Good day, everyone, and welcome to the Moody's Corporation fourth quarter and full year 2021 earnings conference call. At this time, I'd like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for question and answers following the presentation. I would now like to turn the call over to Shivani Koch, Head of Investor Relations. Please go ahead.
Good morning, and thank you for joining us to discuss Moody's fourth quarter 2021 results and our guidance. I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for the fourth quarter of 2021 and our outlooks for full year 2022 and the medium term. The earnings press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com. Rob Fauber, Moody's President and Chief Executive Officer, will lead this morning's conference call. Also making prepared remarks on the call this morning is Mark Kaye, Moody's Chief Financial Officer. During this call, we will be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for reconciliation between all adjusted measures referenced during this call and U.S. GAAP.
I call your attention to the safe harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the Management's Discussion and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2020, and in other SEC filings made by the company, which are available on our website and on the SEC's website. These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I would also like to point out that members of the media may be on the call this morning in a listen-only mode.
I will now turn the call over to Rob Fauber.
Thanks, Shivani, and good morning, everybody, and thanks for joining today's call. I'm gonna begin by summarizing Moody's full year 2021 financial results, and then I'll provide an overview of our business and strategic direction. Following my commentary, Mark Kaye will provide some further details on our fourth quarter 2021 results and share our outlook for 2022 and also our new medium-term financial targets. After our prepared remarks, as always, we'll be happy to take your questions. Our employees' resilience and commitment and hard work produced some exceptional results in 2021, and I'm proud to share that for the first time, we've surpassed $6 billion in revenue, with record revenues from both MIS and MA. Adjusted diluted EPS grew at 21% in 2021. Over the past several years, we've invested to build our businesses serving high-growth risk assessment markets.
In 2021 in particular, to seize the really attractive growth opportunity in front of us, we made some substantial investments, particularly in the fourth quarter. Across the firm, we're introducing a range of new products and solutions to help customers identify, manage, and measure risk and unlock opportunity, and the pace is accelerating. We're balancing these investments with capital returns and seek to return approximately $2 billion to our stockholders this year in the form of dividends and share repurchases. For 2022, we project Moody's revenue to increase in the high single-digit % range. That's driven by continued strong growth from MA and robust global debt issuance levels for MIS.
I'm also pleased to announce that in response to investor feedback, we're introducing new medium-term guidance, including Moody's Corporation's revenue to grow by at least 10% on an average annualized basis and adjusted operating margin to be in the low 50s% range. Recent acquisitions combined with organic investments put us in an excellent position to deliver on our integrated risk assessment strategy and achieve these targets. Finally, I wanna remind you that Moody's will be hosting our next Investor Day on March 10 later this year in New York City. During the event, we're gonna be showcasing key aspects of our business, and I look forward to meeting many of you in person. It's been a while. For those who are unable to attend, there'll also be a virtual option. Now, turning to full-year results.
Both MIS and MA revenue grew by 16%. MIS rated over $6 trillion of issuance and generated over 1,100 new mandates, and that's equivalent to almost 5 new mandates every working day of the year. This, combined with MA's 56 consecutive quarters of revenue growth, helped us achieve our second successive year of 20%+ adjusted EPS growth. 2021 was really a year where we accelerated our strategy to be the world's leading integrated risk assessment business. That included investing for growth, purposeful innovation, and delivering for our stakeholders. During the year, we made a series of acquisitions to enhance our capabilities and further build out our offerings. The largest of these acquisitions, RMS, gives us a world-class insurance data and analytics franchise, as well as some sophisticated weather and disaster modeling capabilities.
This allows us to serve a wide spectrum of customers, helping them to better understand the physical risks posed by climate change, and that's an important part of our broader ESG offerings. We also made investments to build out our ratings presence in important international markets. In 2021, we began offering local credit ratings in Brazil as part of the continued expansion of our Moody's Local business across Latin America. And just last week, we announced our intent to acquire a majority stake in GCR Ratings, the leading credit rating agency in Africa, giving us an unmatched presence across the continent and really positioning us for the future. In 2021, we expanded our suite of award-winning offerings with more than 15 meaningful product launches. This includes Portfolio Studio, our new cloud-native software as a service credit portfolio management tool.
It provides a single and powerful view of risk. As part of our broader ecosystem of risk finance and lending solutions, it enables our customers to identify and measure and manage portfolio risks and returns by combining best-in-class Moody's models, scenarios, and other content with business applications for financial institutions. We also launched the next generation of Supply Chain Catalyst, providing our customers with an enterprise view of their critical supply relationships. Supply Chain Catalyst combines our Orbis database with customers' internal data to deliver an integrated view of risk across multiple tiers of their supply chain and taking into account factors like financial health and sustainability and reputational risk, among others. Finally, we continue to focus on serving our people, our customers, and our communities.
Our DE&I initiatives have received some great external recognition, helping to distinguish Moody's as an employer of choice, and that has never been more important than right now. In addition to the accolades that you see on this slide, we were just notified of our inclusion in the Bloomberg Gender-Equality Index for the second year in a row. For the eleventh year running, we're very proud to have received a perfect score from the Corporate Equality Index. On top of these awards, we've achieved recognition from customers for our products and services. Among many other awards, we were named Best Credit Rating Agency by Institutional Investor for the tenth straight year, and we're ranked number two overall in the Chartis RiskTech100. Now switching to our segment results, beginning with MIS.
Favorable market conditions contributed to our strongest year yet in terms of both revenue and rated issuance. Investment-grade supply moderated off what was really a record 2020, but volumes were still substantial. Meanwhile, the leveraged loan market rebounded sharply, and it was bolstered by low default rates and an uptick in private equity buyout activity, as well as increased investor appetite for floating-rate debt amid higher inflation. Strong leveraged loan volumes also supported some very strong CLO growth. More broadly, structured finance issuance rebounded. That was due to ongoing favorable market conditions, including tight spreads. That drove both new CLO as well as refinancing activity and CMBS and RMBS issuance in particular. As we consider the issuance drivers and factors for the year ahead, broadly speaking, the economy has demonstrated resilience to the impact of Omicron.
GDP is growing, companies are performing well, and job creation continues, all of which underpin business, investor, and consumer confidence. There are headwinds. Inflation remains elevated amid supply chain constraints and tight labor markets, although we expect price pressures to abate over the course of the year. Still, uncertainty around the future path of interest rates may invite some occasional bouts of market volatility, and we've certainly seen that in the start of the year. Historically, a rising interest rate environment, when associated with robust economic activity, has been a positive for MIS. I think it's worth noting that even with the potential for interest rate increases this year, overall financing rates will remain at very modest levels from a historical perspective.
We forecast that tight spreads, M&A transactions, ongoing refinancing needs, and disintermediation will support global debt activity above medium-term historical levels, but with issuance slightly moderating versus record levels in 2021. Mark's gonna provide some details on MIS 2022 issuance expectations later in the call. Now, moving to Moody's Analytics. In 2021, MA's revenue grew by 16%. We also meaningfully increased the mix of recurring revenue, which now represents 93% of MA's total revenue. Underpinning this performance were 9% organic revenue growth supported by a 95% retention rate, over 2,000 new customer accounts added through a combination of global sales execution and acquisitions, and targeted investments in high-priority markets. This momentum gives us the confidence to capitalize on the strong demand and market opportunities across MA by continuing to invest both organically and inorganically.
