader, you know, just to talk about the broader macros, you know, two components. First, new business. I think you guys talked about, you know, slightly lengthened sales cycles, m aybe some decisions deferring. Could you just elaborate on that? Yeah. I mean, I don't really know if there is a great deal more to be said than that. I mean, I think, you know, the great thing about MSCI is that our shareholders are our clients. In that sense, you know, I don't think, you know, many asset managers that you know, or banks and broker-dealers that you may work with are in kind of a big spending mode. I think that there's generally a higher bar on adding things to budgets. We're not exempt from that. That's part of it. I think in that context, we're doing pretty well. I, you know, I think the danger here is that we try to suggest that we have some specific or deeper insight than our clients and investors maybe do, and we probably don't. We're in a similar boat. We're trying to navigate what's going on. It's, you know, it's not the best of environments, but it's very far from being the worst. I think we just gotta kind of see how things play out, and we'll try to be as transparent as we can, you know, going forward, you know, as markets develop. Got it. In terms of the cancellations, I think, you guys referred to it being a lot of the smaller client types, but any specific, you know, client types- Look, the main thing is, is not the cancellations, it's the retention rate, right? I think our retention rates are still great. Our, you know, very, very strong in index, very strong in ESG and climate. I think it was I believe I could be corrected, 96% on ESG and climate. The, the weaker elements were some of the things related to real estate, where there's been kind of an unprecedented drop off in transaction sizes, big market corrections. It's in that segment in particular that we saw smaller clients kind of being squeezed a bit. I think across the board, our retention rates we're very happy with. You know, if we can maintain those through the rest of the year w e'll definitely be happy. Got it. Yeah. Yeah. It, it's almost like you're a victim of your own success, right? Because that 96 was 99 last quarter, so, you know. So, to move to the ESG, you know, area specifically, again, you know, 30% is a good number, like you said. Maybe just to break out the two, you know, areas of potential headwind. Let's start with the EU first. I think what was called out was this kind of pause until regulations are finalized. What specific regulations were you guys referring to? Well, it's the EU fund regulations, which have meant a lot of work and noise for our clients in terms of what categories do various ESG funds belong in or not. You know, we've had. In turn, which is kind of the beauty of the EU, these are theoretically EU fund regulations, but in fact, they're national fund regulations, and the national regulator makes a judgment. That in turn has questions about, you know, EU passporting, et cetera, et cetera. That whole environment has been. If you're sitting there as some, you know, fund managers are and saying, "Geez, I'm having a question about how I classify my existing funds," that's unstable. It may not be the best environment for issuing new funds. Having said all of that doesn't mean that the demand for what we do, our research, our data is fundamentally different. I would say that, you know, we like to distinguish the purely climate-driven things from ESG ratings. You know, from a climate point of view, which has a lot to do with net zero reporting, other types of recording, data, et cetera, you know, that's very strong and continues to grow, you know, quite dramatically. Got it. On these, fund, ratings or the indecision. The waiting for that. I s that more a question of once the rules are finalized, there'll be more fund launches, and that's why growth comes back or if people just, you know, hold back? I believe so, again, I don't want to speculate about this stuff. All I can say is point in time what's going on. I think in the past, you know, even on different topics, typically where, you know, where we get a little optimistic on speculation, people get carried away. If we get a little too negative. We've also had that. You've seen that as well, where people... We've been cautious, people say, "Well, why were you so cautious? 'Cause these numbers are great." I don't. I wanna try to avoid speculating and just see what we see today, which is that's what I think is driving a little bit of the slowdown, and then we'll keep you updated w hat happens next. The main point being is there's nothing in the manner that we interact with our clients that is changed, that anyone is telling us we're in a different environment, we're gonna stop doing X and start doing Y. None of that. We're not seeing any of those things. Yeah. Got it. Yeah. The point being, like, eventually there will be a growth in ESG more fund launches, but just timing obviously is the key. That would be my current view. We shall have to wait and see. Got it. Yeah. Moving to the U.S. part. Y ou know, the political landscape, you know, the anti-ESG narrative there. Can we... Maybe if you could be a little bit more specific on what you're referring to? Look, I think going, you know, going back to your point about the call, I think we fell a little bit into the trap about trying to offer an explanation where, you know, maybe that we were overstretching the, you know, the desire to give an explanation there. First of all, let's try to break things down kind of, sort of scientifically and coldly. The first one is, if we look at our kind of dialogue with major institutional investors in the U.S., et cetera, we don't see anything different. If we look at our kind of relationships with asset managers, broker-dealers, et cetera, mostly we