Good morning, everyone. Welcome to Moody's 2018 Investor Day, both to those of you here in the room, as well as to all that are joining via webcast and teleconference. I am Steve Mayer, Global Head of Communications and Investor Relations. Before we begin, I'd like to walk through a few housekeeping items, some logistics, as well as today's agenda. First is our standard disclaimer and safe harbor statement regarding forward-looking statements. During this presentation, we will be referencing non-GAAP or adjusted figures. To view the nearest equivalent GAAP figures and GAAP reconciliations, please refer to the appendix of today's presentation, which is available on our investor relations website at ir.moodys.com. In our presentation this morning, we will be making references to financial guidance.
Please note that all guidance you hear today reflects our views as of February 9th, 2018, which was our earnings call. Now for some logistics. For those of you here in the room, we're going to have all today's sessions in here, and then for our break in a little while, as well as lunch, we'll head back over to the lobby near the entrance where you had breakfast this morning. During each presentation, we'll ask that you hold your questions until the end, and we'll have microphones available so that everyone can hear the questions. Should you need any assistance during the day, we have an event staff around with red tags on their name badges, so just look for one of them. Additionally, there is an information desk located just outside of this room.
Also, for your convenience, we've set up a Wi-Fi account with login details listed on the back of your name badge. Finally, we're going to ask that you take a few minutes at the end to provide us with some feedback. For those of you that are joining via webcast, you'll receive a link at the end of today's event for a survey. For all of you here in the room today, we'll be sending you the survey via email. It's very short, so please take a few minutes to fill it out so that we continue to improve this event in the future. For the agenda, with regard to today's agenda, Ray McDaniel, Moody's President and Chief Executive Officer, will provide opening remarks.
We're gonna ask that you hold your questions for Ray until the end of today's event, so that you have an opportunity to hear from all the other presenters first. Following Ray, Mark Zandi, Chief Economist at Moody's Analytics, will provide his views on the current macroeconomic environment, as well as some perspective on where the global economy might be headed. We will then hear from Rob Fauber, President of Moody's Investors Service, and Jim Ahern, Managing Director and Head of Structured Finance, who will speak with you about our ratings business. Following that session, we will have a short break. When we return from break, you will hear from Mark Almeida, President of Moody's Analytics, Steve Tulenko, Executive Director of our Enterprise Risk Solutions business, and Dan Russell, Executive Director of our Bureau van Dijk business.
Finally, our last session of the day will cover various aspects of our financial strategy, which will be presented by Linda Huber, Executive Vice President and Chief Financial Officer, Dave Platt, Managing Director and Head of Corporate Development, as well as Melanie Hughes, Senior Vice President and Chief Human Resources Officer. After the final strategy session concludes, Ray will make his closing remarks and answer any questions. With that, I hope you enjoy the morning and find it interesting, and thank you again for taking the time to be with us here today. I'll now turn it over to Ray McDaniel.
Okay. Thank you very much, Steve, and welcome everyone for joining us for our 2018 Investor Day. I've had enough caffeine at this point that my remarks will either last two minutes or 60 minutes. I'm not sure which. Let me move to a brief introduction and what I'm really gonna be providing is a bit of a teaser on comments that you're going to hear about in more in depth from my colleagues as we go through the morning. You know, it's a pleasure to be able to speak with you with our core business in the shape it's in. The business is very robust. Our core ratings and research offerings have probably never been more in demand than they are now.
That leads us in terms of how we think about organizing our focus and our priorities around defending and enhancing that core business. It's, as you see on the slide, it's the table stakes. If we don't do that well, it really doesn't matter what else we do well. The focus first and foremost is on our core businesses, and you will hear that from my colleagues this morning. That being said, we have the resources, capabilities, brand to achieve broader success. We've been on that path for some time now, and we are going to continue on that path, and I'll outline that a bit further.
The operating environment is complex, and it's becoming more complex, both from a market perspective, information technology perspective, regulatory perspective. The velocity of change is probably greater than it has been at any time in our history. I think it's helpful to focus on some of our operating principles in that context. Disciplined execution is absolutely critical. We have to be grounded in effective execution of our business. We have to anticipate the change. As I said, the velocity of change is high. In terms of our preparedness for change, we have to be thinking about our agility and the ability to move the business at the pace that markets, regulators, policymakers are themselves moving. We have to embrace enabling technologies.
That is an ever-increasing component of success in the information services, financial information business. In order to embrace enabling technologies, invest in enabling technologies, we have to pay attention to our processes and our efficiency. Initiatives around that are ongoing. It's really a continuous effort. All of that should provide attractive returns for you and for any potential shareholders on a going-forward basis. Before looking ahead, let me just briefly touch on 2017 and what we achieved in the 2017 financial year. First of all, we benefited from synchronous global growth, and that has been fairly unusual in recent years, but it was certainly a characteristic of 2017.
It is a characteristic of 2018. We are seeing growth in all of the key markets in which we are involved. In 2017, we also benefited from the acquisition of Bureau van Dijk. It was the largest acquisition we have made. You're going to hear more about that later in the morning. It was really a terrific asset, a premium asset. We paid a premium price for it, we got an asset that is going to benefit us for years going forward. Those two drivers of our performance in 2017 led to 17% top-line growth, significant margin expansion, 23% adjusted diluted EPS growth, and a 59% increase in our share price.
This was the strongest annual performance we've had since going public as a company in 2000. Again, just a terrific story in 2017, and it gives us a difficult year to build upon in 2018. I think you're going to hear that we have a growth strategy and a set of conditions that are going to allow us to do that. Very optimistic about the year. If you, if you look at this slide and the wheel, for those of you who have heard me talk about this before, really the three dark blue panels are what I have talked about historically.
That it is the business of Moody's to measure risk, to help with the understanding of risk, and ultimately to allow market participants to more effectively manage risk. What we have done in 2017 and going into 2018 is add a couple of links into the chain on this wheel, and those are the lighter blue panels. With the acquisition of Bureau van Dijk, with what we have contributed in terms of our own organic investments, in terms of other financial risk assessments, we have broadened and deepened our contribution to the ultimate goal of helping institutions around the world manage risk more effectively with more sophistication, with more precision, with more conviction.
What you see here is the investments we have made, have allowed us to occupy a broader space in the financial ecosystem. Again, not neglecting the primary objective of defending and enhancing our core business, but building out from that core business, leveraging our brand to more broadly occupy credit and financial risk management and information space and to extend our thought leadership footprint. It's very much what we are focused on in addition to the core business where execution remains so critically important.
In terms of some key factors that are shaping our strategy, you will see, first of all, global growth, which is, as I said, strong, and has been synchronous over the last 18 months or so, have led to evolution in the capital markets, in the sense that, you know, growth drives funding needs, and funding needs drive disintermediation, among other things. That supports the core business that I talked about we have to keep our focus on. Those things are occurring both in the developed markets and in the emerging markets. Again, the synchronous growth is leading to growth in the capital markets, really everywhere that we are focused as a business.
Now that being said, there are political and regulatory developments. There are new technologies. All of these are contributors or influencers for how we are thinking about our strategy, how we are thinking about where and how to deploy our capital. The fact that we are dealing with domestic and regional political developments, regulatory developments, the fact that new technologies are changing how customers want to receive information, what information they expect to get, how they can use it, all of those are part of the change that I'm talking about in terms of the velocity of things moving quickly, and we have to be agile in terms of responding to that.
Also, environmental, social, and governance issues are becoming more important both from a policy perspective and in terms of what market participants are interested in hearing about. The sustainability component of financial markets is increasingly important, and we are responding to that. What this leads to is a framework for creating sustainable competitive advantage. As I said, the table stakes priorities are to defend and invest for growth in our core business. It is a good business. We also, though, see opportunities to fill out the credit pyramid and expand our role in the global financial system to pursue innovation through the use of enabling technologies. This, you're going to hear about this, is both back office and front office.
How we comply, how we report, as well as product development. Geographic expansion to capture maturing domestic market opportunities. These are all components of what we believe will maintain our competitive advantage in the marketplace. What does that lead to in terms of the 2018 outlook? As we talked about in our February 9th Earnings Call, we expect low double-digit percent growth in both revenue and expense for 2018. We expect to have an adjusted operating margin of about 48%, an effective tax rate now of 22%-23%, which is a terrific tailwind for our business, and it has been for many businesses. We, I think it's important to emphasize, we have been a high taxpayer in the U.S.
We have not had the shield that some other kinds of companies and industries have had. We are a significant beneficiary of the change in the tax rates. That leads to an outlook for earnings per share of $7.20-$7.40, on an adjusted basis, to $7.65-$7.85. That adjusted basis is really the apples to apples way to look at the growth of the business. That is compared to $6.07 that we had in 2017. A very significant gain, 26%-27% in earnings per share, going into 2018. Free cash flow of $1.6 billion.
Longer term, you've seen this slide before. I think many of you have seen this slide before. We think that we can grow revenue at a high single-digit percent range. Our adjusted operating margin, we think will be in the high 40% . We are already projecting 48% adjusted operating margin for this year. For those of you who might ask, "Well, you're already there, does that mean your margins are not going to be expanding?" I would just say we have still have a couple hundred basis points in the 40%, and I don't think that there is any ceiling on margin expansion. We will look at what we think about this as we approach the 50% level in the next couple of years.
We will update this component of our long-term growth projection. Our capital allocation, first and foremost, is reinvesting for profit opportunities in the business, whether it's organic or whether it's through mergers and acquisitions. We will remain very disciplined about how we think about acquisitions. We have done, I believe, a good job with our acquisitions. We're going to be talking about that in more detail. That discipline that we have brought to the acquisitions we have already made will continue on a going-forward basis. We have not changed our mindset or our orientation around any of that.
After profit opportunities, we're looking to return our capital to the owners of the business, our shareholders, through our dividends and share repurchase, and that is an unchanged strategy in terms of how we are approaching it. It's a balanced approach, we're gonna continue that balanced approach. That is going to allow us to grow earnings per share on average in the low teens percent growth range going forward for an indefinite period of time. That's it for my introductory remarks. I'm going to turn this over to Mark Zandi, who's gonna provide a bit of a macroeconomic perspective. I look forward to answering your questions later. I know my colleagues are gonna provide you a good deal more information about these themes that I've touched on.
I'm very pleased that you've been able to join us this morning. Thank you.
Thank you, Ray. Good morning, everyone. It's good to see so many familiar faces in the room. I think it's been a couple years since I spoke here last. Anyone see me a couple, three years ago? Remember what I said?
I do.
No. That's the thing about being an economist, no one remembers what you say, so it's okay. That's right. You do remember. Yeah. Well, it's my job to give you a sense of the global economy's prospects and performance. Let me say up top. I should say that these are my views and not the views of the broader organization. This is Mark Zandi speaking. Bottom line, I think the global economy is performing well, and prospects. Near-term prospects are good. When I say near term, my horizon for this conversation is this year, 2018 and 2019. We're good. We're in pretty good shape.
Just to give you some numbers to strike that point home, global GDP growth, real GDP growth this year should be about 3.5%. Expect about the same in 2019. That's better than what we've been getting throughout most of the economic expansion. Global GDP has been growing closer to 3% over the past several years. 3%'s not bad. That's pretty consistent with the global economy's potential rate of growth. That rate of growth consistent with enough job creation to maintain stable unemployment. At a 3.5% growth rate, which I expect this year or next, that means unemployment and underemployment should continue to decline. We're making some good progress here.
There are increasing number of economies across the globe that are getting to full employment or pretty close to full employment. In Europe, Germany, U.K., full employment. Of course, the United States with a 4.1% unemployment rate. I think that's consistent with a full employment economy. In Asia, Japan, very low unemployment, full employment. Australia, full employment. Much of the developed world is already there, and many of the emerging economies are also doing quite well and unemployment's declining. Just to give you a sense of where we are, this is one of my favorite charts. I actually, I have to give credit to the rating agency for this.
I saw this from the rating agency six, seven years ago, somehow they're not using it anymore, I took it, and this is now mine. This shows where all the major global economies are in their business cycle. The size of the circle is consistent with the size of the economy. You can see, for example, United States, biggest circle, U.S. economy is 20%-25% of global GDP. First thing you'll immediately notice, this goes to Ray's point about synchronous growth, nobody is in recession. There are, you know, some dysfunctional economies, very small, that are obviously struggling, Venezuela, Yemen, Syria. A bstracting from that, everyone is growing. There is no one in recession. This is the first time I could say that in over 10 years.
Last time we've had this kind of synchronized global growth was literally a decade ago. It feels really good, really very good. A number of economies are in recovery mode. Recovery means the economy is growing, but the level of economic activity is still below pre-recession peaks. We haven't recovered everything that was lost during the previous recession. You'll note some of the economies that were struggling a year or two ago are now in recovery mode. Emerging economies like Brazil, Saudi, Russia, they're now experiencing growth. It's still a bit of a struggle, but they're kicking into gear. Most of the economies are in expansion mode. Expansion means growth. We're growing, and the level of activity, GDP, industrial production jobs are above pre-recession levels, and the United States is firmly in expansion mode.
I Actually, with the tax cuts and the increased government spending, and I'll come back to that in a minute, I think that means we're gonna get more growth for a little bit longer here just because of the deficit-financed fiscal stimulus that that creates. That's gonna power growth through the remainder of the decade. You can see much of big parts of Europe, like Germany, are in expansion mode, a number of emerging economies. There are some economies that are in what I call slowdown, the part of the recovery. That is, they're growing. The level of activity is generally above pre-recession levels, but the rate of growth is starting to moderate. In the case of China, that's by design. The Chinese, you know, have switched priorities.
It was a few years ago, it was about addressing structural imbalances in their economy, leverage and productivity in their state-owned enterprises, lot of other structural issues. More recently, they're much more focused on stability and getting that growth rate more consistent with their long-run growth potential. They will continue to see slow growth, but that's by design. U.K. is in slowdown mode. That's Brexit. The U.K. economy has kinda navigated the post-Brexit environment pretty well, and that's largely because of the response to the Brexit by the Bank of England. Very aggressive monetary policy response, lowering interest rates. Of course, the pound, which really was very good for me. My daughter had to pay a tuition bill at Oxford. I was rooting for Brexit for, you know, it helped.
Changing bank capital standards temporarily helped. U.K.'s economy will be diminished long run by Brexit. I think that's evident in the growth prospects that we're seeing now. A couple of other emerging economies, governance issues, although South Africa's made a positive step forward recently, but still a bunch of governance issues. Bottom line, it all looks pretty good. You know, the global economy performs currently, and near-term prospects look pretty good. One key source of growth going forward, and I already alluded to this, but just to flesh that out a bit more, is fiscal and monetary policy. They're providing a significant tailwind to the global economy. This graphic kind of gives you a sense of it. We're using our global model here.
We have a model of the global economy, 70 countries interlinked through trade and capital flows. We use that model to assess the impact of fiscal policy. When I say fiscal policy, that means tax policy, spending policy on growth, GDP, and the impact of monetary policy on growth. Monetary policy clearly works on the real economy through financial conditions. When central banks change policy, that affects equity prices, credit spreads, interest rates, and ultimately filters through to the real economy, so broader financial conditions. You'll note, Both monetary, fiscal policy, financial conditions, they're all providing juice to the economy, the global economy, over the next couple of years. The peak of that tailwind is really another six, 12, 18 months dead ahead. This is most obvious in the U.S. I mentioned the tax cuts that we got.
Ray mentioned them in the context of Moody's. That's very substantive. It's largely deficit financed, borrowing money to pay for the tax cuts. We just got a new spending bill that significantly increases government spending, U.S. government spending, also deficit financed over the next couple of years. This is a lot of juice to the economy, temporary. It's temporary. You know, it's not long-lasting, but it's gonna lift economic growth over the next couple of years. This, this fiscal stimulus, monetary stimulus is also evident in Europe, although the European Central Bank is now beginning to think about reducing the amount of stimulus it's providing to the global economy, to the European economy, but it's still there.
Also in Asia, still very low interest rates and a lot of economies are providing fiscal stimulus to the economy. This is a very strong reason to believe that growth should remain good, solid, strong, you know, for the next couple of years. One thing you will quickly notice, though, if you haven't already, by the end of the period, as you move into the next decade, these stimulus, the monetary and fiscal stimulus begin to fade and become somewhat of a drag. If I extended out this chart, you know, into the next decade, you would see that it would be a constraint, a significant constraint on economic growth as you move into 2020 and 2021. Of course, this is based on current policy.
Lots of things can happen between now and then, so the picture can change. Under current legislation, current law, this is the picture that you get. Okay. At this point, you should be feeling pretty good. I could actually lift you higher, but they'd have to give me an hour to do it. They only gave me 15 minutes, so I can only take you so high. There are risks to this optimism. I think the most significant near-term risk, at least over the next year or two, is represented by this picture. Interest rates should rise. This is short-term interest rates here in the U.S. This is the federal funds rate target.
This is different people's investors' expectations around short-term interest rates. The blue line represents the Federal Reserve's forecast. They, of course, once a quarter, get together and provide their views with regard to where the funds rate target is headed over the next several years. That blue line represents the median of those expectations across all the members of the committee and the Fed that participate in that process. The last time they did this was back in December, so it's a little bit dated. It was before some of the fiscal stimulus was passed. They'll get together again at the end of March, and we'll get another projection. I expect the blue line to shift up.
The blue line says three rate hikes this year, 25 basis points each time. Three rate hikes next year. In the long run, let's say 2020, the federal funds rate target, the key short rate that they control, will settle in somewhere just north of 3%. That's the long run equilibrium rate, r*, consistent with a full employment, well-functioning economy with inflation at target. You can see my expectations. That's the blue line. I think I obviously believe the Fed will be marking up its forecast and that they will have to respond to a economy that's well beyond full employment, wage and price pressure is developing. That blue line is more typical of actually what happens historically at this part of the business cycle.
Federal Reserve is a little slow to respond to what's going on, the strengthening of the economy, the wage and price pressures, but ultimately has to play catch up and steps on the brakes more aggressively, and interest rates rise. Long run, you know, I think the funds rate should settle in somewhere around 3%, pretty close to the Fed's expectations, but getting there will be different. Here's the risk. That's the green line. That's what the markets think. Obviously, I put this chart together a week or two ago. It's shifting up as well. Powell talked yesterday, and that line shifted up a little bit yesterday. Market expectations, this is as implied in Eurodollar futures, are different. They've now priced in three rate hikes this year, not a fourth.