We're doing just that. In 2021, with a purposeful acceleration in the fourth quarter, we invested to enhance and fast-track the launch of several product offerings. For instance, in the fourth quarter, we acquired PassFort and invested to accelerate our integration with the goal of significantly advancing the development of our customer screening and onboarding capabilities. By digitizing and automating the KYC and AML process for our customers, we're providing a streamlined workflow along with data from our Orbis and GRID databases. We're building an efficient and effective interconnected suite of tools that deliver a stronger value proposition for customers in what is still a relatively fragmented market. We also continue to build product capabilities in commercial real estate.
I've previously talked about a product launch in the third quarter, CreditLens for commercial real estate, and that's our SaaS workflow platform built on the latest cloud technology and tailored to the specific needs of commercial real estate lenders. In the fourth quarter, we accelerated the roadmap for enhancements to the platform, including the overall user experience. We also expedited the launch of our portfolio monitoring solution for commercial real estate investors, integrating and building on the acquisition of Realxdata in September. This solution, Commercial Real Estate Portfolio Manager, was recently made available to customers in North America. Last, we invested in the ongoing SaaS conversion of our banking software products, which supports growth among our existing customers and will help deepen our penetration of the mid-size financial institution sector.
We expect that this conversion will raise our recurring revenue growth rate to low double digits in 2022 and low teens in 2023. With 24% overall sales growth, including 20% increase in our organic recurring sales, we demonstrated significant traction with customers in these three segments. This strong sales growth, along with our financial capacity, gave us the confidence to invest opportunistically in the fourth quarter in these areas. For the broader MA business, we're also making some foundational investments which will support both revenue growth and operating efficiency. In the fourth quarter, we made investments in integrating RMS, which we'll touch on shortly, as well as fine-tuning our sales capabilities to deepen customer penetration, expand cross-selling, and refine our go-to-market approach.
Now, as you can see on this slide, our organic recurring revenue growth rate has steadily improved, and we anticipate it's going to continue to do so and contribute towards our goal of achieving total revenue growth in the low- to mid-teens % range within five years. This focus on organic recurring revenue expansion is at the core of our business strategy for MA. There are also some other drivers that underpin this medium-term outlook. We're redoubling our focus on customer satisfaction to support our strong retention rates and help us support recurring revenue growth. Our product enhancements enable us to increase revenue per customer from cross-selling upgrades and pricing opportunities. The continued transition to SaaS in our enterprise risk solutions segment provides the opportunity for revenue uplift from existing customers, as well as the opportunity to add new customers.
We're also prioritizing the development of products and solutions for existing and new customers to further tailor our solutions to their unique needs. Now, last year on our fourth quarter earnings call, we talked about the use cases that we're serving across what was at the time, a $35 billion addressable market opportunity. Now, we've since expanded that to $40 billion by adding RMS. Given the demand to assess a wider range of risks, many of these markets are growing quickly, which as you can see on the right, translated into four areas in MA, where we generated over $100 million in organic recurring revenue with double-digit growth rates. This leads me to our acquisition of RMS.
Though it's early in the integration process, in meeting with a number of C-suite executives at insurance and reinsurance companies, I gotta tell you, I'm excited about the opportunity to serve the insurance industry with a broader array of risk assessment offerings, as well as leveraging RMS' world-class data and models and expertise to meet our customers' growing needs around disaster and climate risk. We have aligned and cross-trained our sales teams, and the SaaS migration is ongoing at RMS. Most importantly, the feedback from RMS and Moody's Insurance customers has been overwhelmingly positive. They're excited about us jointly providing more comprehensive offerings for both the asset and the liability sides of the balance sheet. We're identifying opportunities for new products that evaluate weather and climate risks to take to the broader Moody's customer base, particularly in commercial real estate, CMBS, and banking.
To bring this to life, I want to highlight a recent example of a large P&C insurer, which has been a customer of both RMS and to a lesser extent, MA for years. I met with them recently to talk about how we can be even more of a strategic partner for them, and we discussed how they wanted to integrate ESG considerations into a range of processes that included underwriting, investment, regulatory compliance, scenario analysis, portfolio management. Ultimately, the breadth of our offerings and our ability to integrate them in ways that provide a more consistent view of ESG risk across the enterprise, and especially for climate change, really differentiated our offerings. This cross-sell was enabled by the very deep RMS relationship and combined with the broader Moody's ESG capabilities.
I think it's a great example of the kinds of conversations that we're having with many RMS and Moody's Insurance customers about how we can enable a consistent view of risk to support profitable growth, lower insured losses, and reduce volatility. I'm now gonna turn the call over to Mark to provide further details on Moody's fourth quarter results, as well as our full year 2022 and medium-term outlooks.
Thank you, Rob. In the fourth quarter, MIS revenue grew 19%, supported by a 28% increase in transaction revenue, as rated issuance rose 23%. Corporate finance was the largest contributor to revenue, growing 20%, supported by a 21% increase in issuance. This is driven by demand for leveraged loans as issuers opportunistically refinanced debt and funded M&A. Heightened investment-grade activity also contributed to growth, while high-yield bonds declined due to a pivot to floating-rate debt. Structured finance revenue registered its strongest quarter in a decade as revenue and issuance grew 66% and 148%, respectively. Investors search for yield and favorable market conditions, including historically tight spreads, drove activity across all major structured finance asset classes.
Financial Institutions revenue increased 6% as issuance grew 22%, while frequent U.S. and European bank issuers took advantage of the attractive rate and spread environment. Public project and infrastructure finance revenue declined 2% despite a 24% decrease in issuance. Non-U.S. infrastructure finance activity was offset by lower U.S. public finance and a mere sub-sovereign issuance as financing needs were largely addressed in prior quarters. The MIS's adjusted operating margin expanded over 500 basis points to 53.6%. Robust business performance resulted in higher incentive compensation, which impacted the margin by approximately 200 basis points in the fourth quarter. Moving to MA. Fourth quarter revenue grew 20% or 7% on an organic constant currency basis. RD&A revenue increased 12% as we benefited from high demand for KYC and compliance solutions, as well as credit research and data feeds.
Revenue was further supported by record retention rates of 96% level with the prior year period. ERS revenue was up 42%, fueled by the acquisition of RMS, with recurring revenue comprising 89% of total revenue, up from 81%. For full year 2021, ERS organic constant currency recurring revenue grew by 9% as we executed on our strategic shift away from one-time sales. MA's adjusted operating margin of 14.9% reflected the impact of recent acquisitions, higher incentive compensation, and the intentional pull forward and acceleration of select organic product investments into the fourth quarter. Excluding these three items, MA's adjusted operating margin expanded by over 100 basis points. The increased investment in high growth markets and product development directly supports our expectation for organic recurring revenue growth in the low double-digit % range in 2022.
This slide provides further insight into our operating expenses for both full year 2021 and our outlook for 2022 as we balance cost efficiencies with investments to accelerate future growth. For full year 2021, operating expenses rose 13%. Of this, 7 percentage points were attributable to operational and transaction-related costs associated with acquisitions during the year. Organic strategic investments related to product innovation and technology initiatives contributed another 5 percentage points. In addition, we invested in our employees. Operating growth, which is primarily comprised of hiring, annual wage increases and other retention-oriented spending, as well as higher incentive compensation accruals, contributed to an aggregate 6 percentage point increase. This cost was directly offset through a combination of ongoing cost efficiency programs and lower severance and restructuring-related charges.