don't see anything different. The one thing that we do see, which is kind of analogous to Europe, but with, I think, a slightly different motivation, is we have seen a slowing of the issuance of ESG-related products. The element that I'm not so clear about is my personal view would be I would be more cautious about attributing that to the political environment, and I think it could also be partly just performance driven. These funds had very strong outperformance, notably, you know, in the last number of years, which is also probably 'cause they had a fairly heavy tech bias. Now as with events since the war in Ukraine, with the oil and gas stocks coming back, there's been a bit of an underperformance or not underperformance, less of an outperformance in certain cases. Again, I'm cautious about speculating about that. I think the best we can do now is kind of, you know, keep you abreast on what we're seeing in that category. For sure there's been a slowing there. But I would be reluctant to excessively attribute that to the political environment, and I think maybe we overstated that a little bit in our earnings call to be honest. Got it. Fair enough. Yeah. Appreciate that. Yeah. I guess the, you know, you mentioned, you know, climate is growing well and, you know, obviously this is a law of large numbers. As you grow, your growth rate will naturally slow down. That happened. Anything to call out, like any of these other influences y ou talked about that's impacting climate as well? Sure. Well, look, I think the basic thing about climate that is different than ESG is that, you know, ESG arose, you could say, I mean, it's maybe a slightly odd way of phrasing it, spontaneously, i.e., people became very interested in the topic. People started looking at the data. People started to say, "Wow, this sort of information might be driving the risk and return of companies." It's more or less in that way that it grew over the last, call it, decade. I think climate is quite different in that people have made very specific, you know, kind of black-and-white commitments. People have said, "Our company is committed to net zero, and we're gonna take the following steps, X, Y, Z to get there." That is either gonna be a reality or it's not, right? We last year, we won the Journal of Portfolio Management Article of the Year because I think it was a good quality article. Ironically, what it showed was that there is very little evidence that in credit markets, that the pricing of credit markets is being affected by climate. I will be astonished if that's the case in two, three, four, five years. Got it. It could go both ways. What I don't have a zealot's view of this topic. It could both be that there will be pricing impacts because people have not done enough or they're missing their net zero targets, but it could equally conceivably be pricing impacts because people have put an enormous amount of money, capital into some green alternative which has not paid off. But what for sure I think is the distinction between the ESG topic generally and the climate topic is that there are real and specific commitments that people have made, and those will be measured, and I think those will have an impact on the risk and return of the various securities and companies that have done that. That's why I feel like climate is a more specific and measurable topic from the outset than ESG was. Right? Got it. Yeah. I guess what I'm hearing is generally, obviously short-term TBD, but, you know, your long-term growth of mid to high twenties for ESG, I mean, you're completely comfortable with that. For the segment, just so we're clear. Yeah. The segment is ESG and climate. Correct. That's our growth, target growth rate for the segment. The part of the segment which we denote as pure climate products is still a smaller part. But that's grew at roughly 60% + in the last quarter. More than the overall segment. Correct. The climate part of it is growing faster than the ESG part right now. Yeah. Got it. Just on climate, you know, I appreciate why you and every other company almost separates ESG and climate. Internally, is it a separate sales force, a separate strategy? No, no, it's not a separate sales force. It's just that the drivers of the two... It's like they overlap on the Venn diagram, and the only reason why we're a little bit pedantic between, in distinguishing them is that an investor who wants to understand ESG risks of a particular company, climate is one component of that, but there's other components, corporate governance and social things. It's the point I made a moment ago. Most climate commitments are very specific and have numbers linked to them. ESG has historically been less so. That's why we like to distinguish the two, because while they have overlap, they also have things which are quite discreet, one from the other. Got it. Yeah. Great. You know, obviously, I think most of the investor focus was on the ESG piece, but just to, you know, c omplete the overall. Even in the real estate and private side there was a little bit of headwinds here and there if you wanted to just expand on that? Look, overwhelmingly, what we have now in our private asset side is real estate. I don't think it's a big secret that, you know, real estate has had some challenge, been some challenging markets. They, you know. After admittedly a very large spike, transaction volumes are down. You know, in notably in most markets, there's kind of a freeze, which we see generally in private markets, by the way, but doesn't necessarily affect us in all markets, between kind of buyers and sellers. There's a disconnect between the bid and the spread. That will probably work its way through the system. If the real estate business that we had before we bought RCA is much less volume and transaction driven as, than RCA, what we bought in