Hello, and welcome to the JP Morgan Ultimate Services Investor Conference. We're really excited today to be joined by Andy Wiechmann, the CFO of MSCI. Andy has been at MSCI for 12 years, or sorry, for 11 years. 11 years. Prior to MSCI, he was an executive director at Morgan Stanley, where he also advised MSCI. So he's very familiar with the business, with a long tenure, sort of lives and breathes this company. Yes. So Andy, let's start at a high level. MSCI leadership spend a great deal of time with asset allocators, investment managers, market makers. What are you hearing from clients as far as, you know, what is the investment industry focused on? What challenges do they want MSCI's help the most with? Yeah. Firstly, Alex, thank you for having us. This is a great event, as I mentioned, and we very much enjoy being here. To your question, probably not surprisingly, the number one topic on our clients' minds is uncertainty right now. It is an uncertain environment where they have questions around asset values, asset flows, geopolitical, macro uncertainty, and they are looking for MSCI to help them navigate and hopefully take advantage of that uncertainty. And so to the client segments that you mentioned, asset owners or allocators, as you call them, they are reallocating their portfolios, trying to reposition across the new norm of risk and return, and expected returns across asset classes. We see asset managers that are turning to us for risk management tools, which you've seen through the strong growth that we've had in analytics, and particularly our equity analytics, and we mentioned strong sales from our enterprise risk tools in the third quarter. And so they are looking for us to help them manage risk as well as look for those opportunities to capitalize in the environment. And you see other client segments trying to, like, hedge funds and broker-dealers, trying to take advantage of the volatility, using our tools to help create market-neutral strategies that are performing quite well in this environment. So, for sure, they're feeling pressure right now. There are headwinds, but they are engaging with us. As you if you listened to our third quarter call, you probably heard us talk a lot about client engagement, and so they, they wanna meet with us, they want to explore our tools, but they are navigating uncertainty, and that's something that we can help them with. The only other thing I would call out is underlying that, you are seeing these secular tailwinds still at play. There are impacts of the environment on buying decisions, but ultimately, our clients are looking for more customized outcomes and personalized strategies, where an index can be a very efficient mechanism to reflect that, especially our frameworks, our index frameworks. You see more sustainable investment strategies and clients trying to navigate not only climate risk, but climate opportunity, and that's where we can help them. And then you see the move from public assets to private assets, or at least a higher focus on private assets, and that's a place where you know we are positioning ourselves to help them navigate for many of them that new frontier or that area where they are allocating most of their their fees. And so we believe we're well positioned and strongly positioned to continue to be a partner to our clients. Excellent. Thank you, Andy. So you highlighted the sales environment briefly, and, you know, we look at, and a lot of investors here look at your net new sales growth, which is sort of we think, akin to like a bookings growth style number. So you had 2022 as a banner year, 2023 year to date has been down, but again, against a very steep comparison. Is this just the product of a challenged macro backdrop, higher rates, or are there natural product cycles as well that you're sort of, you know- Yeah. - surpassing? There is a little bit of both. And maybe just to provide a little bit more color, we are seeing some pressures on our clients, or I should say certain clients, certain client segments, namely asset managers. Equity managers are feeling pressure. You've seen the equity markets, while they've gone up and down, the levels have been generally flat. If you look at equity returns over the last, you know, two or three years, they haven't moved tremendously, on an absolute basis. And given where rates are, to your question, equity flows have been fairly muted as well, and so we know those clients are feeling pressure. Similarly, we have seen in recent quarters a pickup in client events, we call them, most notably with hedge funds and broker-dealers, and that is where you see, you know, strategy closure, a fund leaving one organization at a broker-dealer. It It could be closing of a desk or restructuring. Those things lead to elevated cancels for us, and so we are seeing longer sales cycles. We're seeing more measured purchasing decisions. We're seeing additional budget controls. There are additional approvals for large purchases. And so those are all dynamics that we expect. If anything, it's taken longer in this cycle than we would've expected. Usually, we see that start to happen after two to four quarters, but it's taken a bit longer in this cycle, and you've heard us saying we expect this to happen, and we are seeing some of those impact operating metrics. But to your question, we are also seeing some idiosyncratic factors in areas like ESG. For sure, some of the cyclical factors are impacting the net new sales with ESG, and we've seen slight pickup in cancels. But you know, there are factors, particularly in the Americas, I'd say, where we have seen these much more measured purchasing decisions from our clients. And then the other place I would call out is the real estate space, so for