For full year 2022, we forecast expenses to increase in the low double-digit % range, mostly attributable to acquisitions completed within the last 12 months. We expect that incremental spending on organic strategic investments and operating growth, primarily related to merit and promotional increases, as well as talent acquisition and retention, will be balanced through savings from lower incentive compensation accruals and ongoing expense discipline and efficiency initiatives. 2021 provided a unique opportunity to accelerate our investments in high growth markets, including KYC, CRE, banking, ESG, emerging markets, as well as technology enablement. We ultimately invested approximately $150 million to enhance our capabilities and capture new opportunities for revenue expansion across the business. We expect to sustain this level of investment in 2022 as we execute on our long-term integrated risk assessment strategy.
Finally, we also plan to invest over $50 million in 2022 on our most important asset, our people. Our employees connect deeply to our mission to provide trusted insights and standards that help decision makers act with confidence, and we want to attract and retain the best talent in order to achieve our growth ambitions. Turning now to our corporate guidance for 2022. Moody's outlook for the year is based on assumptions regarding many geopolitical conditions, macroeconomic and capital market factors. These include, but are not limited to, the effects of interest rates, inflation, foreign currency exchange rates, capital markets liquidity, and activity in different sectors of the debt market, as well as the impact of COVID-19 pandemic and subsequent responses by governments, regulators, businesses, and individuals.
The outlook also reflects assumptions regarding general economic conditions, the company's own operations and personnel, as well as additional items detailed in the earnings release. Our full year 2022 guidance incorporates the following specific macro assumptions. 2022 U.S. and euro area GDP will each expand by approximately 3.5%-4.5%, and global benchmark interest rates will gradually rise, with the U.S. high yield spreads moving slightly above the historical average of approximately 500 basis points. By year-end, the U.S. unemployment rate will decline to about 3.5%, and the global high yield default rate will gradually decrease before gradually rising to approximately 2.4%. Global inflation is projected to decline over the course of 2022, yet remain above central bank targets in several countries. Our guidance also assumes foreign currency translation.
Specifically, our forecast for 2022 reflects U.S. exchange rates for the British pound of $1.35 and $1.14 for the euro. These assumptions are subject to uncertainty, and results for the year could differ materially from our current outlook. In 2022, we expect Moody's revenue to increase in the high single digits % range and operating expenses, including the full year impact of acquisitions, to grow in the low double-digit % range. Moody's adjusted operating margin is forecast to be in the range of 49%-50%. We estimate net interest expense to be between $200 million and $220 million, and the full year 2022 effective tax rate to be between 20.5% and 22.5%.
Diluted EPS and adjusted diluted EPS are projected to be in the range of $11.50-$12.00 and $12.40-$12.90, respectively. Free cash flows forecast to be between $2.3 billion and $2.5 billion, and we plan to return at least $1.5 billion to stockholders through share repurchases subject to available cash, market conditions, M&A opportunities, and other ongoing capital allocation decisions. Included within this outlook is our intention to execute a $500 million accelerated share repurchase program in the first half of the year. For a full list of our guidance, please refer to table 12 of our earnings release. Turning now to our issuance outlook.
We expect total MIS rated issuance to decrease in the low single-digit % range compared to record activity in the prior year. However, 2022 activity is anticipated to remain well above the prior 5-year historical average of $5.1 trillion, inclusive of record issuance in 2021. We project that investment-grade activity will increase by approximately 15% following the sharp contraction in 2021. While funding conditions for leverage loans and high-yield bonds will remain supportive, we estimate that issuance will decline by approximately 10% and 15%, respectively. This is due to strong prior comparables and an expected decrease in opportunistic activity, particularly in high yield, as global benchmark rates rise. We forecast a 5% increase in public project and infrastructure finance activity, and that financial institution issuance will be approximately flat.
After a year of robust structured finance activity, issuance is expected to decline by approximately 5%. For 2022, we estimate 900-1,000 first-time mandates, which will contribute to both transaction revenue and future recurring revenue growth. We expect MIS's full-year revenue to increase in the low single-digit % range, reflecting both our strong new mandate estimate and recurring revenue base, which will offset a moderation in issuance. We forecast MIS's adjusted operating margin to be approximately 62% in line with the prior full-year result. This is an improvement of more than 400 basis points since 2020 due to operational efficiency and expense discipline. Turning to MA, we anticipate revenue will increase in the high teens % range, building on strong 10% growth in organic constant currency recurring revenue in 2021.
This reflects our ongoing focus on expanding our subscription-based products and is further supported by approximately 10 percentage points attributable to previously announced acquisitions. We forecast MA's adjusted operating margin to be approximately 29%, inclusive of a 150-200 basis point headwind from recent acquisitions and foreign exchange movements. As Rob mentioned earlier, in response to investor feedback, we are replacing our existing long-term targets with new medium-term guidance. This demonstrates our commitment to delivering multi-year value to our stakeholders, as well as our confidence in capitalizing on the growth opportunities available to us while maintaining an attractive margin profile over the next five years.
For MIS, we project revenue to increase in the low to mid single-digit % range, coupled with an adjusted operating margin in the low 60s % range as we continue to invest in meeting our customers' needs in emerging markets and evolving areas of risk, including ESG. For MA, we are targeting revenue in the low to mid teens % range and an adjusted operating margin in the mid-30s % range within five years. We expect this increase to be driven by organic investments in our products, solutions and distribution capabilities, as well as operating leverage from expanding recurring revenue. As such, over the coming five years, we project Moody's revenue to grow by at least 10% on an average annualized basis and adjusted operating margin to stabilize in the low 50s % range. We also anticipate that adjusted diluted EPS will increase in the low double-digit % range.
Before turning the call back over to Rob, I would like to highlight a few key takeaways. First, in 2021, Moody's delivered over $6 billion in revenue and an adjusted diluted EPS growth rate above 20% as our customer-centric approach continued to address their evolving needs. Second, following a record year of issuance in 2021, we expect activity to remain robust this year. Third, MA's high recurring revenue growth and retention rates will continue to support strong financial results. Fourth, our strategic investments in high-growth markets will strengthen our financial performance in 2022. Finally, the introduction of medium-term targets reflects our conviction in the momentum of our business, as well as our commitment to capitalize on multiple opportunities for growth. With that, let me turn the call back over to Rob.
Thanks, Mark. Before we take questions, I again just wanna recognize the efforts of all of our people at Moody's. Our entire organization remains focused on putting our customers at the center of everything that we do. In 2022 and beyond, we're gonna continue to invest and to execute to provide our customers the solutions they want and need to manage a wider range of interconnected risk, and that will reinforce our medium-term growth opportunity. Thanks for listening to our prepared remarks. Before we go to Q&A, I've been asked to give a brief public service announcement about our Investor Day. We're gonna be sharing some videos that spotlight various parts of Moody's leading up to the event. Stay tuned for that, and we look forward to seeing everybody on March tenth.
That concludes our prepared remarks, and Mark and I would be happy to take your questions. Operator?
Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you're using a speakerphone, please pick up your handset and make sure mute function is turned off so that your signal reaches our equipment. We ask that you please limit yourself to one question with a brief follow-up question. Again, that is star one to ask a question. We'll go ahead and take our first question from Kevin McVeigh with Credit Suisse. Please go ahead.
Operator, we're having a hard time hearing Kevin.
Kevin, your line is open. Please make sure your mute function is turned off.
Can you hear me now? Sorry about that.
Yeah. Hey, Kevin. How are you?
Hey, Rob. How are you? Hey, a lot to unpack here, but I didn't wanna let the kinda one-year anniversary of your tenure go by without maybe giving us a little puts and takes over the last year because obviously you've, you know, really moved the organization forward in, you know, all different types of environments. Just love to get your recap on kinda first year in office, if you would.
Yeah. Kevin, thanks. That's a great way to actually, I think, kinda kick off the call. You know, when I took over as CEO a little over a year ago, you know, we had a business that was in great shape, and it was really poised for the next chapter of growth. You know, I was thinking back actually before I got on this call. I was thinking back to it a year ago, and I talked about three strategic priorities at the time that I thought would really help us reinforce and accelerate growth, and that's probably a word you're gonna hear a lot on the call today. We've really been active executing on that over the last, you know, kind of 12-14 months.
You know, the first of those is deepening our understanding of our customers, and the reason that's so important is that our customers' needs around risk are evolving very rapidly. I mean, the pandemic accelerated that. You know, risks are more complex, they're more interrelated, there's a wider range of risks that organizations are grappling with. We've talked about that. But better understanding these needs allows us to produce new offerings that our customers value, and that then translates into more revenue per customer and adding new customers in new market segments. The second is investing with intent to grow and scale. In 2021, you know, we made a number of moves to enhance our offerings and our competitive position in key markets, that included insurance and climate and KYC and commercial real estate.
Really the goal here, Kevin, is to have more comprehensive offerings, again, to be able to deepen customer penetration and to add new customers that allow us to grow faster. The third area that I talked about as a focus area was collaborating, modernizing, and innovating. We're working together across the company to provide our customers with this more integrated and holistic view of risk. That means enhancing the workflow platforms for our customers and connecting them in ways that add real value, but also bearing down on technology enablement, you know, across the firm to help our own people become more efficient and to be able to leverage tools from across the firm. Kevin, maybe just, if you would allow me just, you know, kinda looking out now into the year ahead.
You know, I think the strategy and the roadmap are set. We've been very clear about that for the last year. We're now focused on activating our people and accelerating our growth. This year, I think you're gonna see us focus on a few key things that are gonna contribute to delivering long-term shareholder value. Exceeding our customers' expectations by better understanding their sense of value and delivering a better experience. Realizing the benefits of investments, especially over the last 12 months, 'cause they've been substantial to drive industry-leading growth. Building out what, you know, we call internally our risk operating system, so that we can deliver differentiated integrated solutions. Finally, making Moody's a place that people wanna come and stay.
I think as we do that, we're gonna be able to really deliver for our stakeholders, our employees, our customers, our investors, and our communities.
That's super helpful. Then just, pardon me, real quick, Mark. On the buyback, it looks like you're gonna be about 2x what you were in 2021. Any thoughts as to what drove that decision? Is that just capital allocation within the context of, you know, potential M&A and just, you know, it's obviously you've got the cash flow and the enterprise ability to do it, but just any thoughts around that because it just really underscores the model.
No, Kevin. Absolutely. Maybe let me do a little bit of contextual answer, then I'll address the specific question. We remain very focused on prudent capital planning and allocation. As a management team, you know, we first identify opportunities for organic and inorganic investments in high growth markets like we did in 2021 that really enrich the ecosystem of data, analytical solutions and insights that are required to serve our customers. And then after deploying those investment dollars, we seek to return capital to our stockholders through share repurchases and dividends. And in 2022, we plan to return at least $2 billion. It's about 80% of our global free cash flow to our stockholders, subject, of course, to available cash, market conditions, et cetera.
That's going to include, you know, our expectation to repurchase at least $1.5 billion in shares, including the execution of a $500 million ASR in the first half of the year, as well as approximately $500 million in dividends through a quarterly dividend of $0.70 per share, which is 13% increase from our prior quarterly dividend of $0.62. Really, finally, I think the key point here is we do remain very committed as a team to anchoring our financial leverage around a BBB+ rating, which we believe provides an optimal balance between lowering the cost of capital and elevating our financial flexibility.
Thank you so much.
We'll go ahead and take our next question from Andrew Nicholas with William Blair. Please go ahead.
Hi. Thank you for taking my questions. I guess my first one would just be to hone in a bit more on issuance and the outlook for 2022. You spoke a little bit about this in your prepared remarks, obviously, but could you spend some time just kind of talking about the biggest swing factors that could affect issuance this year and maybe how you think about the range of potential outcomes around the 2% issuance decline figure with those factors in mind?
Yeah, sure. Andrew, happy to do that. You know, I talked a little bit in the prepared remarks about some ongoing tailwinds and, you know, we've got a positive macroeconomic backdrop. We've got healthy M&A pipeline, continuing refinancing needs. We also and we've talked about this a number of times on this call, you know, we've got a tough comp. You know, as we talked about for 2022, we're looking at issuance to decline in that low single-digit % range. Let me talk a little bit about what goes into that and what may be some of the upside, downside. I think a real key to our outlook is around leveraged loans.
You could see that, you know, our guidance is that we expect leveraged loans to be off something like 10% off of what was a really strong year last year. I would note that there is an enormous amount of private equity money that's got to get put to work. That's going to continue to drive leveraged loan activity. We have seen that in the month of January, despite the fact that there has been some volatility and that's impacted investment grade and high yield. You know, leveraged loans have continued a very robust pace. That for us is really something to watch when you look at the outlook.
Then, you know, if depending on what goes on with leveraged loans, we would expect that to spill over to CLOs, certainly like we saw last year. Obviously a big wildcard I know we're all focused on is kind of the pace and trajectory of interest rate hikes. You know, that we're going to have to see how that plays out. In terms of, you know, kind of the downside, maybe just to touch on a couple of things, you know, on our mind there. I think Omicron reminded us that COVID variants can still, you know, be a little bit of a wildcard to economic recovery and supply chain issues that are exacerbating inflation and then in turn may have some impact on interest rates.
I think just in general, as central banks are, you know, starting a tightening cycle and, you know, starting to, you know, back away from all the monetary stimulus that has been in the economy over the last, you know, several years. You know, I think there's just, again, kind of back to the pace and how the market expects that to unfold, you know, produces I think there's the chance for an unexpected surprise, right? Anytime that you've got, you know, something like this going on. If there's an unexpected surprise, we're going to see bouts of volatility. We've seen a little bit of that already. There wasn't much volatility the last two years. It was just kind of full on. If we do see that may provide a little bit of downside.
Great. That's really helpful. Thank you. Particularly on leveraged loans. I guess for my follow-up, I was just hoping you could provide an update on the ratings business in China, expectations for when that could be material. I guess, you know, within that, how much growth in that business or in that market are you embedding in the low- to mid-single-digit growth expectation for MIS over the next five years? Thank you.