RCA. That's held up a bit better. I think, you know, as transaction volumes come back up, we're not really a market beta play per se, so it's not like we need the value of real estate to go up for that business to keep growing. It's just that there's been kind of a freeze in the market, and that means that a lot of sort of marginal players are buying less data, right? Got it. Which I think, we think will, you know, change going forward. Got it. Yeah. Just to stick on the segment, you know, it. It feels a little bit like what ESG was five, 10 years ago, you know, in that investment phase, you know, you've done a couple of acquisitions, RCA, Burgiss. You know, I think a lot of your peers are trying to figure out the private markets. Like, what inning do you think you guys are in? How do we get to become, becoming, you know, a more dominant player, I guess, in the market? Yeah. Look, I think we're still in really early stages and I actually think that there's a slightly, you know... It may need some corrections in value in private markets. It may take a bad market or a more difficult market; I should say to create opportunity. I think that clearly the private markets have been more of a seller's type of market to a degree. Structurally and secularly, we think there's a big growth opportunity, but it's hard to imagine that private markets will not have greater transparency. Again, choose a date, five years from now, three, five, seven years from now. How that plays out is not entirely clear. It's still a very noisy area. There's for sure there's no dominant players. There's various smaller companies whose overlap a little bit in what they do, but they're not very black-and-white competitors with one another. You know, so we think that that will play out in the next X number of years, and we wanna be part of that, and hopefully we can help drive both growth for, you know, ourselves and transparency for investors. Got it. So, sticking on that, you know, M&A theme, call it. I think on the call you deliberately, you know, talked about, you know, using that $1 billion of cash you have on hand right now to be more deliberate on the M&A front. Just can you talk a little bit about, you know, what the focus there is? Well, look, I think first of all, part of it is linked to the point I just made a moment ago. I think that valuations are gonna become more reasonable. You know. Look, I can say this because it doesn't matter, 'cause I'm not gonna tell you what the company is. There's a company. A small, very small company, just so we're clear, right? Very small company. Who we, you know, made an offer to a few months ago, and they rejected it. Now, you know, for various reasons it doesn't work for us, and they're back, and they were like, "Geez, you know, wish we'd done that." Right? There's a very much a reality coming in with smaller companies who, especially those who may have been in some sexy category of data or technology, had excessive valuations or burning cash. There's a lot of realism coming in there. For sure in all those areas we're looking at interesting specialist data, which could be related to ESG or climate or private markets or some interesting technology, some combination of the both of them, someone who's doing interesting things with technology in private markets. All of those things are kind of, you know, we're seeing more of those come up. You know, we always wanna be prudent with our shareholders' money. It would be surprising if, you know, if some more opportunities didn't come up. All of these things are in the category of bolt-ons. They're not, you know, something that's gonna fundamentally, dramatically change the financial profile of the company, but they should help our growth strategy. Got it. Right. I think you guys have always been in that bolt-on camp, you know, in the foreseeable, not foreseeable future, but let's say 10, 20 years, whatever. Are there larger deals you track or is that? No. I have a few fantasy ones in my head. Which I'm not gonna mention for sure. Which includes some public companies. No, we're not gonna. We don't have anything like that planned. I think, look, there are always cycles in markets, and there, you know, one of the things that we have tried to be very disciplined about is sticking to our mission of helping our clients build better portfolios. That's not just some blurb we put on the website, it's actually how we think about the strategic opportunity. We'll have to see with time, you know. Sometimes there are, you know, good companies who get into difficulties. Sometimes there are people who've overextended themselves. Who knows what will happen. I think on a, you know, coming back to the, you know, that as a higher-level observation on MSCI, and we had a meeting earlier where someone said, "Shouldn't you be investing more?" Look, we definitely want to invest in, you know, our medium to longer term opportunities, but we also wanna be balanced with the shorter term, especially in this type of environment. We feel like, you know, we need to keep our shareholders happy, that they see a medium to longer term growth story, but we also don't wanna spook them in any given quarter. That's kind of, you know, that's an art, not a science in how we balance those things. Got it. Yeah. You know, I think the commentary on doing more M&A with the billion was also a way of saying, you know, we'll do stock buybacks only when it's opportunistic. And, and I think, h ad you known your stock was gonna be down 14%? M aybe you would have done something differently, but just- Time will tell. You know. Just talk about the buyback M&A mix, how you think about that. So, I think it's. First of all, the, you know, the nature of M&A is that you can't, you know, you can't force it to show up, right? I mean, you can try to cultivate certain companies, but, you