real asset-... product line, particularly those clients that are linked to transaction activities, so agents, and brokers, developers, lenders. We are seeing pressure there, particularly for our, our transaction data, products. So I'd say those are a little bit more idiosyncratic, but impacted by the cycle. The important thing to underscore, and I don't want this to be lost here, given those comments, is our franchise is still very resilient, and we are seeing strong demand from clients and strong engagement. And so despite some of these elevated client events, the retention rate is still north of 95%, which is overall pretty, pretty good, solid, healthy level. And the overall subscription run rate growth is north of 11%. And so despite these pressures, we've got a very resilient franchise, and as I alluded to, the strong underlying secular drivers for the business. So translated another way, you're saying the business is doing well, but we are cognizant that it's a challenging environment? That's, that's fair, and we are seeing pressures from our clients. Right. Right. So, you know, since you touched on it, let's shift over to the ESG segment and the prospect for net new business, net new sales, what we call bookings, and the potential for, you know, maybe not now, maybe later, but at some point, of recovery in that bookings metric. What's the next phase of growth for the ESG and climate segment? And then perhaps as a related question, what does sort of the typical new client subscription look like now, and what will it look like in five years? So, you know, typical is probably the wrong way to characterize a sale. One of the great things about ESG and climate for us is there are such a wide range of use cases, products that we have, users. Maybe I would characterize it this way: the largest source of growth for us over the last 10 years in ESG and climate has been ESG integration, or more specifically, asset managers, and probably the largest source of growth for us within asset managers has been the equity investment process. Beginning to incorporate our ESG Ratings into their investment decision-making process, or at least give our content to the investment teams. You've seen that progression go from sustainability teams licensing our ratings to the broader investment teams incorporating ratings into their investment processes, and then even broader adoption across other other parts of the organization. So that has been—those have been probably the, as I alluded to, the biggest source of growth looking backwards. We continue to believe there's a long trajectory of continuing to upsell and license more usage of our ESG Ratings and broader ESG content to those organizations within just the equity investment process. We've seen that in Europe, where despite some of the cyclical pressures, we continue to see this very healthy growth, and we are more penetrated there, in what is across MSCI's franchise, a larger portion of run rate within ESG and climate is a larger portion, so represents close to 50% of run rate, but yet the growth rate continues to be in the mid-30%s there, and a lot of that is continuing to license more usage of our ESG content. To your question, going forward, I think what we will see, and we have been seeing this recently, is outsized growth from other segments, other client segments, so areas like wealth managers, broker-dealers, we are seeing quite healthy growth there. Within wealth management, within our ESG and climate segment, we saw 40%-47% growth within broker-dealer banks and broker-dealers, 44% growth in the most recent quarter. So I think what you will see is a larger contribution from new client segments. As I alluded to, a lot of the growth has been really around the equity investment process to this point. We've been continuing to develop and enhance our fixed income coverage, and that's not just across corporate issuers, but also other types of fixed income instruments, which is particularly relevant for climate. But I think you'll see outsized growth from other asset classes as we are less penetrated in areas like fixed income and private assets. And then lastly, but not least, on the solution side, I think you're going to see a higher contribution from our climate tools, where we have been seeing outsized growth across all product lines of MSCI. Climate's been growing close to 50%. In the most recent quarter, grew close to 50%. Within the ESG and climate segment, that was 45%. And you're also seeing outsized demand for some of our regulatory solutions that we have. And so we've got a wide range of tools as well as broader data sets that provide deep dives into certain aspects of ESG and climate. So I'd say going forward, while we see a long trajectory of growth within asset managers and equity investment process, integrating our ESG Ratings, I think we see tremendous opportunities across additional client segments and products that we have. Right. Right. Very helpful. So just, just maybe to stay on that point for one second. Buried in the footnotes of your, your press release last quarter, I believe you had the note that, that 44% of the year-on-year dollar growth in the ESG segment, and IR will correct me if that's, that figure is wrong, but, but 44% of that dollar growth came from the ESG sort of ratings franchise, and the rest was presumably in aspects like climate, like regulatory solutions, other data sets that are sort of newer, the newest, shall we say, that you guys are offering. Is that the right way to think about it? Yeah, and I don't know that specific figure, but I will answer it more generally to say that. Yes, we have a wide range of solutions. So even beyond our ESG Ratings, we have screening tools. We have, as I alluded to, additional