Yeah, Andrew, maybe let me just, you know, talk a little bit more broadly about how we're addressing the broader Chinese credit market, because I think that's how we're thinking, really thinking about it. The first way we're doing that is serving international investors who are investing in bonds that are issued by Chinese companies in the cross-border market. There we have a very strong position through MIS and we expect that position to continue. The second is international investors who are investing in local currency bonds issued by Chinese companies in the domestic bond market. We recently launched something called China CreditView. I talked about it, I think, in the last earnings call, that covers about 1,000 Chinese companies with ratings and model-derived ratings, financial statements, financial statement scores.
We've been really pleased with the early reception to that product. We've got almost 100 active prospects from our core international investor customer base, and they really like the access to the broad coverage and the global scale ratings. The third are domestic Chinese investors who are investing in the local currency domestic bond market. Here we address that, as you're probably aware through CCXI, and despite some challenges last year, they continue to be the market leader. You know, just to kind of put it in perspective for you, last year they completed several thousand ratings, including both fundamental and structured finance. The scale of that business is quite significant. All of this is, you know, factored into both our outlook for both MIS but also as well as MA.
We'll go ahead and move on to our next question from Toni Kaplan with Morgan Stanley. Please go ahead.
Thanks so much. Wanted to ask about the new medium-term or five-year guidance. You're looking for a revenue of low- to mid-teens in MA despite having, you know, RMS, which historically was lower growth. I know you're expecting a lot of synergies there, but just talk about sort of what has to go right versus what are the biggest risks to the medium-term guidance in MA. Thanks.
Toni, good afternoon. The MA medium-term revenue outlook that we're providing this morning of low- to mid-teens % growth really does reflect our confidence in the significant opportunity, you know, we have given customers' demands for our integrated risk assessment products and solutions. We believe there are multiple paths to achieving this target, at least one of which is through continued investment in organic product development and sales distribution capacity. It's through these organic investments, along with projected growth in our recurring revenue base, that we expect total MA organic revenue to grow at the higher end of the low-teens % range, for example, to at least $4 billion by year-end 2025.
Naturally, any incremental bolt-on M&A that accelerates or advances our capabilities and product offerings, and which is hypothetically similar in size and scope to how historically completed acquisitions could elevate us to the mid-teens percentage revenue growth. And putting that in context, we also recognize that strategic success is not only about revenue growth, but also about concurrently expanding the margin. We are reaffirming in the outlook that we issued today the medium-term mid-thirties MA adjusted operating margin as subscription-based products provide more operating leverage and as recurring revenue comprises an increasing proportion of MA's total revenue, over the medium term.
That's great. I wanted to also ask about ESG. Last quarter you had talked about revenue for this year all in being sort of like $26 million-$30 million. I just wanted to get an update on where that ended up. Is 20% the right growth rate to be thinking of going forward for ESG? Or, you know, should it be higher than that? Where are the fastest-growing areas that we should be thinking of for ESG growth? Thanks.
Yeah, Toni, this is Rob. I'll probably start by just giving you some idea of kind of where we're focused this year around ESG, and then I think Mark can give you the specifics to your question. You know, as we look out this year, I think our goal is really to build and scale the relevance of our ESG offerings. That's really important. You know, we hear from both companies and investors that they want us to play a meaningful role in the ESG space because they like, you know, our transparency and comparability and they trust our methodologies and our analytics and our data. You know, there's some keys to that, and I think you're going to see us building out coverage across the rating agency.
You know, ESG and climate are increasingly important considerations to credit. We all know that. Also sustainable finance is becoming a core part of many issuers' funding programs. At the end of last year, we had almost 2,000 credit impact scores, ESG credit impact scores, which speak to the impact of E, S, and G on an issuer's credit profile. These scores have got a transparent methodology, but also there's engagement with the issuers and our analysts. We're gonna be expanding our coverage by thousands more over the course of this year, and that's gonna give us ESG credit impact scores across, you know, a much broader part of the MIS rated portfolio that benefit from the engagement with our analysts.
We're gonna be expanding to help meet the sustainable finance needs of our issuers, and you're gonna see that in probably around the middle of this year where we start to expand our coverage of our second-party opinions on sustainable issuance. And then I think in the second half of the year, you're also gonna see us start to build out things like our net zero and sustainability rating offering. So that's on top of the ESG measures that cover, you know, thousands and thousands of companies with public information, but also our ESG score predictor that covers over 140 million companies that supports things like sustainable sourcing and know your counterparty needs. So that's really the focus for us this year. How that's gonna translate into revenue, Mark, you might wanna talk about that.
Absolutely. In 2021, our actual ESG revenue was approximately $29 million, and that reflected $22 million in standalone ESG revenue related to our climate solution, sustainable finance and ESG research and insight products. As well as an additional $7 million from integrating our ESG related solutions into MIS and MA product sets that Rob just spoke about. That's a 36% year-over-year growth. For 2022, we are expecting to further increase our direct and attributable ESG related revenue by another approximately 35% to $40 million. The drivers for our estimated 2022 ESG financial performance are gonna include increased demand for those climate solutions and the need to include and integrate those ESG factors into the credit analysis and investment decisions.
Now, just as a reminder, we do have a significant amount of climate-related revenue within RMS, which we are considering reporting, perhaps later this year, together with our direct and attributable ESG-related revenue, to give you a holistic picture.
Very helpful. Thanks so much.
We'll move to our next question from Alex Kramm with UBS. Please go ahead.
Yeah. Hey, good morning, everyone. Wanted to ask another one on the medium-term guidance. Sorry if this is specific, and you may have answered this already, but I may have not heard it correctly. On the medium-term top line guide, the 10%+, and also the M&A guide low- to mid-teens. I think in your question just now, you referred to the recurring or organic growth rate. Is that guidance actually 100% organic, including recurring and non-recurring, or does this actually potentially include some M&A? I wasn't 100% clear.
Sure, Alex, I'll try to be as clear as I can. So, the MIS and the MCO medium-term target, which really includes the combined MA and MIS medium-term revenue guidance of at least an average annual 10% revenue CAGR, we see a path to achieving that organically. If I look at MA specifically, we expect the organic revenue to grow at the higher end of the low teens percentage range, and that any bolt-on M&A over and above that accelerates our capabilities will move us into that mid-teen percentage range. Robert, unless you want to spend a couple minutes on MIS and how we're thinking about that as a medium term.
That's its own topic. Alex, I'm happy to cover that if you, if you'd like, but let me just pause there.
I mean, sure, if you want to answer. I have another question, but go ahead.
All right. Well, you know, I guess the other leg of this, right, is the MIS, you know, kind of medium-term outlook. I guess let me just, you know, kind of share with you how we thought about it. You know, for starters, you know, I think we all understand we're at the tail end of a period of ultra low interest rates. We've just finished two years of enormous issuance, and we're entering a tightening cycle. I think that would imply, you know, some natural headwind versus issuance over the last several years. You can see that in this year's guide for MIS. We've put out a range for MIS revenue growth.
Consistent with this year's guide, we expect to be at the lower end of that range in the short term. As rates and growth expectations normalize, we'd expect to see a pickup in MIS revenue growth towards the higher end of that range, such that, you know, on average over the five years we're at low to mid-single digits. Alex, I'm happy to, or anybody else on the call, I'm happy to build on that and what went into that outlook, but let me just pause there and see if we can get to your next question.