Next year, maybe a couple. In the long run, the funds rate target will settle in around 2.5%. That's a big difference. Now, somebody's wrong, right? Somebody. It's not me. Somebody's wrong. This would suggest that there's some adjustment to do. In fact, that's what's going on right now, right? This volatility, what we've been observing in financial markets and equity prices and credit spreads and the broader financial markets is related to, most fundamentally, to this adjustment that's going on. Investors are trying to get their minds around the idea that interest rates are gonna be higher. By the way, not only short-term interest rates, but long-term interest rates, because as you know, the fiscal stimulus is deficit financed, right?
That means a lot more bonds in the marketplace at the same time that central banks like the Federal Reserve are gonna allow their balance sheet to come in. This means higher rates, and so I think investors are trying to get their mind around it. Now, in my so optimistic world view, over the next two years, we're good. I think this adjustment should be graceful or reasonably graceful. There'll be volatility. It's certainly more volatility than has been the case in the recent past, right? We've had extraordinarily low volatility in markets. I don't think that'll continue.
The volatility will be, you know, manageable, and it won't upset the apple cart, and we'll get the kind of growth rates that I expect. The risk is that it's not gonna be as graceful as I anticipate, that there will be much more volatility than I'm anticipating in markets, and that that will do some damage to the broader economy, to the entire global economy. There's, you know, case history for that. I mean, if you go last by the last good case study was back in late 2013 when Ben Bernanke, then Chair of the Federal Reserve, started talking about ending the quantitative easing program here in the U.S. I don't know if you remember back to that point in time. It was called the Taper Tantrum.
I remember, fixed 30-year fixed mortgage rates jumped 100, over 100 basis points in just over a few weeks, and it did real damage to the economy. It really hurt the housing market was, which was in the early stages of recovery, and it delayed, kind of the, recovery from the Great Recession. It is very possible that this could be bumpier than I'm anticipating and that the fallout on the broader economy, more substantial. We need to watch this. There's other risks, and I don't mean to diminish them. You know, the rise of, populism, nationalism that's still ongoing, can manifest itself in lots of different ways that are counterproductive to good, strong global economic growth. Immigration policy, good example.
Trade policy, we're gonna have another round of NAFTA negotiations this weekend. That's a good example of what I mean. There are other risks, but broadly speaking, we're in pretty good shape. I'll end with the title of my talk. These are good times, but they're risky times. You'll have to invite me back, and we can talk about how well I did in terms of the economic outlook. Thank you. At this point, I'd like to turn the podium over to Rob. Rob's gonna give you his perspective on the rating agency. Thank you.
Thank you, Mark. I realize that I need to make sure you understand the contents of my presentations are strictly copyrighted going forward.
Yeah. Well, it's all intercompany. Good morning. My name is Rob Fauber. I'm the President of the rating agency. I'm joined by my colleague in a few minutes, Jim Ahern, who is a veteran of Investor Days and our Global Head of Structured Finance. I've been with the company for almost 13 years. I've been in this role for almost two years now. Before that, I ran our Global Commercial Group, which is really the sales and marketing and product management for the rating agency. Prior to that, managed the corporate development team for the corporation working for Ray and Linda. Jim's been with us for almost four years now.
He joined us from Soc Gen, where he was global head of securitization, and he brings a very deep experience in the securitization markets across geographies and asset classes, and he is going to provide a brief perspective on the structured markets today. Jim and I are going to touch on just a few areas today. First is the issuance environment. Second, as I said, a spotlight on structured finance. Third, we will talk about our strategy and our mission. Before I get started, you are going to hear some very familiar messages today, very familiar themes, and a few new ones. That is because, as Ray s aid, we have got a great business. We are very focused on continuing to do what works, and as Ray said, doing it well.
We're also investing in areas that will position MIS for similar success in the years ahead. The familiar, you've started to hear global GDP growth will drive debt market issuance despite some geopolitical uncertainty and the likely rise in interest rates. Securitization markets are continuing to show post-crisis resilience, some recovery in the EU, some growth in Asia. Jim will talk a bit more about that. Our mission continues to be the agency to be the agency of choice, meaning being a trusted provider for issuers and investors. We remain highly relevant in the global capital markets, and that's essential that we remain relevant in an evolving geopolitical, regulatory, and competitive landscape.
Meanwhile, we are investing in some of the new opportunities to further build our business, whether that is new geographic markets, new sectors, new products, and enabling technologies, all of which I will touch on in a few minutes. Let me start by setting the table a bit in regards to some perspective on the issuance environment. Okay. As you've heard from both Ray and Mark, we're in a period of synchronous growth. That's a bit of a trendy term this day, these days, but it is accurate. First time, as Mark noted, that we've had growth in all of the G20 countries at the same time, in almost a decade.
Economic growth is one among a variety of drivers of issuance volumes, but it's important because as Ray said, it typically supports investment, it supports M&A activity, and that in turn leads to issuance. While interest rates are likely to increase amidst this economic growth, we believe these increases will be gradual. It will be interesting to see which of those lines that Mark showed ultimately plays out. But as long as they're gradual rather than sudden, we think that they will be manageable for issuers. Our outlook for the default rate for 2018 is for it to continue to decline, meaning that spreads should remain tight and all-in financing conditions very attractive.
We expect that this combination of economic growth and constructive market conditions will be supportive of issuance in 2018 after what we all know was a very robust issuance environment in 2017. Refinancing activity is an important part of overall issuance. Obviously varies from year to year based on a variety of factors. Between North America and EMEA, based on our latest maturity studies, there are well over $3 trillion in non-financial corporate forward maturities, and you can see that displayed here. In North America, investment-grade maturities are up versus this time last year, while spec-grade maturities are down slightly, and that's because of some of the pull forward that we've seen in the bank loan market, in particular over the last 18 months or so.
Net-net in North America, those maturity walls about the same as they were this time last year. We estimate that these refi walls provide anywhere between 30% - 40% of non-financial corporate transaction revenue in any given year. The maturity profile of these rated issuers continues to support, I think, a favorable outlook for both issuance and for revenue over the medium term. We frequently get asked if we're in some sort of credit bubble. I think my answer to that is no, but with some caveats. I have some data here for you. On one hand we have seen gradually increasing leverage levels in both the investment grade and the spec grade markets over the last several years. About half a turn in both of those markets.
In the spec-grade universe, as you can see on this top graph here, we've seen an increase in low-rated credits as a percent of the total. We've also observed some deterioration in the quality of covenant packages. Conversely, as you can see on the bottom graph here, our outlook for spec-grade defaults, as I mentioned, is for a further decline in 2018. You can see that with the light blue line. Our Liquidity Stress Indicator, which is a measure of the percent of total spec-grade companies with our lowest liquidity rating, remains near historic lows. As you can see, that's the green line there. And that tends to foreshadow changes in the U.S. spec-grade default rate. Increasing leverage, but overall a benign credit outlook. Excuse me.
As you can see, on this chart, refinancing has been a major driver of issuance for a number of years now. That's obviously been supported by the low interest rate environment. In 2014 and 15, we saw an uptick in M&A as a percent of total use of proceeds, and you can see that here. 2016 and 17, refi again picked up very low interest rates, very tight spreads, particularly in the bank loan markets. We saw a wave of refinancing activity. You've heard us talk about that on our earnings calls. Some pull forward from those maturity walls that I mentioned just a minute ago in the spec grade space.
In 2018, amidst a rising rate environment, and some robust equity markets, we expect to see that refi activity taper a bit, and be largely offset with M&A volumes. We've already obviously seen that, with in the start to the year. For those of you who have followed our company over the years, you've heard us talk about disintermediation. You know that continues to be an important and positive factor for MIS. Ray touched on it. Between the gradual economic recovery and the increased investment that that leads to, the conducive market conditions, and also the impact of regulations on bank lending, we've seen a record number of first-time issuers come to market.
On this chart, you can see the U.S. is obviously the most mature and deepest capital market. Have a pretty even split of debt, corporate debt between bank lending and bond market issuance. Meanwhile, in Europe, disintermediation of the banking system has been slow but steady. Companies have typically relied more on relationship banks for financing, and we're seeing them increasingly turning towards the bond markets. This has also been a trend in Asia, particularly in China. Despite the fact that China's private sector bonds to GDP are beginning to move in the direction of more mature markets, you can see that the disintermediation opportunity here with China is both sizable and has room for further growth.
Interestingly, if you look on the left side here, some important regions, Latin America, Middle East, India, all showing very low levels of disintermediation, which indicates some significant future potential for bond issuance over the longer term. First-time issuers are the product of that disintermediation. This graph really shows the growth in first-time issuers over the last several years. You can see here in 2017, we achieved a record level of first-time mandates, and in 2018 we expect a similar, albeit slightly, lower level. I think of particular note here is where we're seeing the growth in first-time mandates, and you can see on the right side here, that's led by China and the rest of Asia.
32% growth over this time period, followed by Latin America at 24%, Europe at 16%, and the U.S. and Canada at just 16%. That's obviously very important for our business because that adds to that stock of monitored ratings, and oftentimes these first-time issuers become repeat issuers. Moving on to tax reform. We've covered this fairly thoroughly on our last couple of earnings calls. I'm just gonna give a few high-level observations, and the rest you can take away from the slides here, or we can talk about at the break. I would first say that it's still too early to call any kind of meaningful shift in corporate financing behaviors. That's very consistent with all of the discussions that we're having with our issuers over the last couple of months.
In general, we believe that the reduction in the corporate tax rate will be a positive for corporate issuance, while the partial elimination of interest deductibility will be a modest negative overall. For almost all of the U.S. investment grade companies, there'll really be little to no impact from the loss of interest deductibility, the caps as they don't exceed the leverage caps. It's in a segment of the spec grade universe, the single B-rated names, where that loss of deductibility will be a negative. Over some period of time, we might expect a modest decline in issuance coming from that universe. That would impact the leveraged buyout market. Most of the LBO activity is in the single B space.
I would note that private equity firms have raised huge amounts of money over the last several years and are putting that actively putting that to work. While these caps may make debt more expensive for some issuers, it's still going to be cheaper than equity, and some private equity firms may even begin to accept slightly lower returns as they're putting all this capital to work. The most adverse impact from the recent U.S. tax bill is in the muni market relating to what's called advance refundings. They lost their tax-exempt status. They comprised about 20%-30% of the flow of the muni market in any given year, and we've already seen that flow curtail.
Now, there is a bill that's being discussed that would contemplate the reinstatement of that tax-exempt status for advance refundings. It could be tied to some form of infrastructure bill. We are obviously watching that very closely. Okay. With that, I'm gonna turn it over to Jim to give us some insights into structured finance.
Okay. Thanks, Rob. Why we put a spotlight on structured finance? You know, first of all, you know, unlike some of the other fundamental businesses that we provide rating services on in Moody's, structured is a transactional business. It's also one that tends to have demonstrated more volatility, at least historically with the financial crisis. My slides today are gonna basically give you a sense of what I think is a more stable story for structured finance. This first slide illustrates the three geographic regions in which we operate, and we've talked about these. On the left, this is the U.S., in the middle, Europe, and on the right, Asia. The slide itself illustrates the annual capital markets issuance, bond market issuance in each region over the last decade.
The dark bar is the structured percent or the structured amount, and then the light is all the other markets, so corporate, bank, municipal, et cetera. You can see on the left, and I think the way to look at this is, you know, the U.S., and it's been mentioned by Ray and Rob, very functional, very stable, mature capital markets. Europe, as mentioned by Rob, a bit more bank financed, and you're seeing a decline in year-over-year as well in securitized. Asia, the amount that's securitized is that little piece at the bottom. We're describing that as emerging, and I think you've heard that context being discussed by others. I guess the punch line I wanted to make here, two punch lines.
The first, over the last decade, you can see a very stable amount of securitization issuance on an annual basis, the range between 18% - 22%. W e've gotten away from where maybe securitization was driving bubbles. Y ou can see on the far left it was as much as 35% of annual debt capital markets financing needs. Now it seems to be stabilized in a pretty steady range. The other thing to take away is its scale. When you add up across all the sectors the amount of refinancing and new market bond funding needs, securitization is over $3 trillion a year, a bit over $3 trillion of financing on an annual basis. When you break out that same percentage into securitization only, there's a different story. A couple points to these slides.
It's the same three regions. This is securitized only issuance. On the left side, the dark bar is the growth in non-agency securitization for the U.S. That's the dark blue. Then the light blue on top is agency securitization, Fannie, Freddie, et cetera. In the middle, you've got Europe, and you can see how Europe has declined but now stabilized at a level of about $800 billion a year. The European bar includes structured, not just structured securitized, but covered bond as well, which is really the way that they finance housing in most of the European markets. Then on the right side, I think the most interesting story is the emergence in China of the securitization market, and you can see the growth there.
If you look at the scale, on the previous slide, the scale was all the same amount. On this slide, the scale is different. The U.S. is still a very, very large driver and user of securitization. In fact, for the last 20 years, more than 50% of household debt has been financed through securitized products. As of the year-end last year, we closed that at about 55%. Europe, more of what we would describe as a recovering story. It's stabilized. Asia, emerging. Let's talk about some of these regional trends in a bit more detail and some of the things we're thinking about in terms of our operating model. In the U.S., as I mentioned, a mature securitization market. We saw 20% growth year-over-year in the non-agency portion of structure.
We saw over $700 billion of issuance last year. Some of the biggest areas of growth were in securitizations backed by corporate assets. This would be CLOs, CMBS. We're finding that with bank deposits being so strong and retail deposits so strong, the banks are using those retail deposits to fund their asset books like credit cards, auto loans. Wholesale funding, which isn't necessarily using retail deposits to finance, is turning more and more to disintermediation. You're seeing large use of securitization to fund corporate assets, not just CLOs and CMBS, but also, you know, lease finance and other products that are what we call more esoteric. Another landscape, I think you're seeing positive Treasury sentiment. Policy tone has been good.
The capital markets report from Treasury in 2017 described securitization as a vital tool for financing economic growth and suggested that it would benefit from selective regulatory relief, if that's the right term. We are at an all-time high in debt for consumers, $13.8 trillion as of the end of last year. That's back to a level not seen for the last decade and now reaching levels we saw heading into the financial crisis. I think a couple things to take away from that, though, is I think underwriting of consumer debt has been better disciplined. You're seeing lower losses and lower delinquencies, and the consumer is marginally less levered than it was in the past peak.
You have higher household income, higher household wealth due to the benefits of the stock market as well as the reinflation of home equity. If you think about it at the biggest scale, the amount of household debt against the current GDP of the U.S. is lower than it was a decade ago. We're seeing emerging sectors in structured, in particular, marketplace lending, also, products backed by or loans that are helping finance home improvements, energy-related. Solar is another one. Single-family rental, which is basically the financing of single-family units rather than multifamily for housing. In aggregate over the last five years, those segments have grown to almost about $100 billion of issuance and represented a 57% compound annual growth, which is more than 5x the overall growth of securitization.
The technology is being used to fund new segments of the economy. The last, and I won't spend a lot of time on it, ninth straight year now of conservatorship for the GSEs. People will always ask, "When's the private market coming back?" W e're still waiting to see. I think you see a lot of policy ideas. Congress is always talking about different ways to, quote-unquote, "reform that model." So far, the model as it's working seems to be serving the economic needs of financing housing in the U.S. despite the fact that it's now, you know, basically a taxpayer-funded economy for housing. In Europe, two quick stories. We talked about disintermediation. In Europe, securitization is being used less so for disintermediation, more so to support the banking system.
At the senior part of the capital structure, you're seeing banks using securitization as a source of repo finance with central banks, and that's a way to get liquidity. It's also a way to provide quantitative easing in Europe. At the bottom of the capital structure, you're seeing securitization used more on a derivative basis. You're seeing deals that are what the industry would call reg cap trade, where they're using securitization to get capital relief, but not necessarily for funding. A couple factors that we're seeing there, and actually we've seen that market, the reg cap market, grow to be larger in Europe than the funded placed market for securitization. We're also keeping a close eye on Brexit and, you know, how capital markets union may evolve in Europe.
It's still a recovering story as we've described. Lastly, in Asia, you know, where we're seeing the most volume growth on a per capita basis, but still albeit smaller than other markets. China has been the big story. We also have been seeing growth in Australia. You know, their housing market has been going very well, and RMBS is an important source of funding for that market. China is really where we've seen the majority of growth. Last year, China did almost $200 billion of securitization, most of it domestic. Not all of it is product we're rating today. Now China's the second-largest placed securitization market behind the U.S. It's larger in terms of what they actually raise funding in the market than Europe these days.
The last point in Europe is, or sorry, in Asia, is Japan. Japan isn't using securitization for funding, but because they're so, their economy's been relatively healthy and interest rates are so low, they're using, or they're investing heavily in securitization to get return and, you know, or better risk-adjusted return since they've got negative interest rates in their market. They've become an increasingly important source of liquidity on a global basis. They're very much exporting their liquidity. With that and that backdrop, let me turn it back over to Rob, who's going to talk to you about our strategy and execution.
All right. Thanks, Jim. Now let's move from the issuance environment to the operating environment. My first observation is that our relevance as an organization and in the markets remains very high, and you'll hear me talk a lot about relevance. Whether you measure that by our very comprehensive global coverage of issuers, and that's remained very steady over the years, or the very good feedback that we get from investors, both through our internal surveys of investors as well as third-party awards and recognition. That said, as Ray acknowledged, we are operating in a more complex operating environment than we were pre-crisis. The geopolitical landscape is uncertain. We are exiting a period of unprecedented monetary easing. Technology is transforming businesses and industries at a pace like never before.
The asset management industry is shifting from active to passive investing. The competitive landscape is evolving. We've got not only global players, but regional and local agencies. Our business continues to be shaped by evolving re-regulation, and that requires us to adapt our business and our processes to the continued supervisory feedback that we get in the various countries in which we operate. Amidst that backdrop, our goal at MIS is very simple. It's to be what we call the agency of choice for investors, for issuers, and the market at large. To do that, we're focused on a very simple handful of straightforward priorities. This part is going to sound very familiar by design. It's also the table stakes that Ray talked about. First and foremost, getting the ratings right.