data packages. We have reporting packages. We have our, you know, SFDR tools that we have. We have fund ratings. And then to your point, we have our climate metrics, we have our Climate Value at Risk tools. So we have a very wide range of products, and as I alluded to, we've been seeing outsized growth from products outside of our Ratings. As I alluded to, we continue to see a big opportunity within ratings, but we're seeing outsized growth from other product areas. So I'm gonna get one more in on ESG and climate- Okay. And sort of the recent performance there, and then we'll move on to other topics. Does MSCI need to see broader adoption and market acceptance of ESG and climate in the U.S. specifically, in order to meet the medium-term goal of mid- to high-20% revenue growth? I would say, piggybacking on the last question and the answer I gave, we have a number of avenues of growth that I think can fuel very strong growth across the ESG and climate franchise for some time. Across those dimensions I mentioned, asset classes, client segments, product areas, as you alluded to. The Americas is the largest capital market in the world. It's the largest source of investable dollars. It's important to us over the long term. And so, it is a market we believe has a long way to go in terms of how it can incorporate and unlock the value of the ESG and climate. I think one thing that has been a big differentiator for us has been our continuous focus on an approach that is based in materiality. So why do ESG ratings, why do ESG considerations, why do climate considerations matter from a risk and return standpoint? And how do I use those, as I was alluding to earlier, to unlock opportunity for me? I think that is an area where many U.S. investors are early in that journey, relative to the rest of the world, and so we do believe there is a big opportunity in the U.S. I think we'll continue to see the dynamic that we've seen in recent quarters persist for several quarters here. But over the long term, it's important for us, and we believe it's, it is a massive opportunity for us. But there are a whole host of avenues of growth, as we've talked about, that can continue to fuel outsized growth within ESG and climate. Got it. That's, that's, that's very helpful. So maybe pivoting to some client segments. I think we opened with just how connected you are in the markets. Generally, this is sort of a, you know, such a client-facing business. It's... You're not a degree removed. You're in front of your clients all the time, with new solutions, new products, new offerings. Let's talk about asset owners. Obviously, you know, you and I have discussed before how this is such an influence-rich category. They determine the mandates, the mandates go to the asset managers, the asset managers tell banks like ours what to do, and, you know, and they're, therefore, they're on. You recently acquired a business called Burgiss. Burgiss has about 50% overlap with existing MSCI clients. Most Burgiss clients are asset owners. Does that mean there's a lot of white space for MSCI to still penetrate asset owners? And, you know, should we think about that as, you know, really driving white space for the whole business? Yeah. I know that's a long-winded way of asking. So yeah, I think I'll try to hit the core of your question, but feel free to probe if I don't here. Yes, asset owners are a massive client segment. It is a core client segment for MSCI. It represents roughly 7% of our run rate, I think between 7%-8% of our run rate, but as you alluded to, is hugely impactful and influential across many other client segments for us, from particularly asset managers, also broker-dealers, even hedge funds, and within the private asset space as well. And so, as you alluded to, we are very focused on getting close to asset owners and ensure they are using our frameworks. To touch on the Burgiss reference, the reason why there is not a huge overlap, or I'll say 50% overlap, is MSCI's largest asset owner client base is pension funds and global pension funds, as well as sovereign wealth funds. The Burgiss client base, they refer to them as LPs with asset owners, is endowments, foundations, family offices. MSCI is far less penetrated within those asset owner categories, in part because those asset owner categories have a huge allocation to alternatives. They're less invested in active equity management, which has been where MSCI's history and bread and butter is. It's part of the reason why Burgiss is serving them, because they have such great tools for private asset investing and alternative investing more broadly. But yes, there is opportunity for us to continue to drive adoption of our frameworks, our standards, within that tail of additional asset owner categories like endowments, foundations, family offices, where MSCI can help drive adoption of Burgiss tools within our established base of global pension funds, sovereign wealth funds around the world, where Burgiss is less penetrated. But there's also the opportunity for us to sell our solutions into those smaller asset owner categories, smaller organizations, where there are many of them, which is a direct commercial opportunity, but it's also an indirect benefit to MSCI in enhancing the ecosystem of tools. The last thing that I would say, and we break these out separately, but they are technically asset owners. The two largest categories from an AUM standpoint of asset owners are wealth management or wealth-directed assets, which is, depending on how you define it, $70+ trillion of AUM, and insurance companies, which is $40 trillion+. Those are both categories where MSCI is small today. We're less than $100 million of run rate. They're growing at outsized growth rates, but we believe