Thank you. I mean, this next one probably dovetails, and again, I may be scrutinizing here a lot in this medium term outlook, but you obviously used to have a long-term outlook that I guess you're no longer gonna have, and it called for, I think, low teens EPS growth, so medium term now low double digits. I guess, again, I'm just scrutinizing here a little bit because it's almost the same, but isn't this essentially a little bit of a lower growth outlook? Is that related to what you just talked about on the rating side? I just wanted to confirm how we should be comparing your long term with your medium term guidance that you just laid out.
Alex, we expect to grow adjusted diluted EPS in the low double-digits % range over the medium term by balancing organic and, to the extent needed, inorganic investments with the return of capital to stockholders. The difference between our new medium term adjusted EPS target and the prior long term EPS guidance is primarily driven by the expectation for incremental organic strategic investment and reduced capital leverage from share repurchases based on the assumption that Moody's share price continues to increase, as well as lower discrete tax benefits on a percentage basis as adjusted net income itself grows.
Okay. Very helpful, and thanks for all the new disclosures here.
You bet.
We'll move on to our next question from Ashish Sabadra with RBC Capital Markets. Please go ahead.
Thanks for taking my question. Rob, I'll just follow up to the question that you just answered, and I was wondering if you could actually provide more detail around what is baked into your issuance assumption. Because I would have expected issuance on a more normalized basis growing more in the low- to mid-single-digit, plus you have pricing power, recurring revenue growth, and getting more to high- to mid- to high-single-digit growth as we go over the next few years versus mid-single-digit over the mid- to long-term. Any color on that front will be helpful on the issuance front. Thanks.
You bet, Ashish. You've got the algorithm. Let me just talk about the factors, you know, as we develop that range. You're right, you know, we always talk about issuance activity being highly correlated to GDP growth over the medium to long term. It's interesting, if you just step back and look at the last couple of years, in 2020, we had economic contraction, and we had enormous issuance. That relationship hasn't necessarily held. This year, obviously, as we look forward, we've got economic growth, but our outlook for issuance is to be slightly down.
You know, what I think we've got going on is that there is a digestion and normalization period that's going on here as we come out of the pandemic and these unprecedented amounts of monetary and fiscal stimulus that have driven all of this issuance. We've had, you know, these economic, you know, kind of rapid economic cycles. On average, we expect that relationship to hold. You know, again, I think there's this normalization and digestion period here. You're exactly right. The other things that we're looking at, you know, growth in the maturity walls, given all of the debt that's been issued over the last several years. You know, that provides some support or, you know, kind of what I think of as like ballast for our transaction-based revenues.
On the last earnings call, I think we talked about the forward four-year refunding needs have increased something like 9% to $4 trillion for U.S. and European issuers. There's just a lot of debt out there that's got to get refinanced, and it was something like 19% for U.S. leverage loan maturities. There was some pull forward, further pull forward in the fourth quarter, but I don't think it was outside of historical ranges. These maturity walls still imply some good support for future issuance. We've got pretty good visibility and confidence around recurring revenues, especially with all the first time issuers that have come into the market. I think the recent strength of the leverage loan market provides support for, you know, a view that disintermediation is still alive and well.
Then Ashish Sabadra, you know, you noted, you know, the opportunity for us to kind of support and enhance the value we deliver to our customers, things like sustainable finance that I touched on are places where we're going to be able to expand our offerings and support our value proposition and in turn support our pricing. The way I think about it, Ashish Sabadra, is near term, we've got some digestion and normalization, but the structural drivers to support MIS revenue growth, I mean they're intact over the medium term. I would expect growth to start to, you know, kind of pick up through the medium term horizon from that low single digit to more like that mid-single digit.
That's very helpful color, Rob. Mark, maybe if I can ask a question on the multi-year investment. Thanks again for that slide with the detail, there. As we think about, in 2022, we're going to have a total of $300 million of organic investment. How should we think about that, going forward in 2023 and over the midterm? Should that come down as we go from an elevated organic investment to a more normalized investment cycle? Is that the key driver for significant margin expansion on the MA side? Thanks.
Sure. In 2022, we are expecting to increase our spending on organic strategic investments to be approximately $150 million. That's really aimed at capturing the incremental opportunities we are seeing in the market. That implies that our planned spend over the two-year period is approximately $300 million. These anticipated investments are really going to be focused on increasing our sales force and go-to-market activities. It's going to be a continuation of our 2021 strategic investment roadmaps in the high priority markets, specifically KYC, CRE banking, ESG and climate, etc., as well as some of the technology enablement and product development that we're focused on.
I also want to just mention that, you know, in addition to this $150 million, we are expecting expenses to increase by at least $50 million as we also continue investing in our employees. Our employees connect deeply to our mission as a company, and we want to make sure that we attract and retain the best talent in order to achieve our growth aspirations. As I think forward to the MA margin over the medium term, these investments, to the extent that they continue to be productive and favorable, will continue forward. They will be allocated in the way that we think about the highest and best use of capital and prioritization, so that we both achieve revenue growth and ongoing margin expansion, not just in 2022, but over the medium term.
Thanks, Mark. That's very helpful color. Thank you.
We'll take our next question from Jeffrey Silber with BMO Capital Markets. Please go ahead.
Thanks so much. I'm sorry to go back to your medium-term guidance, but I just wanted to clarify something. Can you talk broader about the capital allocation priorities that are built into this in terms of not only internal investment, but just as importantly, shareholder returns? Thanks.
Absolutely. Capital allocation priorities over the medium term will follow the comments I provided earlier on the call, meaning principally focused on organic and inorganic investments back into the business. We have not assumed any incremental inorganic investment other than those we have publicly announced to the market through and as of today's date. However, to the extent in the upcoming periods, we do have inorganic investments that continue to bring invaluable talent and additional products and solutions into our umbrella that will serve to enhance and accelerate the achievement of those medium-term targets within that five-year window.
I'm sorry, I was specifically focused on return of capital to shareholders. You talked about an 80% return of free cash flow this year. Is that something that we can kind of build in going forward?
I think the way that you could think about return of capital to shareholders, either through share repurchases or dividends, is that we will execute that post any either organic or inorganic acquisition or related activity. We are focused around a BBB+ rating level, and that's because we believe that provides the best balance between return of capital to shareholders and our cost of capital. We are not focused on a return or percentage return of free cash flow over the medium-term period.
Okay, great. If I could just follow up with one quick one, actually. This is looking backwards at the fourth quarter. If I specifically focus on margins within non-MA, I think you talked about on an annual basis, you know, what the impact was in terms of some of the investments. What was the impact on the fourth quarter? What would margins have been without some of the investments you made?
Maybe compared to our implied fourth quarter margin from our last earnings call, we did accrue for a couple things. One is higher incentive compensation and commissions of about 300 basis points. We also had additional costs related to acquisitions that we announced, and that's about 200 basis points. Specific to your question, we pulled forward select investments from 2022 into the fourth quarter of 2021, and that's worth around 400 basis points.
That's all in MA?
Primarily in MA, correct.
Okay, fantastic. Thanks so much.
We'll move on to our next question from Andrew Steinerman with JPMorgan. Please go ahead.