We have an unwavering commitment to rating quality. Second, providing timely insights in the form of research to reinforce MIS as a thought leader in the credit markets. We have very extensive analytical and commercial outreach in order to be engaged and in touch with the markets. We've got expanded sales and marketing activities that really help us articulate the value proposition to issuers. I'm gonna touch on each of these in just a little bit more depth. I think many of you here understand that the bedrock of our business is the fact that our ratings have done a very good job of rank ordering credit risk over a very long period of time. These default studies are available to the public on our website.
Our average lead analyst been with the company approximately 15 years. We frequently hear from issuers that they really value the experience and insight of our analysts. This combination of predictive performance and the experienced staff is also very much valued by the investors, and that's what drives that investor demand pull model that we've built up over the last century. It's also helped us to win some very important awards, like Institutional Investor Number One U.S. Credit Rating Agency for a sixth year running, and that's something that we're very proud of. Over the years, we've expanded our business to deliver a truly worldwide presence that has both global and local expertise. The numbers here give you a sense of the breadth and depth of our franchise.
Over $72 trillion in rated debt outstanding, covered by over 1,600 analysts and associate analysts all across the globe out of 31 offices. Across this footprint, we engage with the market in a variety of ways. We have thousands and thousands of investor meetings going on every year. We're also present at or hosting hundreds of conferences, roundtables, teleconferences. This kind of scale and reach, I think is very hard to replicate and provides us with a real competitive advantage. In addition to the focus on rating quality, as I said, we focus on timely and insightful research. That drives the thought leadership and reinforces our positioning with our investors. You can see here, in 2017, we produced over 29,000 research reports across every sector, across every region.
That includes some cross-sector reports, which are thematic pieces that really showcase our ability to cover topics that have linkages, whether they're across regions or across sectors. When you think U.S. tax, carbon transition, the impact of artificial intelligence, all very good examples of that. In 2017, we made some investments to further reinforce our depth and our timeliness and relevance. Most notably, we supported MA in their development of CreditView 2.0. You can see that here on the bottom left. A new, and I would say very much improved, website for delivery of our content. Hopefully, many of you are already using that. If not, I'm sure you can talk to one of Mark's team afterwards. We're also driving efficiency and timeliness in research.
We've obviously got a huge volume. Very importantly, focused on that by offshoring our copy edit function. We've upgraded our content management system. We've deployed automation tools for research production and editing. These investments really allow us to analyze the volume, the readership, the impact, so that we can, you know, nimbly shift our attention and resources towards the area of most relevance to the market. Ultimately, that's what it's all about. The final area that I'll touch on in support of our goal to be agency of choice is around expanded sales and marketing activity. We engage with issuers and prospective issuers through a relationship management staff of almost 150 people in all regions around the world.
That staff includes, as you can see on the right, specialists in certain sectors where we feel there are particular opportunities. We've also made some investments to expand our on-the-ground presence and reinforce our positioning in certain cross-border markets. You can see that in places like the Nordics. We opened an office in Stockholm in May of 2016. Since then, we have signed 54 new mandates out of that office. It's been a very successful office opening for us. Last quarter, we opened an office in Riyadh. That is on the back of some very significant issuance out of the Middle East region in 2017 that we expect to continue in 2018. Of course, Greater China, we have three offices there that support that new mandate growth that you saw earlier.
The continued evolution of the markets also creates opportunities for us to serve the needs of issuers and investors with new products. A very good recent example of that is our Green Bond Assessment. That provides an evaluation of an issuer's management, administration, allocation, reporting on environmental projects that are financed with the proceeds of a green bond. We now have over 25 green bond assessments outstanding. We have a very healthy pipeline, we project green bond issuance to be in excess of $250 billion in 2018, up 60% from 2017. A very timely introduction of that product. On the back of our Green Bond Assessment, Ray noted we're expanding our efforts in the broader environmental, social, and governance space.
We staffed a dedicated team with expertise in these areas. We're extending our research offerings with things like heat maps and ESG factor scores. That's all responding to some very significant demand that we're seeing from investors and others in the market for us to have a view around these ESG factors. In addition to ESG, you can see we've also launched some, continued to launch some other products extending into new markets, new geographies. Interestingly, that includes through our 4.99% ownership in Euler Hermes Rating Group, which is a small German rating agency, a rating for mid-market and smaller corporates. They rolled out a rating product in Germany and in France and have several other countries on the way.
An interesting opportunity for us. Let me shift just very briefly to a few comments on regulation before moving to some of the other investments that we're making in our business. Including the 28 countries in the EU, we're now regulated, as you can see, in 41 countries around the world. While there are frequently changes in either the interpretation or even the regulation in these jurisdictions, there are a few things that I did want to highlight to you. First, we're seeing both IOSCO and ESMA publish papers on several topics. The first of those endorsement requirements, and think of those as the passporting of our ratings into the EU. The second is a thematic report on fees in the credit rating industry.
Third, around ancillary or other credit rating products, things like credit research. I think together, you know, these papers may ultimately lead to some changes in the way that MIS or our products and services are regulated. Some changes, like the ones to endorsed ratings, I expect to go into effect as early as 2019. We already have an endorsement regime and feel very comfortable being able to implement those requirements. Others, like the fees and the other credit rating products, I think will take longer to unfold and the outcome is less certain. In regards to Brexit, the punchline here is that we are proceeding with what I call incremental rebalancing of our staff.
A lot of staff in London, we're moving some of those staff to some of the hubs that we already have on the continent, in order to comply with ESMA's rules, particularly around endorsement, post-Brexit. In sum, I think these issues, they appear to be manageable. They're just gonna take some resource and time, and focus for us to navigate and execute. Okay, emerging markets. Another very consistent story for us. You've seen some version of this before. Continue to be a very steady growth driver for us. You can see on the left 14% annual revenue growth out of the emerging markets for the last decade, now accounting for over $300 million in revenue. Most of our revenue there comes from our cross-border business. There are some contributions from our domestic rating affiliates.
As you can see on the right here, we generate approximately $150 million a year in revenue from our affiliates. Not all of this is consolidated into our financial statements as, in particular, we don't have majority or full ownership of CCXI. It does give you a sense of the scale of those domestic operations. We support this emerging markets footprint both with organic and inorganic investments. Over the last five years, we've opened offices in Poland, Shanghai, Mumbai, recently Riyadh, as I said. We've been able to deploy capital to increase our stakes in ICRA in India, Korea Investors Service, and Equilibrium in Peru. These investments give us both an opportunity to extend the franchise and also represent pretty attractive opportunities to deploy capital into our core business.
We're always on the lookout for these. Just wanna spend a few minutes on China. We first opened an office as MIS in Mainland China in 2003. We followed that three years later by establishing our joint venture in the domestic market, CCXI. CCXI has since grown to be the leading domestic agency, operating in China with over 1,000 domestic ratings. Our cross-border business in MIS has grown over 425 ratings, and we've supported that by opening that office in Shanghai, among other things. Similar to what we've done with ICRA in India, we've collaborated with CCXI, whether that's on research conferences or business development referrals. In early 2017, CCXI completed a restructuring that consolidated several rating licenses under one entity.
As a result, we now own 30% of a larger entity, and we're the only global CRA with an affiliation or ownership of a domestic agency in China. As many of you are aware, China recently announced that it will allow foreign-owned firms to participate in the credit rating industry in China. We're awaiting the authorities to publish some implementation rules for the registration process to begin. It's unclear how long that is going to take. You know, it's clearly a significant opportunity. You can see that either by the size of the domestic bond market, some of the stats I gave you around CCXI's rating portfolio.
This is going to take some time for this market to fully open up, and we feel very well-positioned to serve the needs of the cross-border and the domestic markets in China with some combination of both MIS and CCXI. Finally, in addition to investing in products and geographies, we're also investing in enabling technologies in MIS. You know, I think of leveraging these cutting-edge technologies in MIS through kind of three core activities that we do in the rating agency. We're reading, collecting, extracting massive amounts of data. We're then analyzing, we're modeling, we're scoring that, and we're then publishing and even visualizing that.
In 2017, we formed a group called the Analytic and Technology Solutions group that combined over 100 of our quants and our developers into one group that really drive and coordinate innovation efforts across MIS. As a result, we deployed our first bots in the fourth quarter of last year. That's going to help with the automation of very routine, repeatable workflow. We sent a cohort to Google's machine learning Advanced Solutions Lab as part of our efforts to really move forward on predictive analytics, leveraging things like big data and artificial intelligence. We're continuing to make some very interesting strides around natural language generation for the automation of elements of our research suite.
All of this really is to help us get better, to get faster, to get more efficient in our core business. All right, I am going to bring this to a close, leave you with a few key messages. As I said, our outlook on issuance is positive, despite geopolitical uncertainty, but amidst this very robust economic growth that we have been talking about. Longer-term issues are going to continue to place pressure on our operating environment, but we will and we have and we will continue to adapt to these changes. We are going to capitalize on some of these new opportunities that I talked about. We are also going to remain laser-focused on those critical few priorities that will maintain the strength of our core business.
We're going to invest in these markets of the future through whether it's regional expansion, some of these adjacent opportunities like ESG, and enabling technologies. That's going to reinforce our relevance and our position as the agency of choice for the global markets for years to come. With that, I'm gonna bring Jim to the stage, and we're happy to take any questions.
Sure. We'll start right here in the front with Peter. Peter, if you don't mind just holding up to the microphone just there so everyone can hear.
Thank you. Good morning. It's Peter Appert from Piper Jaffray. I'm interested from both of you, your thoughts on the competitive dynamics in the market and how it's evolving. I ask this in two contexts. One, just sort of near term, you know, you see more players in the structured finance market, and they seem to be having some traction. I'm wondering if this is a significant threat in terms of their ability to expand their presence, get into the CLO market, for example, beyond CMBS, et cetera. That was question one. Question two is, Rob, for you.
I know there's some discussion in the market from the fintech firms about the new product offerings and, you know, wondering if we're not focused enough on the risk of technological disintermediation to your business and how you're thinking about that. Thank you.
Let me tackle the first part of the question. You know, as a transactional business, structured finance is probably more accessible to new entrants. Methodologies or criteria for others drive the opportunity to enter. There's probably lower barriers to entry. We're often asked this question by constituents in the market, and I would generally turn them to the stability of our franchise. You know, we've been rating bonds for over a hundred years, and we see, you know, the entire market. We see every every product in structured. We see every region. We're present in every active structured finance market. The depth of our experience, the breadth of what we see, I think will allow us to maintain relevance throughout economic cycles.
if you look at the back testing, you look at the historic performance of our ratings, I think they stand the test of time. I think that would be the way that we would engage with the market and communicate. Our capacity to continue to serve as the thought leader in structure.
Do you see risk of these competitors expanding their footprint and getting active in other asset classes?
I wouldn't describe it as risk. I mean, there are gonna be other rating agencies. I think Ray's used the term before. There's over 130 rating agencies global. There's always gonna be new entrants. There are many entrants that have been in existence for a long time. You know, I think we rate the majority of the structured finance market. I think we'll continue to do so for the foreseeable future. That said, there will be other players who will enter and operate and find niches as any would.
Yeah, Peter, just to touch on your question. It's interesting because, you know, if we go all the way back to 2000, you know, there have been, you know, model-driven approaches to credit ratings. We bought one. We bought KMV years ago thinking that it was going to potentially be a substitute to credit ratings. Instead, it turned out to be complementary to what we're doing. In many ways, I think, you know, some of these, you know, fintech opportunities are in that same vein. That said, you know, I don't wanna sound complacent, what we hear from our customers all the time is that they value the insight of our people. They also value our access to management and our assessment of management.
You know, that's kinda what drives this, you know, strategy that I talked about. That said, you know, we're making sure that we're engaging around technology and developing our own models, leveraging machine learning and artificial intelligence and those kinds of things so that if the needs of the market change, we're able to meet those needs.
Thanks.
Other questions? Why don't we go to the back? Gentleman in the white shirt. Hold on till you get the microphone.
The white shirt, I like that. The popular conception is that somehow the standards of the ratings in China domestically are different from the standards on cross-border or in the U.S. I'm wondering how do you manage what you do through CCXI, which by the way is such a cool name, and where does that come from? The standards of I'm not implying there's a different standard, but there seems to be different pressures and different dynamics. If you could talk about that a bit, that would be very interesting. Thank you. [ Dian Duran], by the way.
Okay. Thanks. I might start by just saying, you know, we're a minority, 30% investor, so we don't manage the ratings or the methodologies or the rating scale of CCXI. I think that's important to understand. You know, there is a different distribution of ratings with the domestic agencies than there are obviously with our own portfolio. There are also some limitations on issuers' ability to tap the markets in China, which I think also has an impact on that distribution of ratings that you see. As far as the name, it comes from a holding company that our partner had. They have an elephant as a logo.
Let's go to this side of the room. Gentleman in the back. Black.
Hi, good morning. Jeffrey Goldstein from Morgan Stanley. This question's for Jim. I know historically we had some new structured products like auto ABS and credit card ABS that really went from not existing to existing with somewhat decent scale. I was just curious, is there anything you see out there, maybe it's single-family rentals or, I don't know, peer-to-peer lending or something out there that I understand we're not going from that 18%-22% of issuance, which is structured back to the pre-crisis 35%, is there just anything you can point to that maybe narrows the gap a little bit? Thanks.
If you think about asset growth, you know, where is the biggest asset growth, it's gonna be corporate debt, and I talked about that. You know, CLOs, we've seen tremendous growth. It's not new product, but it's just the use of the technology, increasingly supporting the high-yield loan market. Currently, CLO finance is over 50% of high-yield loans in the U.S. We're seeing that type of growth starting to emerge more in Europe as disintermediation becomes a bigger part of their landscape. I think some of those other sectors I talked about earlier in my remarks don't necessarily have the potential to get to that type of scale that we're talking about. Household debt, $13.8 trillion. You know, marketplace lending is less than $100 billion of that.
Even if securitization becomes the predominant source of funding for that product, that product in and of itself is a relatively small segment of what could be a securitized market. We think probably there'll be growth in areas like mobile phone finance. We call it handset finance. Will it get to hundreds of billions? Not likely. Can I see it growing to be $20 billion-$40 billion in annual issuance over the coming years? Possibly. W e've already talked about the scale in China, so it's not necessarily new asset classes, but it's the emerging use of securitization as a technology to finance the Chinese economy. As Mark's slide showed, you know, China's the second-biggest bubble in terms of GDP behind the U.S. That's a big economy.
I think that's why each one of us in our remarks talked about that as a potential growth driver. Where our value proposition may come in there is, as China looks to maintain growth and maintain their economy, they're looking to import liquidity
More so today than ever before. I t's been very much a domestic market. Where I think our services would come in is as people are looking to international bond ratings and the scale that we can offer for foreign investment into China. Those are some of the thoughts.
Manav?
Hey, good morning. It's Manav Patnaik with Barclays. I had two questions. First, just on Asia as well. You know, clearly, it sounds like it's gonna be a big opportunity and we're in the early stages. I was just curious what your thought process was in terms of building up these stakes in these local agencies that you have. I know you have minority interest in China and so forth. Like, what takes you to majority? Maybe it's just Dave who doesn't like the valuations, but just curious what your thought process there is. The second question is just on the enabling technologies.
I mean, there was a lot of nice buzzwords in the slide, but I was just curious, you know, if you could give us a few examples on how that actually is improving the efficiency or the cost pieces of that equation?
Sure. On the, you know, on these domestic agencies, you know, I generally think about, you know, wanting to go to a control position in the domestic markets that are kind of, what else to say, you know, big enough to matter. The rest of them are in many ways, think about it, spreading the chips so that we have some exposure to potential high growth, long-term high growth, domestic markets. Most of these are very small domestic bond markets and, you know, the revenues are quite small. There are a handful of these domestic markets that are really kind of big enough to move the needle for us. China's clearly one, India was another, Korea was another. You see we've been putting capital against those to increase the stakes and where we can get control.
You know, integrating in a very small domestic rating business into a $3 billion a year revenue business, you know, has its challenges. In some cases, that's where we look to have an affiliation or a minority investment versus, you know, some of these markets again, that are big enough to move the needle for us, where we may decide to go majority position. In regards to enabling technology, let me give you an example from the bots. That's the easiest one to understand. We have a team of people that collects certain documents in structured finance. That's their full-time job. We were able to put together a bot that does exactly that. It goes onto websites.
It peruses those websites, grabs documents, saves those into, you know, our databases, gets those in the hands of the analysts.
It actually sends the email to the analyst. Here's the document that you need to process analytically. Before that was all being done by staff.
There's a very good example of something that's very manual, very repeatable, actually, that we've had the ability now to do more frequently than we obviously were doing in the past. We can do it with a bot instead of a team of five people. You know, there's a list of things like that, in many cases that are driven by, you know, some of our regulation.
All right. Why don't we take one more, then we'll go to break. We'll go with Alex.
All right. Thank you. Alex Kramm, UBS. Just two questions. One is a quick, an understanding question. Rob, you threw an interesting number out there, 30% - 40% of, I think MIS revenue or transaction revenue was driven by refi. Can you just make sure I got all the pieces right? I mean, is it 30%- 40% of total MIS by corporate refi or maybe just flesh it out again because I thought it was an interesting stat. Then just secondly, I mean, we've been talking about tax reform for quite some time. I feel like we've beaten that horse pretty dead by now. Like, anyways, you had the slide up there, and it's still kind of like expectations, right?
Maybe you can just since we've had two months or so post-tax reform now, and you have people in the field, analysts and also, like what are the companies actually saying, and what is the timing of near term? A re we gonna see some slowdown in the next for a couple of quarters? Is this a couple of years that companies adjust? What are companies actually saying would be interesting. Thanks.
I can start with tax. Yes, we've been in a lot of discussions with our issuers, and if I had more specifics in terms of the kinds of impacts or the timeframe of those impacts, I would give those to you. What we're hearing from issuers, at least now, is, you know, they're working through this. It's still too early for them to make significant changes in their corporate financing decisions. We're in the process of doing a survey with all of our issuers, so we hope to get a little bit more concrete data, and we're gonna do that survey regularly so that we can then see what kind of change in expectation we have from our issuers.