know, they may not want to be bought when you wanna buy them. Equally, you may be minding your own business, eating your breakfast, and someone tells you this company wants to be sold. You know, you it's hard to control all of that. I think, you know, at the end of the. You know, as goes to, you know, buybacks, we remain very committed to giving capital back to our shareholders, and then we have to make a. You know, we have marginal judgment, allowing for market volatility, valuation about where we can. There's always a lag, of course, when we disclose what buybacks we've been doing. You know, we wanna continue to be opportunistic, but we are committed to, you know, giving capital back to our shareholders whenever we think it's a good thing to do. Got it. Yeah. I wanted to shift gears to, you know, what's been a hot topic out there with investors, which is around, you know, generative AI, technology disruption. That's coming our way finally. You alluded to this on the call, but, you know, first maybe just talk about, you know, how much of, you know, AI is already used, and maybe even specifically, how much you guys have already been playing around with generative AI? Yeah, sure. First of all, I knew you were gonna ask this question. I had a pretty good idea in my head, so I went to my CTO before this, and, you know, he gave me a list of his, I think it was 11 projects. Look, the way I would say it's not a good category to be hubristic about. I think it's disingenuous to say that we're a leader in this area. Equally, I think, you know, I think we're doing a range of pretty interesting stuff. You know, our CTO is, you know, ex-Microsoft. We have a very strong relationship with them. We're doing interesting stuff with Google. We actually have, and this is what people. Actually one of our senior researchers, not in our technology organization, actually has co-wrote a book on this topic. I think a lot of it is not just the technology, but it's the data modeling. We have quite a number of projects going on, you know, using this data and technology. I'm comfortable that we will not lag in this area. I don't know what the definition of leading is. I think here, my observation, you know, on this whole topic, which I think is I think maybe the understated element is the use of this technology to create efficiencies, for example, in your client service organization or what have you, I think is relatively straightforward and intuitive. The element that I think is trickier is how these capabilities actually become part of the investment process, the institutional investment process. How does a fund manager who may be using this, some of these technologies, how do they represent to their client what that is? How is that more or less not a, you know, not a black box? How do they give it explanatory power? Whether that be an institutional or a retail fund. I think the question that I think about that everyone is focused on the supply side, you know, the technology itself and what it can do. I think in a way, the more interesting question is: how does that technology affect all these relationships that, you know, between, you know, an asset manager and their clients, be those, you know, purchasers of funds or institutional funds between, you know, a broker-dealer and the asset manager or et cetera, right? I think that those, the nature of what is this information? How can I trust it? Is this a stable... This is, you know, I'm convinced this is a very clever algorithm. This output makes sense, but is it stable? Is this gonna govern our relationship now? What outputs can I expect from this? How are you gonna recalibrate it? I think those are the really interesting topics in this area. We wanna be focused as much on those as just on the fact that this is a gee-whiz machine that can do a lot of fancy stuff. I think that those elements, I think are could arguably be more important than the technology which will generalize itself fairly quickly. I think. Yeah. To that point, it sounds like, b ecause of that focus, I think there's a potential that your relationship with your clients becomes stronger as you help them with that. How about the idea that, you know, gen AI maybe allows the client base to be more efficient, therefore they're a much smaller client base. How do you see that? Yeah, yeah. I think, yeah. It's a good question, and clearly I don't know the answer. I don't think anyone knows the answer. It goes to my point. I think that, individual relationships in markets are more stable than people imagine. I think in order for those to change dramatically. There needs to be a common language between market participants that basically there's a trust about the thing that's being bought and sold. When I mean bought and sold, I mean the algorithm, the insight and all of that. Let's say, you know, again, just take a simple example, not even MSCI, one of our clients. If there's a, you know, a mid-size asset manager, they've got some people working on this sort of stuff. There's making the fund manager more efficient, I think is straightforward and intuitive, or to filter information or data. If you wanna, you know, how you, how you integrate that into your fund decisions and then communicate that to your client as to what you're doing being different than in the past, that's the trickier part. I don't think that that changes instantly. I don't think it's because you tell someone that I'm using this tool, and I'm getting better insights, that suddenly, you know, your market gets bigger or, you know, or, you know. That's, you know... I don't know the answer to that. That's maybe just some thoughts. Got it. Okay. You know, like you said, as long as you're on top of the technology, your risk of disruption should be low. I think what helps even more with that is the data that you have. Like. For