Hi, I just wanted to ask one more question about the underlying assumptions with the MIS medium-term revenue growth target of low single- to mid-single-digit revenue growth. Just bear with me for a second. We looked back at the correlation between MIS' revenue growth and issuance growth, 2017 through 2021. On average, just take my number. On average, MIS revenue growth outperformed issuance by 5.6%. My question is, when you think about that five-year outlook, do you feel like the amount of outperformance that MIS will grow faster than issuance might be less over the next five years than it was in the past number of years?
As you can understand, my underlying assumption is if that's, you know, what's your kind of underlying issuance outlook to make for that MIS revenue outlook?
Yeah, maybe we'll tag team the answer here. You know, part of it, you know, when you think about revenue outperformance of issuance, you know, a number of things go into that, right? You know, one of those is what we talk about, you know, mix. I think, you know, broadly, we have assumed a generally consistent mix with what we've seen, you know, over the last several years. That mix has generally been favorable. But then a number of other things go into that that allow us to, you know, typically, you know, kind of exceed issuance growth. Remember, you know, I don't know, a third to 40% of the business is recurring and, you know, that continues to grow.
We've got pricing, we've got new issuers, through, you know, disintermediation. You know, those are the, you know, those are the kind of building blocks.
Rob, maybe I'd only add to that. At least in the near term, within this five-year period, you could think about elevated cash balances, and leverage may constrain some of that more opportunistic issuance in the near term, and that will more normalize over time, to Rob's point earlier, around digestion and normalization.
Okay. Thank you.
We'll go ahead and take our next question from Craig Huber with Huber Research Partners. Please go ahead.
Thank you. Rob, maybe we start with the RMS acquisition you guys closed on in September. Talk about what I think is a big opportunity long term as you guys move that business and branch away from just serving the insurance market there, and talk about the upside there long term, please, for starters.
Craig, sorry, I had it on mute. We share the same view. You know, that was part of the attraction, is that there. You know, we see two opportunities here, building out, you know, a great comprehensive, more comprehensive insurance business, but also taking, you know, these, you know, kind of weather and climate and disaster capabilities, you know, to our broader customer base. You know, to give you a sense of that, you know, it's interesting. When we go out and talk to banks and, you know, asset managers, you know, some of them are actually trying to hire, you know, folks with climate expertise and it's difficult. You know, these are scarce resources.
That's one thing that attracted us to RMS, is it's got world-class expertise at scale, and that is just really difficult to get. What we hear from, you know, when we go out beyond insurance customers, we hear, you know, "How is climate risk gonna affect my portfolio, and how material are the effects?" You know, that's part of, you know, what we're hearing. We see opportunities around commercial real estate to be able to integrate that into the analytics, commercial mortgage-backed security analytics. We've had some interesting conversations with residential mortgage lenders who wanna understand the degree of, you know, for instance, uninsured flood risk beyond what's covered by FEMA. We've got banks who are having to do climate stress testing and need to have more sophisticated tools around that.
You've got governments who are now needing to, you know, try to understand the vulnerability of their communities to climate change and then start to think about the kinds of risk mitigation investments that they're gonna make. I think with the infrastructure bill, you know, some of that we're gonna see investments in building climate resilience. But you need the data and the tools to be able to assess, you know, are these worthwhile investments and what impact are they gonna have on mitigating the financial loss relating to climate change. Craig, you know, we're in the process. We've sat down with our teams.
We've looked at what we think are the most interesting opportunities around this and are starting to work to develop products, and also going out and talking with our customers beyond insurance to understand what do you want and how can we provide it.
Craig, if I were to put just a few numbers around that related to RMS. For 2022 in particular, we are expecting revenue growth in the mid-single-digit % range, and that would be in line with our transaction model, inclusive of some of the emerging synergies that Rob spoke about. Then on a full year basis from 2022 to 2023, excluding any impact of the 2022 deferred revenue haircut, we expect RMS revenue to grow in the high single-digit % range.
That's helpful. Also wanted to ask you guys, the medium-term guidance, sorry to go back to this again. I think most people will be very happy if you guys could put up, you know, at least 10% of revenue growth here. You're talking about margins in the low 50s% here. You're basically there right now. Is it just being conservative on the margin when you guys talk about the margins, that you really have to grow costs that much? This is. The margins aren't gonna really move that over the medium term here. Also Mark, my housekeeping question I want to ask, incentive comp in the quarter, what was that? Also transaction costs. You talked on the press release, but it wasn't quantified. Was that material? Thank you.
Craig, sure. Let me start with your the first question. We're not looking necessarily to provide more specific timelines for achieving our guidance within the next five years for each of the medium-term metrics that we provided this morning. However, some targets will likely be achieved intuitively earlier than others. For example, the outlook for the 2022 MIS adjusted operating margin is 62% and is within our medium-term guidance range. There you could think about our primary objective is really to maintain or modestly expand MIS's adjusted operating margin within that low 60s range while preferring to reinvest to drive growth, add value and scale over time.
Similarly, as the relative proportion or size of the MA business grows relative to MIS, you'll begin to see that influence the timing of the emergence of the MCO margin into that low 50s% range. On your other question, in terms of incentive compensation for the quarter, that was $117 million. For 2022, we expect incentive compensation to be approximately $75 million per quarter, or around $300 million for the full year. Just to note there, RMS would contribute roughly $7 million per quarter of that number. Then I think your final question was on deal with transaction related expenses.
For the full year 2021, we had around a $0.16 cost or around $40 million from M&A transaction and deal related expenses, and that would include the cost of the RMS purchase price hedge loss.
What was that number in the fourth quarter, Mark?
The full year was 40.
Fourth quarter.
$40 million.
Yeah. Thank you.
For fourth quarter specifically was $5 million for M&A deal and transaction costs. So not material.
Great. Thank you.
We'll take our next question from Owen Lau with Oppenheimer. Please go ahead.
Yeah, good afternoon, and thank you for taking my questions. Could you please talk about your investments in the SaaS solutions to banking customers? Are you going to provide more like the software solutions or you're migrating your, like, existing data solutions to the cloud or changing your contracts to be more recurring? Any more color will be helpful on the SaaS front. Thank you.
Hey, Owen, it's Rob. You know, one of the things that we're doing is we're in the process of converting some of our customers from, you know, kind of legacy on-prem solutions that we provide to them to our new SaaS-based solutions. You know, we talked a little bit about, you know, what's going on there in terms of that, you know, that conversion. You know, that does a couple things for us. One, it, you know, these SaaS solutions give us an opportunity to get a little more revenue uplift, but it also helps with our penetration and our ability to integrate our offerings.
If you kind of think about what we've got across, you know, kind of the banking and ERS, you know, we're building out an ecosystem that helps support banks around origination, risk, finance, and planning. You know, rather than, you know, kind of a collection of, you know, kind of legacy on-prem, what we're trying to do is build out a connected SaaS-based ecosystem, that's gonna allow us to connect this better and to be able to help our customers kind of work across their departments. That's what we hear from them all the time. That's really what's behind, you know, that strategy.
Got it. Another housekeeping question. I wanna go back to the MA margin in 2022, 29%, up from 26% in 2021. Could you please help us think about the trajectory of this margin expansion in each quarter? Should we expect a gradual expansion each quarter, and you can potentially exit 2022 with over 29% margin, or you expect the margin to be, like, stable at around 29% each quarter in 2022? Thank you.