30%-40%. Okay. It's 30%-40% of non-financial corporate transaction revenue for MIS. Okay? If you think about that $5 trillion of maturity walls, you know, again, this is gonna be very high level swag, but it's probably something like $1.4 trillion. Excuse me, $1.4 billion of revenue associated with those maturity walls.
All right. We do have a little bit more time too.
Remember, it was also North America and EMEA, so we didn't have Asia.
If there are other questions out there. The gentleman in the back. We'll repeat it if you can't hear.
It's on? Oh, now it's on. There you go. For real. It's Joe Foresi from Cantor. I was just wondering. You went through some of the operational things that you're working on. Can you run through how that translates into margins over the short and long term? Also, can you give us some idea what the margin profile is of some of the international investments that you're making?
I can't give you the exact impact of some of these operational things we're doing. I think you're talking about some of the efficiency and yeah. A very good example is what I just gave you there, which is, we have a team of people that's doing something that can be in this particular case, replaced by a bot. We're deploying a range of automation and workflow tools across the rating agency to help make the analysts more efficient. You think about what's going on is we've had a lot of regulation that we've onboarded and had a very manual approach to dealing with a lot of this regulation. We're now in the process of trying to automate wherever we can some of that workflow.
We've also moved to consolidate our junior analytical staff into one global organization. We used to have more of a 1:1 kind of apprenticeship model, and that should give us a better ability to handle kind of the ebbs and flows of issuance and help drive resource utilization with the junior staff. The last thing we're doing is trying to make sure we have the right jobs in the right places. About half of our headcount adds over the past year have been in our offshore center in India. We're gonna be opening another one in Costa Rica and probably opening one in the U.S. as well. I think all of that will help to support continued margin expansion and also allow us to invest in some of these areas that I talked about.
ESG, you know, we're having to hire experts from the outside, some of that expertise we don't have. It will help us both drive margin and make those investments that we're gonna need. I kinda describe it internally as we're changing a little bit of the muscle fiber internally. The margin profile of the international investments, it's typically lower. I mean, you can look at ICRA is a publicly traded company. You can see their margins. Those domestic operations have a typically a lower margin profile. In many cases, they may have higher growth, but they're very important to us because you think about in the domestic markets, those relationships with those issuers in the domestic markets can be the cross-border issuers of the future.
We also see that as an important, you know, strategically important to occupy some of those domestic markets so that we can have relationships with the cross-border issuers of the future earlier than we might otherwise. That makes sense for us to accept a little bit lower margin profile.
Great. Rob, Jim, thank you. We'll take a short break, and we'll reconvene at 10:05 AM.
We'll get started with the second half of today. Turn it over now to Mark Almeida, President of Moody's Analytics. Mark will talk to you, obviously about Moody's Analytics, and be joined by some colleagues who run the business lines, Bureau van Dijk, as well as Enterprise Risk Solutions, shortly thereafter. Mark.
Thank you, Steve. Morning, everyone. Thanks for joining us. We'll spend the next hour or so on Moody's Analytics. Our discussion will be necessarily a little bit high- level because it's always a little bit of a challenge to get the content at the right level. In Moody's Analytics, we're involved in a number of different businesses, and some of them are a little bit highly specialized, maybe a little bit arcane. It's, we could certainly dive into a lot of detail on those things, but we've opted to be rather high level today. Of course, we're always available for further discussion if you wanna dive into the details. Our IR team will certainly be happy to organize further conversation if you'd like.
As Steve said, in today's discussion on Moody's Analytics, we're really gonna focus on three principal themes. In the context of my discussion about the overall performance of Moody's Analytics, I'm gonna focus on the success that we've been having in our Research, Data and Analytics segment. That's our largest, it's our most profitable segment. It's also currently our highest- growing segment, I think it bears some discussion for us to help you understand what's going on in our RD&A. I'm going to turn the podium over to Steve Tulenko, who will provide an update on the execution of our strategy to build his Enterprise Risk Solutions business. After Steve finishes, we'll turn to a discussion of Bureau van Dijk. We'll get a progress report from Dan Russell. Dan's a long-standing Moody's Analytics executive.
He's now responsible for the BVD business, and he's working out of Bureau van Dijk's operational hub in Brussels. He joins us here in New York today to cover our newly acquired Bureau van Dijk business. Moody's Analytics in 2017, we had a very successful year by a number of measures. The watershed event for us, of course, was the acquisition of Bureau van Dijk. There was a lot of other activity going on across the company. Taken together, our efforts across multiple fronts last year set us up very well for continued strong performance in 2018 and beyond, both in terms of our top-line growth as well as our profitability.
While our numbers were favorably impacted by the acquisition, frankly, they were overwhelmed by the acquisition in some respects, our legacy RD&A businesses grew very well. We achieved good sales growth in all product areas, and the momentum from 2017 is carrying into this year, positioning us for continued strong results in 2018. In ERS and Professional Services, our results and outlook are more mixed, but the bias is very much to the positive. We'll explain more about what's going on there and why we're optimistic about those segments shortly. There's one very important thing that we're doing that you don't see in our financial results. Like everyone else, we're paying very close attention to everything that is happening in technology and in fintech specifically.
I believe we're differentiating ourselves with a very disciplined approach that focuses our innovation efforts on solving specific customer problems and seizing related commercial opportunities. Let me take you a little bit deeper on each of these themes, starting with a quick review of last year's results. 2017 was a good year overall, the numbers were a bit noisy, let me do a little bit of onion peeling here. The major arc of the Moody's Analytics story in 2017 was our 25% revenue growth in RD&A. The subplot that is Bureau van Dijk contributed $92 million in revenue over the roughly 4.5 months after we closed the transaction in August. Backing out the impact of BVD, you can see that organic RD&A revenue growth was also quite strong at 11%.
Over the five years from 2011 through 2016, RD&A grew at 8% annually. We're seeing nice acceleration in the growth rate for that segment starting last year. We've talked with you previously about putting more emphasis on RD&A because we really like our competitive position there, as well as the powerful economics of our build once, sell many times subscription businesses. Over time, we've pursued a strategy to assemble some unique and valuable assets, and we're seeing good results as we use those assets to solve more problems for more customers. That is driving our strong growth, and I'll talk a little bit more about how we do that a bit later.
Even though the numbers in the other segments weren't as robust as RD&A's, I should make a couple of quick comments about what's happening in ERS and Professional Services. ERS came in at the high end of our expectations last year, which we think is pretty good given the evolution of customer demand there, and also the changes we're making to shift our business mix in order to expand our base of recurring revenue and make the ERS business more stable and more profitable. Steve will elaborate on this when he gets up here in a couple of minutes. Professional Services obviously didn't break any growth records, but it did break a streak of two consecutive years of revenue decline. Both our training business and Moody's Analytics Knowledge Services, our offshore analytical support platform, were dealing with a difficult combination of business challenges and foreign exchange headwinds.
I'm pleased to report that both have turned it around and delivered growth last year. That includes constant dollar growth, so it's not as if we're simply riding a positive FX headwind. Importantly, we had good sales growth last year in Professional Services, which sets us up for acceleration in revenue growth this year. With these 2017 results as context, let's look at our expectations for this year. In the guidance that we provided earlier this month, we told you to expect 2018 growth rates that will be better than what we produced in 2017. The details here are complicated but important, so let's walk through what's going on here. The headline. The guidance that we've given you implies that we expect total MA revenue to increase by roughly 25% this year.
Importantly, growth is accelerating in the MA business on both an as reported and an organic basis. We're seeing that acceleration across every part of the business with the exception of ERS, where our long-term strategy to deliver more profitable growth is weighing on our top-line results in the short run. More to come on this from Steve. Let me further deconstruct the 2018 guidance, starting with the impact to the top line from the acquisition and some arcana of subscription revenue accounting. We've given you all of this information in our recent disclosures, but I'm gonna pull a few things together so that we can all be on the same page. Just a reminder of something that should be obvious to everyone. This year's acquired revenue impact is what BVD will generate over the 7+ months from January through August.
After August 10, BVD's contribution is no longer acquired, it goes into the organic category. Doing the math, you'll see that in round numbers, this acquired revenue will represent an incremental 15% or so on MA's total revenue last year of $1.43 billion. That's about $215 million of acquired BVD revenue this year. I need to remind you of one footnote on that figure. On our last earnings call, we told you that BVD's revenue this year will be reduced by about $16 million. That reflects the deferred revenue accounting adjustment that we have to make under the acquisition accounting rules. Once we're one year past the closing date, the deferred revenue adjustment will be fully amortized.
For the remainder of 2018, August 10th through the year-end, BVD revenues will be fully recognized on the P&L as they go into the organic bucket. The absence of any accounting-related drag in the post-August period means that BVD's contribution to our organic revenue growth will be especially strong since it's going to be compared against 2017 revenues that were offset by the accounting adjustment. Acquired revenue and roll-off of accounting adjustments aside, Bureau van Dijk is a very solid growth business, and we expect that it will be additive to MA's overall growth rate. In 2018, we will benefit primarily from the standalone performance of the legacy BVD business. We'll also start to see some impact from the various sales synergies that we're pursuing.
You'll hear more about the drivers of growth in Bureau van Dijk from Dan in a couple of minutes. Now, if there's a downside to the Bureau van Dijk acquisition, it's that it obscures the very strong performance that we're seeing in our underlying RD&A businesses. Let me talk about what's happening in the legacy parts of RD&A. First, as I mentioned earlier, sales results were strong last year, so we have very good momentum behind us as we recognize revenues from those sales on the 2018 P&L. We're doing a number of things that we believe will help us gain even more momentum this year. As Rob Fauber discussed, his team at MIS is generating copious amounts of research across a wide range of topics. They give us an enormous amount of content, and very high-quality content to sell.
We're now distributing that content through a new and improved web delivery platform that provides a much richer and more efficient user experience for our customers. For some time now, we've marketed our moodys.com website under the CreditView product name. Over the better part of the last two years, we've been designing and building a new version known as CreditView 2.0. We're just now releasing CreditView 2 into the market. CreditView 2 features a very modern user interface built on the latest web design technologies. It allows users to easily customize their access to our content. It greatly speeds their ability to search for and retrieve our information. It enables us to more easily present additional research and data alongside the content produced by the rating agency.
CreditView 2.0 provides a way for us to better commercialize the expanding amount of data, analytics, and research that's available to us. The product launch will be an important driver of growth this year as we monetize the improved functionality and broader set of content enabled by CreditView 2.0. In addition, the flexibility of CreditView 2.0 will help us extend our reach to new customer segments. Excuse me. Will help us extend our reach to new customer segments. The features of CreditView 2.0 should drive more yield from existing customers and better acquisition of new relationships while also supporting our high customer retention rates. Customer retention, yield from existing customers, and new sales production drive this business, and we monitor those metrics very closely.
As you can see from this chart, for the last several years, we've been getting 7-8 points of growth out of a combination of product upgrades and price. That more than offsets our very low rate of attrition, which has been holding steady at about 4.5%. When you layer on another 6-7 points of growth from new customer acquisition, we find that RD&A gets up to the 10% range very consistently. Now, as I've mentioned, the extent and quality of the research produced by Rob's team in the rating agency, together with MIS's authoritative position in the bond market, gives us a very powerful product to work with. For institutional participants in fixed income, this is a need-to-have product, and it has very powerful network effects.
The more that bond market professionals, on both the sell side and the buy side, rely on the ratings and the research generated by MIS, the more demand that creates for the ratings and research generated by MIS. Many of our customers use this content that's produced by MIS analysts every single day. It's a fundamental part of their workflow. There are also many customers who use it only occasionally, but it's still a critically important part of their work. That makes access to CreditView very valuable to a large universe of users and explains why our subscriptions are so sticky. Now armed with this very valuable, very much in demand content, MA has been pursuing a strategy of developing and acquiring additional data and analytics to supplement the output of the rating agency.
As much as credit professionals rely on information from MIS, there's plenty of need for additional content that elaborates on, provides context for, and in some cases, offers different points of view than the content coming out of the rating agency. In other words, the output from MIS is a necessary but not sufficient set of content to meet all of the needs of credit professionals. We use the assets and capabilities of Moody's Analytics to build upon that content and meet those additional needs. For example, the macroeconomic forecasts that are produced by Mark Zandi's team are very useful to helping CreditView users develop their own view of the outlook for business conditions and therefore for credit risk.
Similarly, our structured finance analytics team compiles a massive amount of data on securitizations and maintains cash flow models that can be analyzed using our proprietary analytical tools. In addition to referring to MIS' ratings and research, our customers can develop their own view of the credit quality of CLOs and mortgage and asset-backed securities. This type of research data and analytics can be powerfully synergistic with the content produced by MIS. On the one hand, MA's economics and structured finance analytics capabilities represent businesses unto themselves. In addition, we carefully select subsets of the content from those services and package them together on CreditView with information generated by MIS. That expanded content allows us to deliver more value, which gives us upgrade opportunities and pricing flexibilities.
Customers who want details beyond the limited subsets that are available on CreditView become targets for our cross-selling efforts. This product strategy serves a dual purpose of enhancing the CreditView platform while further promoting our standalone businesses. I should note that this approach requires some discipline. There can be a tendency to overexpand the coverage provided on CreditView, and we have to be very rigorous about ensuring that we supplement MIS' premium quality content with data and research that are, A, relevant, and B, of a similarly high quality. If we start packaging all kinds of random stuff and commoditize data onto CreditView, we risk undermining the value and first-class perception of the MIS content. This is not just a quantity or volume game. Quality and relevance are very important here.
We're very careful about the related products and services that we build in MA and to make available alongside the MIS product. Our goal is to have a highly curated, well-developed set of specialized content that meets our customers' quality standards and is analytically relevant while also forming the basis of discrete, scalable businesses with solid standalone prospects. Bureau van Dijk fits beautifully into this product strategy. The addition of the BVD business to our portfolio will allow us to pursue this repackaging and repurposing approach even more extensively. BVD's expansive, well-curated, and very unique set of information is the foundation for a very large and successful business in its own right. BVD provides us with important opportunities to integrate subsets of its content into CreditView, and for that matter, to integrate subsets of CreditView content onto the Bureau van Dijk platform.
As we bring these things together, the authoritative ratings and research of MIS, the content sourced from specialized analytical expertise resident in Moody's Analytics, and Bureau van Dijk's very rich aggregation of information, we have multiple opportunities to monetize these assets by meeting a wide range of customer needs. Executing on this strategy gives us a path to sustaining the strong growth rates that we're achieving in RD&A . With our high retention rates and powerful recurring revenue characteristic of these subscription businesses, successful with this strategy will contribute meaningfully to increasing operating income in Moody's Analytics. To be clear, driving more margin in MA is very much on our short list of priorities. As much as we want to be a growth company, we also want to be a more profitable growth company.
That's an objective we set for ourselves several years ago, and we've talked with you about steadily expanding the margin to the mid-20% range. Today, I'd like to provide an update as to where we stand on that objective. First, I should note that as a practical matter, the relevant metric for us in this regard is adjusted operating income, which we include in our quarterly financial disclosures. We've been orienting our expansion efforts around this adjusted measure because our M&A activity introduces so much non-cash noise on the D&A line. Especially now with all of the purchase price amortization that we've taken on with the Bureau van Dijk acquisition, it's obvious that targeting GAAP margin expansion is going to be very difficult.
Another observation I'd offer here is that there will likely be some quarter-to-quarter noise in adjusted operating income because of the volatility that we sometimes see on the MA revenue line. This was especially true when the ERS business was more concentrated in relatively few large customers. We could see pretty substantial swings in revenue growth from quarter-to-quarter. As the ERS business gains scale and maturity, and as Steve's team executes on the mix shift that he'll talk about shortly, that quarter-to-quarter variability is less pronounced. Also, the addition of the large, steady-growth BVD subscription business will help dampen short-term variance on the MA top line. Still, we don't focus on year-on-year changes in the adjusted margin for discrete quarters, and we don't think you should either.
Changes in our adjusted margin over a 12-month period offer a very good reflection of the underlying economics of the business and should give you good transparency into our progress here. For the full year 2017, we achieved 140 basis points of adjusted margin expansion versus 2016. We're very pleased with that result, and it's indicative of all of the work we've been doing to make MA a more profitable business. As I've discussed, we've been throwing a lot of energy at driving more top-line growth in our RD&A because of the profitability inherent in those large subscription businesses. Similarly, as Steve is about to discuss, shifting the ERS product mix is meant to specifically generate more operating income from the business.
Now, it's not a sufficient reason for us to have bought Bureau van Dijk, but that business is clearly going to be additive to the profitability of MA. It will take a bit of time for BVD's revenue to fully flow through to our top line, thanks to the accounting haircut on acquired revenue that I discussed earlier. The Bureau van Dijk business is clearly going to help here, both in terms of the standalone BVD business and by virtue of the synergies that we'll realize as we bring the business together with the broader operations of MA. Across MA, we've achieved a level of scale in our operations that give us the ability to redirect our resources against the best opportunities. In other words, we should be able to achieve more with the capacity that we have today.
We should be able to focus on realizing operational improvement and more efficiency that will continue to be constructive to our margin expansion efforts as we move forward. Now, despite our best efforts, there are several things working against us here. I mentioned that we have the near-term hit to the P&L from the accounting treatment of the acquired BVD revenue. Sadly, there is no associated accounting adjustment to our acquisition of BVD's expense base. All of that flows through to the P&L. In addition, on January first, a new revenue accounting standard went into effect. It is way too boring for us to get into all the details here, and in the long run, we expect that the impact to the P&L will be neutral. For 2018, we'll have a modest net negative to operating income.
For this year, that's another accounting phenomenon that is hurting our margin efforts. Perhaps the most challenging headwind that we have to overcome in our battle for margin expansion is our practice of allocating MCO's corporate overhead to the two operating companies. We've explained this before, but just to review. At the start of every year, we reset the allocation of central expenses, those items that cannot be attributed specifically to either the operations of MA or MIS. For example, the cost of this event would be a good example of what I'm talking about. The reset is based on each company's share of total MCO revenue in the year ahead.
As MA revenue grows faster than MIS, which is what we expect to be the case here due to the BVD acquisition, as well as to our outlook for organic growth, we wind up paying more for that overhead, and MIS pays less. This means that even if we do a lot in MA to improve profitability, you might not ever see that in MA's standalone reported margin. However, all things being equal, MA's efforts would be reflected in higher margins for MCO in the aggregate. In any case, if you're interested in helping us expand margin at MA, maybe you can go easy at the buffet at lunch because as they say, there's no free lunch. There's also a margin hit that we'll take as we work through the integration expenses associated with Bureau van Dijk.