there's a long path of opportunity for us to drive our solutions into those organizations, which have direct run rate benefits to us, but also the indirect benefits of reinforcing that ecosystem, which is so important for everything that we do. ... Got it. So you don't hear with mid-single-digit Fed funds rates. People talk about network effects the way that they did a couple of years ago, but would it be fair to say you think the network effect still has-- that has powered your business for so many years, still has ample runway- Absolutely. Room to run? No, absolutely. We talk a lot about the, we call it ecosystem sometimes, but the network effects of that asset owner category in general. But then that feeds to when you have market participants, traders, hedge funds, broker-dealers, but also these asset managers that are embracing those standards, you have a network effect, that we become a common language that organizations can use to communicate risk and return, ultimately. Right. So, but you don't just address the top of the funnel, you also directly target solutions that are aimed to help asset managers- For sure. Hedge funds, like a lot of the you know people in this room, you know, solutions for investors like the ones we have here today. Last quarter, you cited a lot of strong sales traction with hedge funds, especially in the index segment. What is motivating hedge funds to grow their spend on MSCI's index subscription products? Yes, we know there's elevated cancels, but still, the spend has been up, and you cited a good traction. Is that really a function of their interest in products that are more geared around understanding liquidity? Is it newer analytics platforms? Is it something else? Yeah. So those factors feed into it. And it's one that has been, you know, really nice for us to see. For a long time, we've tried to sell to hedge funds, and it had muted success in the past. You know, as you—most of you know, the core of MSCI's franchise or the history of MSCI's franchise is in equity benchmarking, and so when we would call hedge funds, they would say, "Absolute return, I don't need a benchmark." But to your point, we are seeing a number of different use cases across hedge funds, which relate probably to the ecosystem. Many of them relate to the ecosystem and network out there around our products. And maybe I can break down the use cases into three main categories. There's a whole host of different specific use cases, depending on the organization and strategy, but they fall into generally three categories. The first is the development of systematic strategies, and I'll throw in there quantitative strategies. And so many hedge funds are licensing a lot of our index content as a way to develop and back-test strategies. So one of the great things about our index content is you get in any given module, hundreds of indexes that will give you insight into not only a long history and high-quality structured data, but insight into how different markets have performed, different sectors, different countries, different styles, different factors, size. And so they will use that input and that data to develop these more quantitative strategies. And then oftentimes they are implementing parts of their strategy or using tradable products like ETFs, or other derivatives within their strategies, and so they need to understand the underlying index. And so we've had traction selling our modules there. The second category I would highlight is, and this starts to look a little bit like many of the use cases that we have at banks and broker-dealers, market making and trading activities. So many large hedge funds are making markets, in the tradable product universe out there, around our indexes, and so they need to license the index content to understand those. Related to that, but I'll call it out as a distinct category because it's an area where we have seen tremendous traction in recent years, and it's been probably the largest source of sales recently, including on the free float data set that you heard us talk about last quarter, is index arb strategies. And so you see a lot of hedge funds who are making quite a bit of money with the index arb strategies and really trying... Not only do they need to understand the index, but they are trying to anticipate rebalances and the arbitrage opportunities that might come about because of those reweightings of the constituents. And so we've gotten a lot of traction selling into those specific strategies at hedge funds. And so as I alluded to, all of these relate to ultimately this ecosystem of use of our indexes, but also the tradable products that exist around them. So it's, it's been encouraging for us. That, that's helpful. And then just to maybe help investors understand, you know, when I think about your market positioning and your brand in the U.S. versus Asia and Europe- Yeah. You know, especially in Asia, the index inclusion criteria at the country level can become a prime minister-level event. We've seen that in a number of countries. But in the U.S., when I think about you and sort of the ETF business, I think of you, you guys more as a specialty provider. It's not as plain vanilla as some of your competitors are. You know, have you seen in recent quarters a shift, not within your business, but overall, away in the U.S., away from precision ETFs, specialty ETFs, whatever you want to call them? And should that, you know, revert, should investors be looking to make more concentrated bets in 2024? Should we see MSCI's fund flows benefit as well? Mm-hmm. Yeah, so a lot there. There's a lot in all my questions. I'm working on it. It's good. No, it's all rich. I wish we had more time to talk through these. I would say, yeah, and it depends how you're defining specialty, but I would say the usage of ETFs based on our indexes in the U.S. is massive. It's large. So specialty might be a mischaracterization of it. You know, the tremendous amount of assets are tracking ETFs based on our indexes and U.S.