sure. I think just for the benefit of all of us, could you, is there a way to, you know, segregate how much of your data is publicly sourced? H ow much is proprietary, well-guarded, and how will you- Yeah. I think we clearly have. It depends a lot on the category. You know, we both have what you could call standard market data, which, you know, maybe our clients have, which is the obvious stuff. We have clearly, depending on the category, but notably in ESG and climate, we have a lot of data that we source directly ourselves, which I think these tools can help us be better at gathering. I think that there are enormous transformations that could be done in private markets related to, you know, this technology because they're still, you know, semi-medieval, you know, with a lot of PDFs flying around and all sorts of stuff. I think the other thing that we have is we have enormous amounts of client holdings, you know, clients' portfolios. I think that, you know, being able to gain insights at scale from clients' portfolios, you know, is really, you know, will be a huge enhancement here, you know. We have, you know, especially, let's say, some large institutional investors, it's remarkable how still to this day, sometimes they find it hard to know how much they own and what funds and the exposures, let alone doing even more subtle and sophisticated on, like, second-tier type of exposures in the sum of their companies and their securities. I think all of those things will be, you know, pretty powerful. Got it. How important in your view is the brand and the trust that you have with your clients? Because I guess, you know, you hear the argument that you could always, you know, you could recreate an index today as well. Still, you know, once it's set, it's set. No, but I think that goes precisely to my point about institutional relationships. I think the brand and the trust is absolutely critical. I think it's absolutely critical, and I don't buy the thesis that someone can be just whiz-bang with the latest technology and show up and supplant someone because it's like, "Who are you?" You know, I don't know what you're doing with your black box. You may be, you know, the cleverest person around, but I... You know, that doesn't mean I'm gonna give you whatever, choose a number, $100 million, you know, $50 million, you know, $1 billion to manage, right? I just think that. I think there has to be a combination of showing that you're using the most advanced technologies, but also providing, you know, a sense of transparency around them and reliability. Again, otherwise the world just becomes a giant black box with enormous amounts of noisy data in it, which is not an easy world to navigate for anyone having to make investment decisions, right? Got it. Yeah. Putting AI to the side a bit, I mean, just competitively. I mean, you've always had a pretty leading position in each of your segments. Have you seen any changes competitively? Like, just to be clear, like, your ESG growth had nothing to do with any competitive losses. Look, I don't think there's been anything. I'm trying to think if there's any of our segments that. I think the way I would say it is, this is not at all being smug. I mean, the usual list of competitors are all still there. You know, I don't. I'm trying to think, you know. Look, in a bad market, our share of ETF flows was actually pretty decent. In the last quarter, we brought those numbers out, but it's one of those things that nobody really cares if you outperform when the numbers are crappy. We did outperform. I think, you know, in terms of ESG, I don't think. Many dramatic differences, index similarly. I don't think. You know, I think the competitive landscape is fairly stable. I don't think there's a category where we, where it's really that different than it was three or six months ago. Got it. Fair enough. Let's end with the analytics segment. 'Cause, you know, most of the focus is usually on index and ESG. Whenever you talk analytics, the question comes up you aspire for high single digits. You haven't really touched that. What is the gap and how you- Yeah. Look, I think it's a good question. I don't know if and when that will be revised. I think that, you know, Analytics has continued to expand its margins. Why is it expanding its margins? Because basically, it's funding some of our bigger growth opportunities. You know, the retention rate's been decent. We've been winning some interesting deals, notably in fixed income analytics. I think you're asking the right question. I don't think we have a new answer to it, you know, we may have to think about how we answer that question differently in the future. We'll have to see. Got it. Can new technologies, better scraping of data, all that kind of stuff, help with that area, or? I think that the. I do think that the. We, you know, we're very cautious. Maybe we're too cautious. Maybe we should start being less cautious. We've been, you know, we've been very cautious precisely because of the reasons that you mentioned. Not to oversell this, I do think that, we hope to provide evidence, is the best way to say it. We hope to provide evidence in the next 12 to 18 months that our new platform, MSCI One, is really helping to improve the analytics user experience, you know, that should move us away from some of the legacy platforms which have been, to a degree, a drag on our growth. We'll see. You know, we'll keep you appraised of that. Got it. Fair enough. That's the hope and the plan. Got it. All right. We'll end it there. Okay. Thank you so much, Baer, for being here. Thank you all. Thank everyone else too. By the way, there's drinks after this for anyone who wants to stick around at the bar down. That land down. Yep. Okay. Yep. Okay. All right. Thank you. Thank you all. All right. Thank you. you. Thanks. Thanks, Baer.