We need to absorb the cost of bringing Bureau van Dijk's operations in line with MCO standards. Cybersecurity, for example, SOX controls. These are all matters that were less relevant to Bureau van Dijk when it was in the hands of private equity. Now, we're being very disciplined and surgical about what we do in this area, but the reality is there are additional costs that we're going to have to absorb here, and that will cause Bureau van Dijk to be less profitable as an MCO unit than it was as a private company, at least in the short run. I hope this gives you some more visibility into how we're managing to drive profitability in MA. For the avoidance of doubt, we are very committed to this objective.
We are confident that we can achieve adjusted operating margin expansion even as we pursue higher top-line growth. We did very well on this score in 2017, and we are targeting further expansion this year in spite of all of the one-offs that are working against us. While we don't have a specific target that will mark when we can declare victory here, we intend to continue working at this and deliver gradual but sustained improvement. Should anything cause us to change direction or make our continued progress unlikely, we'll certainly be forthcoming and transparent with you about that. Let me wrap up my comments by talking about some of the work we're doing on the innovation front.
As you're undoubtedly aware, advances in information technology and digitization have given rise to massive amounts of new data. Cloud computing provides the means to inexpensively store and process that data. This offers much potential for changing how business is conducted in many industries and how work gets done in many professions. Asset management, banking and finance, and thus financial information services are certainly no exception to that. Like our customers and our competitors, MA is actively engaged in exploring these developments from multiple perspectives. The evolution of fintech represents an opportunity and a threat to our business. New technologies may allow us to provide more and better tools to our customers and may enable us to apply our new analytical IP in different ways to our customers' organizations. Obviously, our competitors are exploring these opportunities as well.
We need to be proactive in order to defend and build upon our existing position. Almost two years ago, we established a small team to lead our efforts in this area. The emerging business unit is led by a member of the Moody's Analytics executive team and is charged with keeping MA connected to developments in the ecosystem that comprises our customers, vendors of emerging technologies, and fintech startups. The EBU has managed to ensure that we stay abreast of the latest innovations, but with a decided bent toward practical business considerations. To be clear, we're not interested in building a think tank. Instead, we want to study and cultivate technological innovation that will enhance our work and improve our value proposition to customers.
To this end, the EBU currently has initiatives underway to determine the commercial viability in a number of areas. I call your attention to four such initiatives. First, in artificial intelligence, we're applying machine learning to developing tools that will automate the creation of financial statements, spreading financials from documents and turning them into machine-readable documents that can be stored and shared for analysis. We're making good progress on this front. We expect to have a product in the market later this year. There's a lot of interest in that product among a number of different customer sets across Moody's Analytics. Moreover, there's lots of application of that technology internally to support the work that we do to prepare financial information and make financial information available to our customers.
In the AI space, we have had in the market now for almost two years, a machine learning-enabled product that delivers our online financial training curriculum to our customers. The idea here is that the machine learning wrapper around our curriculum enables every person who goes through that training program to have a different experience because the machine understands which areas an individual is already knowledgeable about and skilled in, and focuses their learning path on those areas where they need more help. Every week, the beauty of this, the efficiency of this is that our off-the-shelf training curriculum, which is a standard set of material, can deliver a very customized experience for each individual user.
It's a very interesting product, and it's gaining a lot of attention from our customers because they view it as a much more efficient way to deliver training to their employees. They're not wasting people's time by having everyone go through the exact same set of training materials, whether they need it or not. With respect to cloud computing, there's some very important work going on here that Steve will allude to, but the major theme here is to take our traditional analytical technology that we've delivered on typically in an Oracle database architecture, and start to make that technology work and usable through cloud computing.
There's a significant amount of work being done here to develop our next-generation product, which, we believe will be embraced aggressively by our customers as they also make a shift from traditional database technologies to more modern cloud-based technologies. That's a very important set of activity that we're engaged in. With respect to alternative data sources, we're doing some interesting work in this area, particularly in commercial real estate, which is an area that we have identified as a very large asset class. Lots and lots of people have exposure to that asset class in different ways.
From a data and analytics standpoint, we've always viewed commercial real estate as being somewhat underserved. We're doing some interesting work with a number of partners, and sourcing data from some new non-traditional sources of such information to be able to provide more forward-looking views of the prospects for commercial real estate markets. There's some important work moving forward there, and we have a product in the market that is gaining some very good traction. Finally, we also spending some time working on applications of blockchain to our business. I've always thought of blockchain as one of the classic situations of a solution in search of a problem.
There are a few areas where blockchain appears to be interesting to us, principally from an operational standpoint. The smart contract kinds of applications of blockchain, as well as the uses of blockchain to manage and monitor and govern processes. That's an area that is of some interest to our customers because they need to demonstrate to their regulators and to their supervisors that they observe certain processes in the handling of customer data. There is some potential use of blockchain in that regard. It's very early days, but we're exploring a proof of concept project with a third party to see if this can be made relevant to us in Moody's Analytics. We are very active in this space. We have a number of projects going on.
I think we're taking a very disciplined and efficient approach to it. Importantly, our orientation is very much a commercial orientation. We wanna make sure that we are being innovative, being creative, being thoughtful, but also being very practical about our investments in this area. Finally, I'll just conclude by noting that we have just observed at Moody's Analytics our 10th anniversary as a separate company. Moody's Analytics was created in January 2008. That's when we started operating under that name. We feel that over the last decade, we've made an enormous amount of progress and achieved a great deal in the company. You know, from a financial standpoint, we've tripled our revenues.
We started with a little bit less than $500 million of revenue across all of the various things that Moody's was doing when we brought those activities under the Moody's Analytics umbrella. We've wildly expanded our capabilities. We've generated a great deal of growth operationally through organic efforts as well as through acquisition. I think possibly the most impressive thing we've done is we've built out a very formidable brand and reputation for ourselves. When we started operating in January of 2008, I think Ray realized, "Hey, wait a minute. We need a name for this company. What are we gonna call you guys?" Needless to say, we did not hire some consulting firm to spend hundreds of thousands of dollars to come up with a clever name.
I think we talked about it in Ray's office for a few minutes, we decided that Moody's Analytics was the way to go. Literally, on January 1, 2008, no one had ever heard of Moody's Analytics. I think our team's done a terrific job over the last 10 years because I think it's fair to say that today, if you talk to CFOs and Chief Risk Officers and Chief Credit Officers, and frankly, a lot of Chief Executive Officers of major financial institutions all around the world, they've heard of Moody's Analytics. They know who we are. They know who we are if for no other reason than large bills wind up on their desks that they have to sign off on. I know these people pretty well.
They wouldn't sign off on those bills unless they understood what it was they were paying for. We've gone from a situation where literally no one had ever heard of us to now I think we are very well-known and well-regarded and get very good traction in the market as we trade off of that name and that reputation. The other note I would make is we've done all of that. We've grown, we've expanded, we've built a brand through a very challenging and dynamic period. You know, we started the company pretty much on the day that the financial crisis started. We timed it almost perfectly. We, you know, we proceeded to work through several years of macroeconomic distress and global banking crises and so forth. It was a very challenging environment.
Similarly, it's been a very dynamic environment from a technology standpoint. When we started operating Moody's Analytics, literally nobody had a smartphone, right? We, you know, smartphones had just started to come to market. Today, there's 2.5 billion smartphones in the world. We worked through a period of great economic dislocation and very slow and uncertain recovery, as well as through a very dynamic period of technological change. Having had that experience, I have an enormous amount of confidence about how we can take this business forward because undoubtedly, we will face further challenges in the operating environment as well as with technology. I think based on our experience, we're well-positioned to pursue those challenges.
With that, I'm going to turn over to Steve so that he can talk to you about what's going on in ERS.
Thank you, Mark. Good morning, everyone. I think I know a bunch of you here. It's nice to see everybody, and it is a great pleasure to talk to you about the Enterprise Risk Solutions business here at Moody's Analytics. The story I'm gonna tell you today is one of a very interesting transition, basically from, at least for a big portion of our business, from an installed software operation to a SaaS and subscription-oriented business. We've been talking about this for a couple of years, but I've got some data and some details here that I wanted to share with you to give you a sense for how we're progressing.
That transition should be one that I would characterize with words like good growth and margin expansion, which are very consistent with the kinds of things that Mark talked about just a minute ago. Let me reinforce the theme that Mark just hit, when we talked about how we've done some work in terms of developing a reputation in the marketplace. This is our trophy case slide. I've selected a couple of the awards from third parties that Moody's Analytics has won. These all happen to have something to do with the Enterprise Risk Solutions business. There's a bigger slide with a lot more out there for Moody's Analytics in general. I just thought I'd hit the fact that we win awards all over the place, all over the world for all sorts of things.
We get third-party recognition for our credit scoring solution that's been in the market for 10 or 15 years. We also get it for brand-new products we released last year or two years ago. Our IFRS 9 solution has been recognized as well. The work we do in the insurance world has been recognized. In fact, the award on the top right is an award for our product support team, recognized by an outfit that thinks about customer service organizations and gives them credit when they do a good job. Even our product support team has matured to the point where they're getting third-party recognition as a Gold Award winner.
The award in the top left, though, I wanted to make sure we highlight because that's one that I think is worth mentioning in that, over the last several years, we've talked about a strategy for ERS where we've gone out and tried to develop IP by doing projects with our customers, and working on these projects to build out products, and often using projects that might take multiple years to develop that IP. We're now at the point where that IP is gaining a pretty good reputation in the market. In fact, a good enough reputation that a magazine like Risk Magazine. Now, for those of you who know what a magazine is, many of you in the room might be old enough to remember these things.
Risk Magazine is one of those things I'll bet you almost everybody in this room has either had in their hands or looked at their website at one point or another, right? An outfit that's comprised of editors that think about our space and a bunch of industry experts have decided that Moody's Analytics was the technology vendor of the year. We managed to develop a reputation good enough to get their attention, and I thought I'd mention that because I thought you might have heard about that particular company at least. Okay. Another slide on our performance, our past performance. This one's the numbers. This slide's exactly the same as the, it's updated, I should say, as the slide that we presented last year. It shows our trailing 12-month revenue performance for the last five years.
You see that our CAGR over the last five years has been 13%. ERS is used to a double-digit kind of growth rate. You may have also noticed that last year, our revenue growth was about 7%, and I'm gonna talk a minute in a minute about why there's a transition underway. You may have also noticed that Mark mentioned our guidance for 2018 is in the low single digits. While we did about 7% last year, and it was a little bit better than we guided toward, we are expecting low single digits this year. On the next slide, I'll give you a sense for what this transition is all about.
The graphic on the right is a graphic that I think I have put up in front of you three years now. I think this is the third Investor Day Meeting where we've talked about this stylized chart on the right-hand side. You've got the basic strategy for us, which is to de-emphasize lower-margin services work and emphasize very intentionally the higher-margin product development work in order to change the revenue mix. We've been at this for a couple of years, and this is going to have an effect and has an impact on the top line. On the top left, you've got those big product strategy decisions we've talked about, de-emphasizing services, increasing our emphasis and directing our efforts towards SaaS and subscription products.
I've also acknowledged a couple of external and market trends that I think are worth noting. These are the kinds of things we'd recommend you track when you're thinking about ERS over the next couple of years. One is, the demand for our help in helping people with new accounting standards is actually very, very healthy. Two, the concept of digitization and automation and the way that people can improve the way they do their work and the way they work with their customers and using our tools to enable them to do that is also a big trend. As budgets are moving from the regulatory compliance part of the institution over toward the front office, we are shifting our product strategy to meet those needs.
I thought I'd dive in for one second here on the economics behind that product strategy. The product strategy moving from installed software, where we sell a product on a perpetual use right. You sell a license and a maintenance contract over time. And compare that to a subscription or a software delivered as a service kind of product where you basically lease it over time. The table on the right-hand side gives you the basic numbers. This is a real-life example of what one of our products might cost. This is actually our ImpairmentStudio product that we've just released to support accountants and finance professionals.
That product might go for a mid-tier bank at, say, a $100,000 a year annual fee, and you might enjoy a very healthy price increase of something like 4% or 5% each year as that product continues to evolve and develop. If we were to sell that on an installed basis or on a licensed and licensed basis where we sell the right upfront, and then they own that product, and we maybe install it behind their firewall, that first year price for that product might be $300,000. The ratio of 1 : 3 or 3 : 1 is about what we find works in the market.
I wanna give you a sense for, you know, it takes a little while for that first year hit to make up for that through your subscription pricing and subscription product array. After the fourth year or the fifth year, the subscription pricing and the subscription concept takes over. You'll see from the graph on the left that you end up with a better payoff in the long run. The economics of the pricing take a little while for things to play out, and you might see a little dip in the top line while your subscription base is building, but in the long run, it's gonna be attractive.
The thing I wanna hit, though, that's important is the subscription model and the software delivered as a service, the Software as a Service concept, is a much better way for us to interact with our customers. It's preferred by them. They prefer the lower cost of ownership. They like the fact that we're constantly updating. We're making it very easy to upgrade and cross-sell to other modules. The ability to work with us is much richer, and our ability to gain feedback and incorporate that feedback into our product is much richer as well. It's a lower cost of ownership for them and a higher value, and the same goes for us. We're dealing with one code base. It's a much more attractive market for us. In the long run, we prefer to be in that spot.
It's not just the economics are better, it's actually a better product strategy, we think, in the long run. For three years, I talked about that stylized chart where I told you how services would be something we'd be de-emphasizing and product revenues were something we were trying to reinforce. This slide gives you rather than just a stylized representation, these are the actual numbers for ERS over the last five years. I wanna make sure I add that caveat that what I've got here are some line graphs that give you some top-line numbers. These are numbers that we might normally disclose. There's also a bar chart here that provides what we're calling a direct EBITDA margin number. This is the not a GAAP number, right? This is internal.
We built this number from the ground up. I basically counted all the money and put it together to figure out what our expenses were. Then we've subtracted that from our revenues to give you a sense for direct EBITDA. Let me just walk you through this. First of all, top-line growth, pretty attractive, 262-449 over that five-year period. The red dashed line gives you an indication of how that services revenue line has grown and then started to decrease in size over that 5-year period. This is exactly very similar to the kind of representation you saw on the previous slide. At one point, we were up $50 million between 2013 and 2015, and since then, we have de-emphasized that line. The product line has grown.
The solid green line actually represents our renewable or subscription revenue line, and you can see there we've enjoyed a 15% growth rate over that period of time, the compound annual growth rate. We don't think it's a coincidence that, as our shift in the revenue mixes occurred, the bars in the gray bar chart portion of the graph increase. We've gone, in terms of margin expansion from 2013, around $26 million in direct EBITDA to around $72 million in direct EBITDA for this portion of the MA line over that five-year period. It's about a threefold increase in dollars at the end of the line and about a 600 basis point expansion.
We thought in light of all the work we're doing to transition the product and in light of the fact that the top line is not looking like a double-digit growth line this year, we hit this to give you a sense for why we're doing all this. Enough on the numbers. Let me just talk about a couple of big growth opportunities. These are the things that we're very focused on in terms of our product and sales folks. On the left-hand side, I've got two big initiatives that I would categorize as responding to demand in the accounting and finance world. The first one is the CECL or impairment initiative, also known as IFRS 9 in Europe.
CECL, just to give you a sense, is the current expected credit loss standard whereby banks and insurance companies and the rest of the world, in fact, that needs to is keeping track of impairments. They need to actually project their expected losses over time. You can think about this. We're talking about Moody's here. We're pretty good at thinking about expected loss, and we're pretty good at aggregating that and helping people to calculate that number. This is right in our wheelhouse. We're very interested and pretty excited to work with our customers on this. We see it as a good source of opportunity for us. We have released a new product. It is a SaaS-based product built for the cloud.
That's out, came out in the fourth quarter last year, and we're looking forward to enjoying, working with our customers to create a very positive experience for both. IFRS 17 is another accounting standard affecting insurance companies, mostly outside of the U.S. We have a very healthy market up in Canada and a very growing, nicely growing market here in the U.S. This standard is, again, one of those standards where our capabilities in terms of actuarial modeling and data processing will be very, very helpful. We think this will be a very big deal for us and a very good source of growth in the coming, in the years to come. On the right-hand side, we've got the digitization and automation trend.
Here, I would say that we're reflecting the fact that we expect that the dollars spent in the world of risk management and maybe regulatory compliance, while there still will be a bunch of money spent, it may not be growing in the next couple of years. Maybe that money will shift over towards the front office so that the people who run the businesses can invest in their growth. We hear from customers all the time that they're very eager to improve their customer experience and also improve their customer acquisition. We're investing in tools and capabilities. The CreditLens product is another one of these SaaS-based products. By the way, we have 1,000 SaaS customers in the space, in this origination space already, where we're investing heavily in enabling growth for our customers.
Very excited about that. The banking RegTech space is a place where, again, converting from an installed product set to a product set built for the cloud is the number one agenda item, and we've already got products in the market there as well. That's a pretty interesting conversion opportunity for us. Okay. Just a quick summary slide. Key messages, take-home messages for you here. One, this transition that's affecting our top line is quite intentional. We are intentionally moving from a lumpy business that's perhaps affected by the lumpiness of some of these one-time projects to a more stable, and we think very healthy growth pattern with our subscription business.
You should look at the sales numbers that we produce over the coming quarters to see that we're making some progress there. I expect our new generation of products is going to be very attractive to our customer base, and we're very excited to work with them on things that help them grow their business and drive their initiatives in addition to supporting the regulatory and compliance activities that we've been doing over the years past. The only thing I'd mention as a final note is we have delivered on margin expansion. We often get questions from this community about that. We thought we'd give you a sense for how that has been tracking over the last five years.
As long as we keep doing what we're doing here, continue to grow that subscription book and continue to grow the product revenues at a healthy clip, we expect that that will continue in the years to come as well. With that, I will hand over to my colleague, Dan Russell, who runs our Moody's BVD organization. Thank you, Dan.