-listed funds. Now, U.S. exposure is still a relatively modest part of the overall AUM, and so our bread and butter is outside the U.S. exposures, as well as ACWI, so the global exposure, which you know, includes the U.S. You mentioned precision, the precision product. So... You know, we have seen, and I would say this is, this is not unique to this quarter, the third quarter, but we have seen much more muted flows into the precision products, or we used to call them flagship products. So the ETFs based on our or products like EEM, based on our emerging market index, based on EAFE. So in the most recent quarter, yeah, there were modest outflows in EEM and in EAFE. But I would highlight, and I think you alluded to this, we saw muted flows into those regions more generally. Even outside of those products, there were very muted flows into the emerging markets on our products, as well as the developed markets outside the U.S. And so I'd say there are two factors that I would highlight or two dynamics at play. One is this long-term trend of outsized growth of lower fee products, which we've been seeing for the last seven, eight years, and we've been very vocal about. We expect that to continue, where these lower fee products are gaining assets faster. And so that has been the primary driver of the weighted average basis points coming down over time, and we expect that dynamic to continue, so that's not a new phenomenon. But then there are the cyclical dynamics at play, and so we have seen relative to the U.S. flows, international flows more muted in recent years, mainly in recent quarters, I should say. And so, yeah, at some point, those... When you see those dynamics reverse, we are a huge beneficiary when you see stronger flows into international markets. So when the U.S. market, let's just put, make it nice and simple. When stocks are going up, people tend to go into more, you know, geographies that are maybe more cyclical and thus buy more ex-emerging market exposure, et cetera. There's a correlation there. Yes. Yeah. Yeah. There are many correlations. That's what- I don't want to call it the specific ones, but yeah, we've seen in periods when you see a depreciating U.S. dollar, you see strong flows internationally, you see a whole host of macro factors that can drive that. But typically, when you've seen outside flows into international markets or markets outside the U.S., we tend to be a net beneficiary in those environments. Very helpful. Then I'll try to keep this one a bit shorter, but Gen AI. It's on your radar, it's on everybody's radar. When we start to see it in MSCI Solutions, will it be as separate products, modules with their own pricing dynamics, their own pricing structures, or will it be bundled into existing product suites to help with general price increases? Yes. I mean, and every organization says this, but, you know, the application of Gen AI is very broad, and so it will touch most parts of MSCI as well as most organizations. So it's an efficiency play for us. So it's something that is enhancing every part of the organization, most notably and probably most impactfully, you know, we have big teams of data professionals that are sourcing non-standard data across ESG and climate and private assets. We've been using AI tools in those areas for quite some time, but the improvements, evolutions that have taken place with the Gen AI tools can notably enhance that. And then we have researchers that are generating research reports on 15,000 issuers around the world. You know, having large language models and Gen AI that can prepopulate those reports, things that we've been doing, but it accelerates that. Not to mention all the corporate efficiencies in other areas, which you're very familiar with. But on the commercial side, yeah, I think there are enhanced user experiences, enhanced client service, applications that we are, we are trialing already and starting to embed, which will ease product or price increases, as you alluded to, ultimately adding more value. And we're very cognizant with price increases that we want to add more value to clients, and Gen AI allows us to do that and enhance productivity and innovation faster. But there will be applications, most notably in areas like analytics, where we can offer discrete modules or solutions over time, that we can price for, that allow clients to... Now, the pricing model is not fully established in more of these solutions, so I think this might manifest itself as well in price increases, but it could manifest itself in new modules or enhancements that allow clients to interrogate their portfolios more interactively. You know, one of the great things about our analytics franchise, not only the differentiated content and quality that we have, is the fact we sit on our clients' positions, and so we have. If they're an enterprise risk client, we have every position across that asset owner or that asset manager. And so we can, instead of generating a report, a predetermined report that gives them the information they want, they can now interrogate and ask questions about their portfolio, and not only what their exposures are, but understand certain scenarios, sensitivities, and ultimately, more proactively develop strategies to manage risk over time. And I think Gen AI can be quite transformative on that front. Awesome. Andy, I think we'll end there. Thank you so much for joining us, and thank you to the whole MSCI team who's here as well. Thank you. Thanks for having me.