Great. Thank you, Steve, and thank all of you for taking the time to hear a little bit about our story. Let me start with a quick review and summary of what we're gonna talk about today. First, I think as Mark and Ray mentioned earlier, we purchased Bureau van Dijk. We closed that transaction for EUR 3 billion on August 10th. We've been working with this company about seven months now. We think we bought a great company. It's a leader in the space it occupies in providing information about companies, both public and private. We think we got a great customer base, a diverse and large customer base.
It's a great fit for our RD&A unit in the sense that most of the use cases that BVD serves are either financial analysis related or risk related, not always credit, but dealing with risks. We see a number of synergy opportunities. We committed to $45 million by 2019 and $80 million by 2021. I'm happy to say, as of today, we are on track to meet those numbers. That's a function of the final point here. I would say the overall integration of Bureau van Dijk into Moody's Analytics and Moody's as a whole is on track as of today. I'd like to shift and talk a little bit about the business, what it is, and how we operate.
I describe it as a network business, and an oversimplification is to make an analogy to a company like Amazon or Netflix. On one side, we build a network of information or content providers. We have a diverse set, 160 well-diversified information providers in our network. We take all of that information in, we enhance it in such a way that it becomes useful and valuable to a network of consumers who would like to consume that information. Of course, we distribute it or present it out in ways that make it easy and valuable for them to consume it. That allows us to provide content that's very unique and valuable. 280 million+ private companies. 67,000 public companies. 170 million individual directors across all of those companies.
As I mentioned, 160+ information providers and growing that are our network of contributors to our product. In the middle, we in BVD take all of that content and make it usable to create value for customers. A lot of that work I would describe as linking. You've got 160+ data providers. You need to make sure all of that data can be systematically searched in one dataset. Within that, you have all the companies and entities that customers are going to care about, and you have to make sure they are linked and matched together so that when people come into our datasets and ask questions about companies, it's a comprehensive and consistent view. The other thing we can do, given our experience with all of this data, is we can enhance it through quality assurance and quality checks.
We have an interesting perspective across all of the providers. We can look at that data, feed back to them areas where they need to improve so that the overall dataset continues to improve. Finally, there are areas where we can add our own proprietary data into that dataset to make it, to make it even better. In the future, you can imagine using data points from MA and MIS to further that element of the dataset. There's the way we distribute this or deliver this out to customers. Our flagship product is called Orbis. That's the main global dataset of all of our content that people use. We also have regional cuts of that for those customers not interested in the full world view. We also have industry-specific views of that data.
The one you might be most familiar with would be our bank financials product that we have in the market. Then we provide methods to make the data easy to use. TP Catalyst is transfer pricing catalyst. That's a front end that goes on that overarching data set and is targeted at people who want to do transfer pricing analysis, and we'll talk a little bit about that in a second. Compliance Catalyst, that's for people who want to do things like know your customer, et cetera. We have a front end designed specifically for that use case so that people can effectively use the data. I do want to spend a second on some of the use cases here, and a point I'd like to make here is you see credit is only one of them.
This acquisition gives us the opportunity to serve customers in many, many different ways. Moody's Analytics has historically served customers. I just wanted to go through these briefly. Compliance and financial crime, know your customer, that's an enormous space for in the markets right now. We see a great opportunity for Bureau van Dijk plus the Moody's Analytics brand and distribution capability to take advantage of that space. Corporate finance, M&A, we need to, in terms of tracking entities, keep track of who buys who, et cetera. Many companies use our data sets for that information as well, as well as thinking about acquisitions, et cetera, that might make sense for them. Credit risk, we have financial statements on hundreds of thousands of companies. What better place to go if you wanna do some financial analysis on a company?
Transfer pricing underlies tax strategy for companies around the world. That environment is important and changing, and people will continue to come to us to help them do that analysis. Business development, relatively straightforward. Many companies have products to sell. They need help finding the companies that would be interested to purchase those products. Finally, data management. Many companies internally deal with the same data issues that we at BVD deal with every day to create our product, and they hire us to come in using our data and identifiers to help them consolidate, clean up, and better manage their data sets. An interesting set of use sets that are out mostly all additive to what MA currently does.
Before I continue on with an overview of the business, I'd like to take a minute and dive a little deeper into the tactics of what we actually do every day to give you a sense of why it's important and why people pay us for the services that we provide. That is, in a lot of these use cases, understanding who you're dealing with is very important. Who's the obligor? Who's the company? Then who are the people that you're dealing with? For credit, a lot of avoiding sanctions, et cetera. I just wanna walk you through what we do and what the world looks like. I'm gonna start with a very simple illustrative example. Here, the question is, we wanna deal with company D. The question is, who controls company D? Straightforward question.
A lot of information in the public domain. We could easily come up with it at a superficial level. Well, company A, B, and C and a bunch of others looks like this, but none of them have a majority share, so I'm dealing with company D. Could be true. One goes to the next level. You could end up with a situation like this, that in fact company A has B and C as fronts, and in fact, you're really dealing with company A. Now, fine, this is a relatively easy example. The issue is that these examples happen across thousands of companies every day. Companies need to vet thousands of companies every day to do business with them, et cetera.
It gets very time-consuming to do this every day, monitor it over time as it every day, and keep up with what's going on. The second problem is, this is a simple example. On the extreme side, the real world, and this is a real world example, looks like this. You start with an Italian operating company, and then seven countries later, in 11 levels of corporate structure, you end up with a Russian politically exposed person. This is a lot of tedious work. This is all in the public domain, and you've got to be able to do this in order to meet your compliance and regulatory standards.
Many, many companies just prefer to have a trusted, well-funded, branded company do this work for them, and we see a lot of value here, and why BVD will continue to create value for customers. Back to the overall discussion of the company. We talked about the use cases. The use cases by sales are actually evenly spread. There's not a huge concentration in any of them, and we think that's good diversification for us and provides good opportunities for growth going forward. We talked a little bit about the diverse customer base, and here's a comparison of BVD's customer base and Moody's Analytics customer base. On the left, you can see the Moody's Analytics concentration in financial institutions. That is not true in Bureau van Dijk.
Much smaller concentration in financial institutions, broader in corporate, professional services, government, and academic. We think that provides a great opportunity for Moody's Analytics going forward. On the geography front, which are the pie charts, in the upper right, you can see BVD is highly concentrated in Europe right now, much less in the Americas and Asia. We believe that's actually a great opportunity to use the Moody's Analytics brand to actually expand their penetration in those markets. Finally, BVD typically sells to smaller contract sizes than MA does. We see a good opportunity to take some of MA's selling and distribution strategies, pricing strategies, and use that within BVD and drive those contract values up. I'd like to shift now to the overall integration. This is a big task for us.
When we took this on, we agreed to three guiding principles to do this integration. The first we call Protect the Core. We felt MA was a strong company before the acquisition. BVD was a strong company before the acquisition. It was very important to us not to let the integration drive or distract those two companies. That was very important to us. We talked about the synergies. We need to deliver those synergies, so that's crucial to us. Mark also mentioned we have to implement controls. BVD was a European-based private company. It is now owned by a U.S. publicly listed company. That means more robust accounting standards.
That means Sarbanes-Oxley and other issues that we need to get applied. We need to get that applied while doing the first two. We think we're doing pretty well at this point. Couple of the activities that we've undertaken and achieved so far. On the sales execution front, we've created a sales operations team within Bureau van Dijk to mirror what we have been doing in Moody's Analytics. You can think of that as a team that takes all of the administrative burden off of the sales professionals in Bureau van Dijk so that they can sell. The other benefit that gives us is that team can take care of many of the Sarbanes-Oxley and other accounting controls that we need to have in place to support a sales team of that size and scale.
We've established a dedicated sales team within Moody's Analytics to support the bank financials product that I mentioned earlier. That makes perfect sense in the sense that the customer base for that product is banks and financial institutions. That's where MA's sells into and sells into quite well, so we've transferred that. We've also established cross-selling incentives for both sales forces at this point. So that's well underway, and we're seeing some good opportunities there that we think will lead to increased market penetration. In terms of product strategy, the main accomplishment to date is the one product area that the two companies did compete in is what BVD called FACT. That was a loan origination product. That whole team has been transferred under ERS at this point, so that we now have one holistic product strategy and customer strategy for loan origination products.
We've already started including MIS content into the Bureau van Dijk product array that had been requested by customers for some time, and we've now been able to efficiently do it. In terms of the cost savings or operational efficiency, we have to date already co-located six of the offices. We had excess capacity in the MA offices, so those are six real estate leases that will go away in the near term. We have multiple offices to come throughout the year there as well. We've eliminated the overlap in data acquisition costs. That's gone. We've also eliminated the majority of excess headcount capacity as of today. Some of that's still to go, but mostly done. Again, we believe we're on track to get the $45 million in synergies by 2019 and also on track to get the $80 million by 2021.
Finally, just a few takeaway comments in terms of where we see the future going. We believe we're building on a very, very strong foundation. What that means is we think with the Moody's brand, we will continue to be able to expand the information provider network. In fact, we think we're gonna be even more attractive to a number of providers to join the network. We're very encouraged with that. We also have to continue to expand the front end, the usage of our data so that it's very, very convenient. Those are things BVD has always done. We expect to continue. If we do continue, we think we'll be very, very successful. On the distribution front, we've just begun to harness the power of the combined distribution capabilities of MA and Bureau van Dijk.
We're very optimistic about where that's gonna take us over the next couple of years. Moving more into the future, Bureau van Dijk has really yet to adopt a lot of the technologies MA and MIS have been working with. We think through our emerging business unit, we can apply a number of those into BVD over the next coming years. Not so much as a cost reduction strategy per se, but as a supporting our growth in order to do more, better, faster. We're optimistic about that. By acquiring BVD, we look at different customer segments, different use cases, and it opens up a broader set of acquisition opportunities over time.
As Ray said, though, nothing's gonna change about how we evaluate those acquisitions and what we do, but we'll provide opportunities to do things in some different spaces than we've traditionally done in the past. That's what I had to say, and I think now we're gonna open it up to questions. Steve?
We are running a bit behind schedule. We'll take two questions now. Mark and Steve and Dan will also be available at lunch to answer further questions should you have them. Let's we'll start out here in the front with Jim. John. John, sorry. Go ahead.
Oh, great. Thank you. Actually two questions. One, I'm trying to I just couldn't reconcile, Mark, I think your statement about BVD being a less lower margin company as part of Moody's than it was as a standalone with the synergies that you've laid out. I was wondering if you could just clarify that. Two, for Dan maybe, can you talk about the small and medium-sized business rating opportunities you might be finding as part of the synergies that you're contemplating? Thank you.
John, the operative term there or modifier is in the short run, and I mean in the very short run, like 2017, 2018.
In regard to the small and medium-sized companies, I think MCO has a number of things. Rob talked about our ratings business with Euler Hermes, et cetera. In the BVD space, let's use the phrase maybe credit scoring, et cetera, and information we can provide on those companies. That's a significant business now for BVD, under what I would call a use case of credit. We have information providers providing credit scores, and then we have people using the financial data to do the scoring themselves. Many of them, for example, use RiskCalc with BVD financial data.
In terms of synergies, incorporating that data and those datasets directly into CreditLens and our loan origination, big opportunity for us. We're working on that one. Then RiskCalc is a standalone business, and whether we pre-score, for example. There's a number of ideas there that we're working on in terms of how we could better serve that market with the data we have.
Here in the front.
Hi, just a couple of quick Colin Ducharme with Sterling Capital, by the way. Just a couple of quick questions for Dan Russell on BVD. I'm just curious, versus Orbis, who are the perhaps number two and three products out there that compete best with that product? Relatedly, just curious, do those competitors own their data? What would be the approach over time? You mentioned establishing more relationships with data providers as a network business, but I'm just curious on the propensity to actually acquire more than a relationship and the dataset itself to make that proprietary over time. Thanks.
In terms of company information, I think the headline competitor around the world would be D&B in many instances. There are a lot of much smaller niche competitors, though. It's much more a country-by-country type of competitive dynamic, and that's where actually the BVD network actually is a bit of an advantage. For those companies that want just one country, there's plenty of niche competitors. For those that are looking for a global scale, there's very few people who can do that. In regard to the data network, yes, we can now, as part of Moody's Analytics, think more strategically about information provider versus our own content. I'll give you a simple example that we did right out of the gate. We enhanced our ability to distribute MIS ratings. You could argue we own that content on our products.
We did that right out of the gate. We took the MIS analyst spread financials for banks, we put that on our product. As we think about the landscape, we see great opportunities with third-party providers. We want to nurture that and encourage them to come in. Where we see gaps, we wanna be able to fill those gaps, that's where I think MA and our resources and technology will allow us to effectively fill those gaps. It's I think the good news here is we're gonna have choice going forward, whereas historically, BVD probably felt they didn't really have a choice. Did that help?
Great. Thank you. Again, apologize for the abbreviated session, do wanna get back on track so we can get you out of here on time. They will be available, should you have further questions at lunch. You can come up and ask them. Thank you, all. We'll move now into the financial strategy portion of the day, and we'll kick it off with Chief Financial Officer Linda Huber. Linda?
Good morning, everyone. A quick health warning that I've been on the road in India, Sri Lanka, and Toronto for the last eight business days, and I haven't had a chance to practice with these slides. If something goes wrong real-time, you'll know why that has happened. I am going to tackle the financial overview and capital allocation. I'm gonna turn it over to my colleague, Dave Platt, who will handle corporate development. We'd all like you to meet Melanie Hughes, who will be covering human resources and compensation. The key messages here are pretty simple, and you've seen these before. Moody's has demonstrated strong operating performance. We continue to focus on costs and business efficiency, and we get asked a lot about this. I think you've seen from my colleague Mark Almeida.
At Moody's, we're not very good at naming things. We don't have any clever names for our cost efficiency process. That's because we do it all the time, every day, every year. We don't have a special program to do that. It's part of our DNA. We are reducing our leverage after the Bureau van Dijk acquisition. That's going well. We're ahead of schedule, we'll talk about that. Lastly, our capital allocation priorities have not changed, and it is my hope that they do not change. Now, strong financial results, you're familiar with this. I think sometimes these results are frankly taken for granted. In the last five-year period, inclusive, 9% revenue growth, 400 basis points of margin expansion. This is adjusted operating margin. 15% growth in adjusted diluted earnings per share. Those are some pretty fancy numbers.
Our guidance, Ray showed you this slide, and what I wanted to take your attention to was on the right. In revenue, we've guided to high single-digit growth. In fact, over the last few years, we've done 9%. Next year, though, we're guiding to low double-digit growth. On adjusted operating margin, we've said high forties. In 2017, we did 47%. Next year, we're guiding to 48%. On capital allocation, we had talked about dividend growth. I'll show you in a minute that our dividend growth, we just increased it by 16%. On earnings per share, we've said low teens growth range. We've done 15% over the past several years.
Next year, if you look at $7.75 as the center point of the EPS, adjusted EPS target over $6.07, I think you get about a 26% earnings per share growth number, which is, again, pretty impressive. I can't help but do this in my last performance in front of you. I get a lot of questions as to whether we're gonna do this, but, you know, let's do this, and it's supposed to be a build slide. Let's see if it actually works because I haven't tried it. All right. We looked at the financial services and services peer group, and we looked at the fact that there are 101 companies in that space.
The second screen was revenue CAGR greater than 9%, and we take the funnel down to 27 companies. We looked at earnings per share growth of greater than 15%, cuts the group about in half, and that gives you 13 companies. We looked at margin of greater than 43%, takes us down to five companies. This period we're looking at is over the last five fiscal years, so it doesn't work if you had one good year. You gotta be consistent. Who are these guys? There's us, which you probably guessed was going to be the case. There's Cboe, there's Visa, there's Facebook, and there's Mastercard.
Now, from having done this job for almost 13 years, I know that many of you are invested in those companies, many of you, and you ask us questions, how do we compare with them and so on. The answers to how we compare to them is we are cheaper, okay? The forward PE for Moody's right now, about 22 x. The average of the others, I'm not gonna dignify them with going through them individually, is 26 .5x . As active investors, you might wanna think a little bit about that. Think about what you're getting, the bang for your buck, and so on. Another point that I would note that is pretty important is in our top 10, we have four, I believe, indexed, algorithmic traders.
One of the things you'll notice on a day like yesterday when we talk about interest rates is anytime there's any mention of interest rates perhaps moving up, the algos, their programmed response is sell Moody's. For all of you who are live human beings, I think that's most of you should think about that. You should think about, is that the right thing? We've talked about again and again how growth is good for Moody's, how growth drives debt issuance. Think beyond the machine thinking that higher interest rates, no matter what, means you should sell Moody's. You can watch that phenomenon. I challenge you to take a look at it, as a live person, try to think deeper. If you look at this, our shareholder return has outperformed the S&P peer group.
Total shareholder return last year, 59%, compared to 22% for the S&P 500. This annual return is the best that we've put up since we went public in 2000. Now, a couple of points. I won't go deeply into this in the interest of time, we work all the time on efficiency. You don't get 400 basis points of margin expansion without working hard at this. You know, any kind of cute name is not gonna drive this. It's gonna be the efforts of the operating businesses and shared services to get this right. Staffing mix. We have about almost 500 people in India, Costa Rica supporting our business. I went to visit them last week. They're part of the Moody's Analytics Knowledge Services business.
The greatest employee base that we have at Moody's right now is not the U.S., it's India. We have almost 4,000 people in India. Some of them are with ICRA, some of them are with MAKS, but we have a lot of people in low-cost areas, and we continue to work on that. We want to use the best employees for the job worldwide, and that's how we think about it. They are our employees, and that's what we do to ensure that that works. On the technology front, many of you ask us, "What are you spending this money on?" The transition to the cloud is not cheap. The transition to the cloud is quite expensive. You have various things you have to think about when you're rolling off big server farms.
What we're trying to do is get to the cloud in MA, and we're looking to go to the cloud also, we believe, in the support functions. This is very important so that when we next integrate an acquisition, it doesn't take as long as it does with Bureau van Dijk. Those are some of the things we need to do. On the organizational level, layers, in 2016, we had a slow year. You should look at 2016 as the model for what we can do if we find ourselves in a tough issuance environment. At that time, we took major action in February. We were able to save $50 million in costs. We flattened the organization, particularly in shared services, and that helped us quite a bit. All of these things are things that we're able to do.
If you have an idea for a good name for our program, maybe you should send it in. Keep in mind, this is an organization where our, I think, our best worst acronym is for a new product that Rob is developing, which is called AHS, which stands for Analytical Harmonization and Sharing. This is why we don't name things as an organization. All right. Looking now at capital allocation. We wanna point out again the virtues of strong free cash flow. Again, over the same period of time, growth and free cash flow, 12%. You see the boxed area is the cash flow that we devoted to the settlement charge, but other than that, things have been moving up very nicely. Our cash flow generation is more than twice what it is for the S&P 500. It's a very important thing.
Again, what do we do with that? We keep talking about reinvesting in these businesses. They are very strong businesses, but we need to feed them. I think sometimes the analysts forget that we keep the position that we have by protecting it, by feeding it, and making sure that the businesses can continue to grow. You've heard about acquisitions, Bureau van Dijk being the largest. Dividends, we continue to return capital to shareholders through this method, and share repurchase as well. Now, a quick note on what we've done over the past few years. You can see on the left, 107% of free cash flow returned to shareholders. We switched it up a bit in 2017. 75% of free cash flow returned to shareholders.
We did do the BVD acquisition, and you can see the settlement box there as well. Very important that you note that we will continue to de-lever. We are a bit ahead of pace, as we said. We're looking to come back down under 2 x, and we're making very good progress on the de-leveraging part of the program. Share count has been reduced by 11% since 2013. We have eased up as we've gone through the Bureau van Dijk delevering. You can see that on the slide. Take a look at the average buyback prices, $63, $88, $101, $96, and $121 last year. Moody's share price this morning was at $170. We do this very well by dollar cost averaging. We're very thoughtful.
We're very disciplined. This has been an incredible program which has returned real value to the shareholders, and it's very important that it continues. Increasing the dividend has also served us well, up 70% since 2013. 14% CAGR on the dividend growth. We keep our payout. The target is 25%-30%. Our yield is about 1% right now because we have the happy occurrence of our stock price continuing to move up. Last but not least, before I invite Dave to come up, again, strong operating performance. We've continued our strategic focus on cost and business efficiency, but we may not hit that as hard as some other companies do because it's what we naturally do every day. We have no planes. We have no perks. We operate a very bare bones sort of way.
In fact, we rent this large auditorium because we don't have one big enough for all of you. Post-BVD, leverage is coming down. Our capital allocation priorities have not changed. With that, I'm gonna turn it over to Mr. Dave Platt.
Thank you, Linda. Good morning, everyone. Linda, of course, is always a very hard act to follow. To start, as you've heard from my colleagues, we have been very busy. First, in Bureau van Dijk. Thank you. We acquired a premier business on a proprietary basis. Second, we made several technology investments to support learning, innovation, new market opportunities, and operating efficiencies. As you've also heard today, we have a great business, and our growth and margin profile presents a very high bar for M&A. Thus, we are disciplined. As I always say, we consider many opportunities but execute on few. Post-Bureau van Dijk, we have been business as usual. No quotas, looking at deals and asking ourselves the usual very basic questions.
Can we explain simply why the deal is strategic and that we can achieve financial returns under a realistic P&L with confidence and accountability? Are we thinking clearly about the integration process and how synergies will be practically achieved? This is often, again, easier said than done. On every deal, I remind our teams to focus on the P&L. Talk to me about the P&L that you can deliver with confidence and accountability, and not valuation. Valuation is the outcome of the P&L and not the other way around. Stepping back, as we know, deals in the information services sector continue to be expensive. Significant competition for strategic scale businesses. Similar dynamic, if not worse, for technology investments. We can and have stretched because we brought something unique and special to the table in Bureau van Dijk. Our mission and common sense drives decision-making, period.
At the end of the day, if the numbers do not work, a deal can't be strategic. If that is the case, then our view is capital should be used elsewhere or returned to shareholders. On our transaction activity, a few observations. Our M&A program is global and guided by mission and vision. We have an active M&A dialogue. We are in the market. We talk with bankers, entrepreneurs, private equity, large companies. We want to know what is happening. Where possible, we seek to transact on a proprietary basis, quietly and confidentially. You've heard today about our recent investments, which are about embracing technology, innovation, being more insightful, more efficient, and providing new avenues for strategic growth. For what it's worth, these initiatives can be complicated to transact and require a fair bit of effort.
Over time, they can become highly impactful. In that vein, China and our investment in CCXI is a helpful example. As Rob commented earlier, we've been active in China for many years. Our investment in CCXI was made in 2006. It was modest, and we have since invested a lot of time with, and effort, with our joint venture partner. Rob took you through this. We restructured CCXI last month. It took several years. Combining our 49% stake in CCXI with a complementary domestic rating business that was owned by our partner. We now own 30% of this enlarged and valuable business. Like our recent technology-enabled investments, we'll talk about in a minute, our journey in China started with a vision, taking calculated risks, patience, and effort. Let me step back for a moment and again review our acquisition requirements.
First, we look for opportunities that offer clear industrial logic. Standards, essential information, proprietary data analytics. Can we leverage the brand and our global reach? Are we enhancing our market opportunity? Are we deepening our ability to serve our customers' needs for information, credit risk, analytical, and workflow requirements? Second, we use multiple financial screens to make sure we carefully and responsibly use shareholder capital. We are cash flow-focused and want to know how long it takes to get our money back. Not to get too esoteric, but in our cash flow models, we think hard about terminal values, the math and what they are telling us. We do not want the terminal values to be used to make the numbers work. We evaluate transactions on an unleveraged basis. This makes our job harder, but we are not using financial engineering to make the numbers work.
Bottom line, the deals need to make sense, and the numbers have to work. As to the bottom half of the page, really two comments. First, we are aware of what others are doing, as they are aware of what we are up to, although try to be quiet. B, we believe that our M&A program has contributed to our story and has been value-enhancing. You've already heard about Bureau van Dijk from several of my colleagues. I just wanna offer a few additional thoughts. First, as you can see, we believe Bureau van Dijk checked a fair number of boxes. From a numbers perspective, we met our IRR and accretion parameters only very slightly outside of our cash return yield and payback metrics.
It was a very efficient use of offshore cash, and from our perspective, a constructive use of the balance sheet. Again, we looked at Bureau van Dijk on an unleveraged basis. It is also noteworthy that we transacted on a proprietary basis. This allowed us, really, a few things. The opportunity to get to know management as people. I can tell you that our new colleagues are talented, they're dedicated, and we have shared values. Developing a relationship with management in a proprietary manner has resulted in a thoughtful and collaborative post-close experience. As you've heard from Dan Russell, the integration is going well. We're all proud of this page and the journey in innovation that we're taking. A few things.
First, everyone in this room knows that there is rapidly changing technology, and I'm not going to go through, you know, cloud, natural language processing, machine learning, and the like, but these are realities. There is not a choice. Embracing new technology and new ways of doing things is mandatory. We are thinking and working hard to avoid hype. There's a lot of hype. We hear a lot of stories. It's also very important to think hard about what is really relevant to the business and what can become industrial scale. Mark Almeida alluded to really thinking hard about commercial applications. Second, as you've heard, we have multiple cross-firm initiatives, both in MIS and in MA.
From a P&L perspective, the way, you know, I tend to look at it, we're focused on using technology and these investments and innovation to defend revenues, enhance revenues, be more efficient, cost-effective to create and expand cash flow. Culturally, we're encouraging our colleagues across the company to take risk and intellectually stretch to explore and implement new ideas and technologies. In terms of what we're actually doing, the third column, small and medium-sized enterprise, commercial real estate, and cybersecurity, to start, all of the investments featured a unique enabling technology component. The financial commitments to date have been relatively modest. In terms of how we went about doing these transactions, the same investment process. Industrial logic, numbers that work, and very high accountability.
In terms of how we define success, we wanna work with the entrepreneurs in these emerging companies to help enable the businesses to grow and to become impactful. Obviously, we want them to generate revenues, create value, and then depending on how things unfold, we can prospectively consider acquiring them later or expanding our relationship. Across the company, our teams are all working hard with our innovation partners. I go through this page, tend to each year, several things, let me break it down. Again, our core markets are generally healthy and growing. The last time we talked about this, our core markets were about $17 billion in September of 2016, and now you can see they've expanded to about $23 billion, plus the fact that we had acquired Bureau van Dijk. What did we do?
We said we did what we said we were going to do. We've, you know, used M&A as a strategic tool to increase our market opportunity here in small and medium-sized enterprise financial information. Second, we have continued block and tackle in our core markets. MIS, long-term view, spending time looking particularly at emerging markets. As Rob Fauber said, where we can find opportunities for growth in the emerging markets, we take the shots. RD&A, more unique and must-have content. ERS, looking for opportunities to continue to meet the complex and changing risk management and regulatory needs of our financial institution clients. Professional services, here willing to selectively invest to increase scale, content, credential and service capabilities.
In terms of the adjacent markets, again, we find them interesting, but the reality is that valuation expectations are and continue to be high, and we are mindful of potential growth and/or margin dilution. We're willing to be flexible and creative, so think joint ventures and partnerships. The strange thing for an M&A person to say, we're not predisposed to M&A per se. We review buy versus build opportunities, and we talk to counterparties about finding ways to collaborate, to create commercial opportunity and mutual benefit for each other. In all cases, we think about what market need or problem are we trying to solve? What special element do we bring to the table? Defending the core, investing for growth using shareholder capital well. Post-acquisition approach and what we do. Very straightforward. Integrate as quickly as practical.
Make sure we preserve what makes the business special. We don't wanna come in and, you know, transport everything that we have because that, you know, may not necessarily be the right answer. We actively monitor and analyze performance. We're trying to make sure that we're in front of potential issues, and we're always trying to understand and learn from what did not go as planned. Multiple points of accountability. Accountability is key. Annual impairment testing with our auditors, multiple deep dive reviews, consistent reporting to senior management and the Board of Directors. In short, practical approach to integration, post-close review is frequent to ensure commitments are being met. Accountability is key. To sum up, the business is solid and the bar for M&A is high. We actively seek to expand our total addressable market.
The deals have to have clear industrial logic and meet our return parameters. We conduct regular post-close review to ensure accountability. Common sense and mission is guiding decision-making, and we are disciplined and careful with our shareholder capital. I thank you for your time this morning. It's now my pleasure to introduce you to Melanie Hughes, who joined Moody's in September as our Chief Human Resources Officer. Melanie has over 30 years of experience in human resources, having worked in financial services for UBS, and has held Chief Human Resources Officer roles of leadership in several companies, including DoubleClick, Coach, Gilt Groupe, and Tribune Media. Melanie, over to you.
Good morning, everybody, and thanks for the kind introduction, Dave. I think I must have done something very bad in a previous life to be talking about human resources to a financial audience just before lunch. I'll try and make it brief and relevant. I'm really excited to join Moody's as CHRO because people really matter here. Many companies say people are our greatest asset, but when 2/3 of your cost base are your people, they better matter. I'd like to share with you some initial observations and our priorities for our human capital at Moody's. Key messages I'd like to cover today, three of them. Firstly, our people are our advantage. We know that value creation is achieved through great talent. In MIS, our customers want engagement and opinions, not just ratings.
In MA, they want tech content, solutions to problems, and subject matter expertise. Smarter people create better solutions and differentiators from our competition. Secondly, our approach provides leverage. By automating lower value work, which you've heard quite a bit about today, or moving it to low-cost locations, we can generate better bottom line. Thirdly, our incentives and culture are aligned with performance and business outcomes. We have the right culture to attract and retain our critical talent and the right reward structure to drive great performance for our shareholders. Before I go into the detail, I'd like to take a step back for a minute and look at the big picture within HR, and the workforce dynamics over the last five to 10 years.
T his is a very dynamic environment, and you've heard a lot about Millennials talked about over the last few years. We talk about them as this kind of group over here that we need to cater to. Well, by 2020, they're going to be the majority of our population. What you see on the left-hand side of this chart are basically workforce dynamics that they are driving, and we better get them right if we're going to attract great talent. Employer and employee loyalty, it's changed significantly, and we have to figure out what's going to keep people here at Moody's. Not everybody wants to come and work for a big corporation anymore.
This generation really wants to work when they want to, doing what they want to, and where they want to. It's created more of a gig economy. You know, and we also need to make sure that we can create virtual workplaces for people in this generation. Diversity and inclusion, although looking at this audience, I might not want to stress this too much. The world is getting more and more diverse. M ore businesses moving overseas. T here's a war for talent. We heard about low unemployment rates. We have to be able to attract and retain diverse and best talent. On the other side of the chart, you've got some both enabling and challenging factors.
We've heard about artificial intelligence and big data today. They're constantly developing, and we have to stay at the forefront of that. Tech skill shortages are not being made any easier by our immigration restrictions. Offshoring has developed significantly. I did my first offshoring project in Pune, India in 2003 for DoubleClick. India was basically the only place you offshored to. I think the ratio was about 10 : 1 in terms of cost. You know, that's changed significantly, and there are many new markets to outsource to with many different skills. We have to stay on top of that. Our people plan is informed by these workforce dynamics, but it's driven by our business strategy. As a CHRO, we have two levers to pull.
For this audience only, I've called this the P&L of human capital. On the one side, we have revenue growth. This is really investment in talent for business growth. A focus in 2018 for Moody's. We want to make sure that we have a talent-first mindset and build a pipeline of talent with the right skills for the future. That involves succession planning and development to make sure that the skills and capabilities we have today can be transformed into the skills and capabilities that we need tomorrow. We also need to build our brand as a market leader for talent, and I think Moody's has a great story to tell. You know, we have a great brand for Moody's.
Been around 100 years. People know who we are, we do great quality work. We're also a data company which is in a growth sector. Having come from retail, I can tell you it's much more attractive as a proposition. Thirdly, we've had great performances, Linda mentioned. We also have to create development and career paths for people that build employee value so that We're building value in individuals' resumes because that is what keeps them loyal to their organization these days. We've also created a retentive culture at Moody's. We only have 10% voluntary turnover. If you look at other companies, that's about half of what most organizations have today. How have we done that?
I can speak from personal experience coming into Moody's about the culture. There are three things that really struck me. The first was this is, you know, probably the brightest and most collaborative team I've worked for collectively or worked with collectively. Often you get very bright people with big egos that really care about their own individual goals. This group really is incredibly collaborative and works towards a single goal, that's really all about making Moody's successful. Secondly, flexibility. We've created a really flexible work environment and worked hard to do so. That's allowed us to win awards for attracting a diverse and smart talent. We all know that diverse and smart talent is going to drive superior business results. The third area is ethics and integrity.
This seems like a soft and squishy value probably to many people. We've all seen what happens to companies that don't have it, especially today. For this millennial audience, you know, they wanna have pride in where they work. They wanna know that they're going to be treated with respect and that the company is always gonna do the right thing. That's the sense that you get when you work at Moody's. On the second half of this value equation, want to talk about margin growth. You know, you've already heard about automation of roles and leveraging artificial intelligence from both Mark and Rob.
You know, it's, We are investing to make sure that we identify all the work that is lower value work and that we move that to lower cost locations. By the way, I think we've done a lot of that, but there's a lot of opportunity for us to continue to do it and see upside in our margin through that. Insourcing versus outsourcing. You know, I mentioned the gig economy briefly. It's really an enabler for us. We get skills when we need them and capacity when we need it, so we don't have to have all of our skills permanently on staff all of the time.
As I said, I think we've, you know, we've done a lot on the right-hand side of this chart, but we still have a lot of opportunity to drive margin for the future. On this slide, I just wanted to give you a quick representation of the fact that we're global and growing and how that's happening from a headcount perspective. We've got our major growth in headcount in emerging markets and offshore locations, as Linda alluded to. We're seeing some growth in the U.S. as our business continues to expand, but we have some nearshoring in Nebraska.
In the Americas, we have an offshoring site in Costa Rica. You've heard from my colleagues over here, Steve, about, sorry, Dan, about Bureau van Dijk and how that's really accretive to our business, and that's what's driving our headcount in EMEA. APAC is a growth region for us. When we look at our India headcount, you'll see that's grown significantly with both our businesses and offshoring. Finally, I wanted to speak a little bit about our compensation philosophy. I didn't want to go through a whole host of eye charts of facts and figures for you, but they are in an appendix, which I would encourage you to read. I'm just gonna talk a pretty high level about our philosophy.
We pay competitively to attract good talent. We pay at the median of the market, but with a flex because when the company does well, we realize compensation above market. We link compensation to Moody's financial objectives and individual objectives. To do that, we need to people's pay and the risk gets greater as you go further up the organization. Ray here has 90% of his pay at risk. The rest of the team is 74%, and that's aligned with the market median. In 2018, we're making one big change to our bonus plan. Up until now, it's been funded 100% through financial objectives. In 2018, 75% will be through financial objectives, and 25% is going to be based off operation and strategic objectives.
The idea behind that is that, you know, our achievements this year will drive towards our long-term strategic goals. Finally, that we align our employees' rewards with shareholder interests. The top 15% of our company gets equity in the form of RSUs. The top 60 people in the company get equity, 20% RSUs, 20% options, and 60% PSUs. For the majority of that equity, the company has to perform before we earn our equity. We also get the benefit of appreciation in share price. How is this working? The money slide. As Linda said, we've enjoyed really great share price appreciation.
Over the last nine years, we've paid at 117% of our bonus target on average, closely tracking our peer group. However, we've delivered significantly higher shareholder returns during that period. We're very pleased with the way our comp plans are performing. I think it's also worth pointing out that, although we give a significant amount of equity to our employees, our proposed share utilization rate in 2018 is 1.5%, which is at the median for our peers. Stock granted in previous years has a highly retentive value, as we're enjoying this great share price appreciation, that our shareholders are too. In summary, we believe people are our advantage. They differentiate us from our competitors and will be a driver of long-term success.
Moody's has a great brand and culture, and that enables us to attract and retain great talent. Focusing on margin growth, through smart use of technology and geographical hubs, allow us to leverage our workforce. Our compensation plans drive individual and company performance. It's all of the areas above that have resulted in superior shareholder return and will continue to do so in the future. Thank you.
Thank you, Melanie. We'll have about five minutes of Q&A, and then I'll turn it over to Ray for some closing thoughts. First question in the back.
It's Jeffrey Silber with BMO Capital Markets. Somewhat of an awkward question, but you haven't talked at all about the CFO search. I wonder if we can get an update on that. Is that something Ray will be addressing?
Yeah, I'll be happy to address that.
Okay. Thanks so much.
Okay. Yeah. Yeah. Other questions? Yep, up here in the front.
Thanks. Bill Warmington, Wells Fargo. I had a question about the cost synergies for BVD. Dan had mentioned that they'd gone through and done the co-location of the offices, that they'd eliminated the redundant headcount. I wanted to ask, how far has the progress been made towards the $45 million 2019 target? Have we basically finished with the cost side and now we're looking towards the revenue synergies?
Let me take a shot at that, Dave may be able to help me. If all else fails, we'll ask our MA colleagues to come back up and join us. The combination of the offices is moving along well. It takes about a year to execute all that with the transition on the leases and so on.
I think it would be fair to say, as Dan had noted, we're well along in that synergy effort, but it is a multi-year effort. That process will continue. I think we feel comfortable about having that as a target. We will continue, and we intend to get there by 2019, as we had said. Maybe Dave has something to add.
Yeah, Bill, I mean, I'd add to it this way. Dan, as Dan said, we are on track. There's all the block and tackle around financial and SOX reporting and the like. The optimization on the Bureau van Dijk side, again, the co-location and the like, that's all gone, you know, very smoothly. There's also the reality, given their margin structure, there were also opportunities. There's, you know, some things to do there, and also use as the opportunity, looked at ourselves as well. It's a mix of efforts, but they're all proceeding a pace. The opportunities on the top line, that's, you know, all under execution by the team.
Mark, Ray, I don't know if there's anything else to add.
I guess one other point is we track this as a group monthly. We report out to the Board on our progress as well. There's a lot of discipline and process around making sure that we achieve those goals that we've put out to the market.
Thanks, Bill. up front, Peter.
Thank you. First, I just want to say, Linda, thank you so much for the last 12 years. You've been provided great service to the company and to shareholders, and I know we all really appreciate your work for the company.
Thanks.
You will be greatly missed. The question for you, sort of the last parting shot, is, this came up earlier in the discussion, the target of high 40% margins, you're at 40%. It would seem like you've done so much to optimize margins already that it becomes a little problematic to drive margin improvement. I'm wondering, just from a strategy standpoint, if it might make more sense to refocus the financials on, you know, greater emphasis on organic revenue growth as opposed to margin expansion. I'm gonna throw out a second question while I've got the mic.
Okay. I think as Ray had noted, we had 47% adjusted operating margin in 2017. We're guiding to 48 in 2018. Ray is careful to point out that gives us hundreds of basis points, in fact, maybe 200 basis points, if I've got the math right there. Yes, in order to get to the 50 number. We will continue working on this. We think we can continue to run the business more efficiently. We're careful about the pacing of that margin expansion because I guess the dichotomy there would be the wisdom of continuing to invest in two of the best businesses in the world versus returning that capital to shareholders.
I think the idea would be if we feel that very confident that we can make that capital work, we're going to reinvest. If we can't, we'll return it to the shareholders. We think we've made good decisions thus far. BVD, of course, we have some work to do to prove that up, but we think we're making pretty good progress. We also focus on revenue growth, Peter. We're happy to do both. A little bit of a, you know, patting our head and rubbing our tummies kind of exercise, but we think we're doing okay on both lines. You had a second part?
Thank you. This was for Dave . Ray had mentioned earlier in his presentation, this, a point about filling out the credit pyramid expanding company's role. I don't know if this is actually for Ray or Dave, but I'm just hoping you dig a little further into what that means and, you know, how big, how important an opportunity that is.
The way that we think about it is, if you actually envision a pyramid where there's three wedges. There's Moody's, where we are in highly bespoke, very large scale credit and risk decision-making that really requires a person-to-person interaction when you're talking about at the bottom of the credit pyramid, if you think of the wedge, consumer credit, when you're talking about my Visa card and paying for hockey lessons for my son. I mean, if there's a problem there, it's not really a problem. At the top of the pyramid, which is highly bespoke, if there's an issue, it's a major issue.
The middle cut of the pyramid being small and medium-sized enterprise risk and information. I mean, as you say, that's in part what Bureau van Dijk was about. That was one of the many things that it was about because, again, it checked so many boxes. It allowed us to sort of look down into other opportunities and, you know, call it a circa $4 billion total addressable, you know, market annual wallet, where we can provide data analytics, insight, thought leadership on other elements of sort of risk and credit decision-making.
The question really was more, you know, where are the holes that you feel the need to fill in now?
Well, in terms of holes on SME, I mean, the answer is, I mean, one of the big opportunities we have is, you know, again, taking the SME expertise that we have, you know, the muscle strength in Europe and bringing it here to, you know, to the U.S. Then, you know, also figuring out ways to continue to make that, make ourselves more relevant in many of the emerging markets. We have initiatives across all of those, all of those efforts. Whether through, whether it's through acquisitions or where it's through joint ventures an other collaborations.
Thanks, Dave. Why don't we go ahead and end it there? Again, for the group, we'll all be available, the entire management team, during lunch. I do wanna preserve some time for Ray's closing comments as well as some questions from him directly. Thank you, all.
Go ahead. Just, so we can address any additional questions that people have. Just before I move to any additional questions, I wanted to mention that corporate social responsibility is a very important component of our work and thinking about what we do, and I really mean that in three ways. We have products and services that address the ESG sector, Green Bond Assessment as an example. We are looking at additional ways to develop products and services that do relate to corporate social responsibility, so that's one leg. Second is our employees. We encourage volunteerism and our employees to participate in the community. So there's the customer-facing component, there's the community-facing component.
The third leg is the use of The Moody's Foundation to invest again in communities and to help individuals and organizations that otherwise might be underrepresented. I just wanted to mention that before getting to any final questions that you have. There was the question earlier about our CFO search. It's going to be a difficult search. Replacing Linda is not going to be an easy task. I think we're going to be conducting both an internal and an external search process. We have some excellent internal candidates, I think Moody's position in the market and Moody's brand is going to attract some excellent external candidates as well.
As difficult or maybe impossible as it will be to replace Linda in terms of her full package of skills, we're going to do our best and check as many of the Linda boxes as we possibly can. Stay tuned. Rather than go through a longish summary, I think maybe there's still some questions out there, and with the team or myself, happy to try and address those. Let me open this up to questions for a few more minutes. Please.
Thank you. I just had a broader question, Ray, and Linda, I think you mentioned a couple of times that your capital allocation priorities aren't gonna change. I view BVD as somewhat of a shift there. I guess the question is, going forward, should we read this as your You know, given the bigger company that you guys get every year, the appetite for large M&A is gonna be part of that new capital allocation priority?
I guess the way I would answer this is we have looked at larger opportunities in the past, before BVD. We have looked at opportunities that were, in fact, larger than BVD. It's not something that is a shift in our approach or our thinking, but it is, I hope, demonstrative of the fact that those opportunities, finding premium assets at fair prices, are few and far between. For larger assets that attract auction processes, that attract other pools of capital than some of the smaller acquisitions we've done, that becomes especially competitive.
BVD was a bit of a unicorn in terms of finding a premium asset at a price where the, as Dave described, the P&L that we believed we could deliver makes sense and supported the valuation that we paid. I'm not going to say we will never look at a large acquisition, but I will say that I think it's going to be a rare occurrence that we find opportunities of BVD's size or larger that we believe are going to make both strategic and financial sense. Yes.
Thank you, and I ditto her remarks, Linda. As a long-tenured CFO, Linda, I'd be curious to hear your thoughts on interest rates. How much, in your opinion as a CFO, would interest rates have to go up significantly to change the financials, the dynamics of the M&A market out there? For example, your BVD acquisition, how much would rates have been higher off this very low level right now where you guys would've walked away from BVD, for example?
I'll let Mark perhaps think about that a bit as well. In the last 10 years, the U.S. tenure has only been above 3% twice. One was right after the financial crisis, 2007-2008, and then, during the taper tantrum, '12-'13. The U.S. tenure equals more or less the U.S. growth rate. Right now, the U.S. growth rate is pretty constrained, if you think about it. We have the combination of productivity growth and also population growth. Both of those are 1% or less. H ow growth is going to step up very dramatically in the U.S. with those governors is a difficult thing to see.
I think one of the things that we think about is what Mark Zandi had spoken about earlier today, which is how high do interest rates have to go to really start shutting down the housing market. From a macro point of view, you know, I think once you start pushing 30-year mortgages well into the 4% and closer to 5%, history would tell you start to hit the housing market in a way that is not helpful with housing being the employer of, you know, perhaps less skilled individuals in the U.S. We benefited very much on Bureau van Dijk from the very inexpensive financing and the fact that we could bring back our offshore cash. On a blended basis, you know, we paid less than 2% for all of that funding.
I'd like to note, you know, our timing was really good, the financing managed by Steve Mayer was excellent in its execution. I f interest rates had been 100 or several hundred basis points higher, that would have been harder. We would have had a real conversation with Mark about what can this business do? Have another round of those conversations. Our timing, we think, was good. Higher interest rates would have made us sharpen the pencil. Probably could have taken a little bit more room there, but not a ton. That's why you see so many companies looking to acquire now, because while prices are very high, financing costs are still historically pretty reasonable.
I always point out, being a very old person, when I graduated from college, the prime rate was 19.5% in 1980. Ray and I often talk about that as the senior members of the team, the dinosaurs. Even a few 100 basis points would not have been helpful. Mark, what do you think?
The only thing I'd add to that, Linda, is that, just sort of projecting. I mean, if we were a year from now and Mark Zandi's forecast comes true, and our projections about the performance of the business prove to be what we think they're going to be, I think if we were having a discussion about the strategic logic for the acquisition, I don't think that that conversation would change at all. I think we'd be having the same conversation, and we'd have the same conviction in this being a good idea. I don't know if that's helpful, Craig, but, you know, from a, you know, the industrial logic I don't think would change. Whether the financing would change enough to make it an unattractive transaction, I can't imagine, but I suppose it's possible.
Ask a follow-up question.
Yeah, sure, Craig.
Actually for Rob, if I could ask you. In your ratings business versus your main peer, S&P out there, when you think on a global basis, all the various countries you're in, you compete with them in the various different asset classes. From a market share standpoint, where do you guys stand out at the most on market share versus S&P and vice versa, where do they stand out versus you guys?
Craig, as you know, it's pretty comparable. You can see that in the results that come through. I would take a couple of international markets and spotlight that. Obviously, we have our ownership interest in CCXI. Now, that's not consolidated through the financial statements, but they do not. They have a much bigger operation in India than we do. They with CRISIL, which is a publicly traded company, just like ICRA is. You can see the difference in scale between those Indian assets, and it's real. You know, the non-rating business of CRISIL is much bigger than the non-rating business of India. Then it gets into some, you know, really puts and takes. We have a stronger coverage in CLOs here in the U.S.
A bit stronger coverage in CMBS, although S&P is back in the CMBS market. Other than that, you know, I would say very small variances across the world.
Yes, please.
Thanks. Alex Kramm, UBS again. Mark, I had one left over for you from the earlier session. Can you talk about pricing in the RD&A business a little bit and what we should be expecting there? I mean, obviously, you don't break it out anymore. If you see the last three years, upgrades and pricing have been a bigger percentage versus new sales. When we talk to, you know, clients, they certainly say that, you know, these guys are aggressive. You know, you mentioned yourself you have a must-have product offering. The thing I worry about a little bit is that, you know, MIS is a regulated business, and you're reselling a lot of the stuff that MIS produces, I guess.
We've seen in other parts of my coverage where, you know, customers are talking to regulators and about pricing and aggressiveness. I'm just wondering how you handicap that risk of your regulated entity on one end and, you know, you'll be aggressive on pricing on the other end and where we are, I guess, from a customer frustration perspective, if that's the right way to ask the question.
Alex I think that, first, what you're alluding to, this is something we've observed for a very long time, as long as I've been doing this, frankly, which is gonna be 30 years next month. This is not a new phenomenon. I would say that we charge premium prices for a premium product. That's just the way it is. It's always been that way. Having said that, we are very committed to ensuring that our customers get good value for the prices that we ask them to pay. We are very committed to making sure that our product always gets better.
I mean, some of the data that Rob showed about the volume of the content that his team is producing and the wide range of topics and the kinds of research they're generating, it's unparalleled. You cannot find that amount of insight anywhere else on the planet. By the same token, we're doing a lot of work, as I described, to make that content easier to use, easier to find, make it more relevant, more useful. We're packaging it up with additional kinds of content to answer more questions for more customers. We're very committed to making sure that our customers are getting good value for their money. There I'm sure none of them are telling you that they think we're inexpensive, but I'm not sure we should be inexpensive.
Other questions. Yes, in the back.
I wanted to ask about indexing. It's been a while, and if you look at your current suite of offerings and how it matches up versus your competitor, clearly they still have indexing, and maybe you don't. Would you think about growing that organically? Would you go out and buy it, or is that not on the table when you think about the risk wheel?
Yeah. I'll let Mark add some color commentary, but just from a high level, yes, we see indexing as being an attractive sector, one that would be nice to have an established position in. As we think about whether it's feasible for us to get into indexing, you know, we're conscious of the fact that from an acquisition standpoint, since we are not in that business currently and since others are, in a competitive bidding situation, we are probably at somewhat of a disadvantage. Put another way, we would probably have to overpay to get into the business because we don't have all the same synergies that a competitor might looking at an index business.
Organically, yes, if we can find ways to grow organically, we certainly will. It's also, we recognize that investing organically in an index business is potentially a way to spend a fair amount of money and not get traction. Where I would think about the opportunity organically might be in some emerging or developing markets and sectors that may be underserved currently in terms of having indexes that are usable and valuable. Mark, I don't know if there's anything you wanted to add to that.
No, that was pretty good.
Okay, thank you. Other questions? Yes.
Hi, thank you. Colin Ducharme, Sterling Capital again. Just a specific question actually for Dave, but perhaps any of you can answer it. Deals that you guys talked about, two in particular just stuck out to me, CompStak and then the Rockport VAL. You had talked about there needs to be industrial logic there. I'm just curious what kind of market, you know, problem you're solving with those. I'm assuming it's tied into CMBS, but I don't know if there are other goals there. Separately for Rob, you talked about technologies that are enabling, you know, improved efficiency there. I'm just curious, in a longitudinal view, you guys, you know, you made it through the crisis. There were, you know, some quality issues that needed to be dealt with.
How do you know and set up proper guardrails today so that you're not over-utilizing the offshoring, the enabling technologies, to cut muscle versus just cutting fat? And are there any kind of quantitative hurdles you guys use internally, such as, you know, the number of juniors supporting the senior analysts, or perhaps the maximum number of issuers that each analyst will cover? Thank you.
Yeah. Mark, do you wanna address the commercial real estate?
Sure. On CompStak and Rockport VAL, first, tiny investments that we made in those. You're right, it's all part of a broader ambition that we have to make ourselves much more useful and much more relevant in commercial real estate data and analytics. I think I mentioned this earlier, we view that as an underserved market. There are some people, CompStak and Rockport VAL specifically, that are doing some interesting innovative work in that area. As we combine what they're doing with some of the things we do around here, we think we start to put ourselves in a position to serve that market well.
Colin, great question. A few things. One, we're constantly monitoring rating performance, and there are a variety of ways that we can do it. We look at our average position of credits, look at where the defaulters are in the credit spectrum. We look at that every single year. This past year, our average position numbers were actually above historical averages post-crisis. We're moving in the right direction. We work with our management teams around the world and have very specific portfolio loads that we have agreed with the managers in terms of what the appropriate number of credits for our analysts, and it differs by sector and by region. You know, the portfolio loads in Asia are lower than they are in the U.S.
There's more face-to-face engagement with issuers. The onboarding time for a new issuer is much longer. We're constantly monitoring that and making sure that we're as close to those agreed portfolio loads as we can be, because if we're stretching those too far, as you said, that's where we start introducing risk into the organization. We have a couple other, you know, kinda controls around that. One, we have employee surveys. We do those not only every year, but I also do them in the rating agency every quarter. You know, we ask, "Do you have sufficient resources?" We look at that data. Our employees in Europe actually have to make certifications to ESMA about whether they have appropriate resourcing, you know.
That's something we go through, those portfolio loads and the metrics around that. We go through that with our European Board. That then is submitted to ESMA. A bunch of things that we do because it's a great question. What we don't wanna do is be penny-wise, pound-foolish, and risk the rating quality just so we can squeeze out a little bit of incremental margin in the short term.
Colin, just to add to that. We've been working on this for five years, and it's important to note that the support for Rob's team, those are our employees, coming out of initially the Moody's Analytics Knowledge Services business, which we own 100% of. Part of the reason why we did the acquisition to buy all of that business was to make sure that we had good controls of the quality and that we had a direct line of sight for the rating agency. Rob is managing his own offshored employees within his vertical. We make sure that we do that correctly. We also, we learn very carefully to crawl before we could walk and run. We've been at this for five years. The initial offshoring work was done by the shared services team. We've become more familiar with it.
We've gotten used to it. We've kind of smoothed out the bumps and the kinks. Rob was involved in the acquisition of the Indian assets. I think we've all spent a long time, and we're kinda moving, you know, a bit up the value chain here. All of us have worked on this together, and it's taken a long time to get here.
That's right, Linda. These are the same questions our regulators ask us. They ask us about, you know, how do we make sure that we have a well-controlled offshore operation at our support center in India, for instance.
My, my monitor says we're out of time, so maybe we can just take one last question. Yes.
Thanks. Ray, appreciate your earlier comments about M&A, but maybe just to go back to those for a minute. How should we think about your acquisition framework changing as deals get larger? Do you apply the same framework, or does it get even a higher bar for it to clear as acquisitions get potentially larger?
No, I frankly, I think we are sufficiently conservative in our approach that the increasing size would not cause us to change the metrics that we are trying to meet. In that context, I would, you know, advertise that you should expect consistent behavior from us regardless of size. Obviously, if that changes for some reason, we will be transparent about that. I think we feel pretty comfortable about our approach. Okay. I want to thank all of my colleagues who participated either in speaking today or in getting us organized for this event. I thank all of you for joining us. We will be available over lunch.
Look forward to our next Investor Day in 2019. Thank you very much, everybody.