When I think about 2022, the MA adjusted operating margin guidance that we announced today of 29%, that includes 150 to 200 basis points of margin compression from recent acquisitions and movements in foreign exchange rates. You know, in addition to our multi-year initiatives in high growth markets, we are targeting investments to bolster our best-in-class sales force and to focus on cross-selling opportunities across multiple product lines. For 2021, as I think about sort of run rates here, and I think here's the key point that you're driving at.
Our full year guidance anticipates in the first quarter of 2022 expenses to be about $120 million-$140 million lower than the fourth quarter, and that's primarily due to the reset of our incentive compensation accruals as well as lower levels of organic investments, given we accelerated some of that investment spending into that fourth quarter. If I think about now just within 2022, annual merit increases, I would say, as well as talent acquisition and ongoing organic investments, they'll contribute to an expense ramp during the year of somewhere between $80 million-$100 million.
If Q1 2022 is $120 million-$140 million lower than Q4, which of course will support margin, and then think about during the year is $80 million-$100 million of expense ramp.
We'll go ahead and move on to our next question from Manav Patnaik with Barclays. Please go ahead.
Thank you. Mark, I guess I was hoping you could just expand on that, you know, kind of seasonality topic and, you know, just talk about some of the other moving pieces, you know, in the first quarter and as we move to the rest of the year, you know, 'cause I guess we just don't wanna get carried away, you know, putting the full year guidance into, you know, one Q run rates here.
We considered historical issuance seasonality patterns as we developed our 2022 forecast. For MIS, we anticipate that transaction revenue will be stronger in the first half vis-a-vis the second half of the year, as issuers take advantage of favorable market conditions and secure funding ahead of potential headwinds from interest rate and inflation uncertainties. This is similar to the market dynamics that existed in 2020 and 2021, where 59%, and I think 56% of total full year issuance was completed in the first half, respectively. For MA, revenue is highly recurring, and it's expected to progressively increase over the year. That's comparable to the actual 2020 and 2021 results, which had just under 50% of total full year revenue reported in the first half.
In thinking about expenses to my comments a moment ago, we expect an increase in spending from the first quarter to the fourth quarter in the range of $80 million-$100 million, as I mentioned a moment ago, driven in part by the timing of annual merit and promotion increase as well as ongoing organic investment activity. I would like to probably end here with, you know, we're expecting the full year 2020 strategic investment spending of $150 million will be more weighted towards the second half of the year.
Got it. All right. Rob, maybe if I can just ask, you know, in terms of, you know, the M&A pipeline outlook appetite, just your thoughts here. Is RMS just a lot to digest before you do anything more significant?
Yeah, Manav, you know, we had a pretty busy 12 months. We are very focused, as I said, you know, on realizing the benefit of those investments. We're excited about the opportunity with RMS. There's a lot of work to do. We need to make sure we're executing on that. I would also, you know, note, Manav, you know, we bought three, you know, small KYC businesses in the KYC space just in the fourth quarter. You know, that was part of this investment that was going on in the fourth quarter and accelerating the integration so we could accelerate our speed to market with this workflow solution from a company called PassFort.
I guess what I would say, Manav, is we're feeling pretty good because we have invested a lot in building out our capabilities in some areas that we think are very important. You know that we're always, you know, out there. We have a great corporate development team, but we feel like we've really enhanced our capabilities. We've added customers in new areas, and we're really focused on executing, you know, this year to realize the benefit of that.
All right. Thank you, guys.
We'll go ahead and take our next question from Shlomo Rosenbaum from Stifel. Please go ahead.
Hi, good afternoon. Thank you for taking my questions. Hey, Rob, maybe you could talk a little bit about. I'm gonna get back to the medium-term guidance that seems to be the main topic of the call here. Just the top-line growth is the expectation to get at least 10%, and it seems like that's really an organic growth number. It sounds like from the answers to all the various questions that's definitely an improvement over what the company was pointing to historically in its trajectory. Maybe you could talk about, like, what's changed that gives you confidence that you'll be able to do that versus what you had done in the past or what you were driving towards in the past.
Is it a matter of some of the acquisitions you've made and some of the products you've made, some of the sales force? Just maybe there's a little bit of a bridging you can do in order to kinda help us understand why the expectation is higher for organic growth at this point. Then I'll have a follow-up.
Yep. Thanks so much. You know, first of all, I just, you know, I think we see a path and have confidence that we can get there organically, but as Mark said, you know, there may also be some M&A along the way, but we feel good about it. The reason why I'd say, you know, two things. One, we're in markets that are growing. I mean, if you look at the current addressable market that we talk about, you know, a number of just the underlying markets are growing nicely, right? I think of that as, you know, we live in an attractive neighborhood.
Obviously, we as a team and as a company are trying to focus our investments on the most attractive parts of that broader addressable market. But second, we've been investing heavily, that's been a theme on this call, to build out the capabilities. And it's been through some of the acquisitions where we think now we've got, you know, world-class capabilities around climate at scale. We have got a what we believe is a very strong platform for KYC and financial crime compliance. And you know, it's no longer just our data, but now we have a workflow platform that we're integrating into. That's really an important need for our customers in the market. We're investing in our Commercial Real Estate business.
We invested specifically in the fourth quarter to accelerate some of our product launches into, you know, that'll give us some growth into 2022 and beyond. So, I guess we feel good about the growth prospects of the markets we're serving, and we feel good about the capabilities that we have been building and acquiring and integrating to be able to capitalize on those growth opportunities.
Okay, great. Just kind of piggybacking off of a question that Manav Patnaik asked, would you say that, you know, the busy 2021 M&A engagements that you had, would you consider that kind of an anomaly or something that the company is positioned to, you know, "Hey, we're positioned to repeat something like that." That might become more frequent. I mean, the comment you made, it seemed like you want to digest some of the big bites that you made. But I just wanted to ask you, do you feel like you're positioned differently than you were in the past in terms of doing a larger kind of M&A program, kind of that would enhance the, you know, the already improved organic revenue growth that you've laid out?
You know, I guess I would say two things. One, you know, we knew where we wanted to invest, you know, based on, you know, the strategy and the market opportunity and where we thought we have a real right to win in the market. You know, we have what we call internally these business blueprints that we use to figure out, you know, what do we need to do both from an organic investment standpoint, but also from an acquisition standpoint. We felt like it was important to build out those capabilities, to accelerate the build out of those capabilities and the acquisition of those capabilities because we feel that speed to market in some of these markets that we serve is really important. You've heard me talk about that. KYC, that market is growing.
I mean, you see, you know, we're growing at, you know, depending on the time period, you know, mid-twenties or more. What that means is you've got a lot of customers who are adopting new solutions, and the retention rates are high. We wanna be able to get those customers onto our platforms. I think the same is gonna be true with climate. You know, as we think about the need, as Craig asked about, you know, isn't there a great opportunity beyond insurance? Yes, there is. But we've got to have the capabilities to be able to meet that need quickly. So, I think there was an element of wanting to really enhance, you know, our speed to market. It was an active year. You know, there was a lot out there.
You know, we know there were a lot of opportunities that were also out in the market. So you know, I don't know if it's an anomaly. We don't have a quota. We have plans on how we wanna drive growth and, you know, we're gonna continue to execute on those plans.
Great. Thank you.
We'll move on to our next question from George Tong with Goldman Sachs. Please go ahead.
Hi. Thanks. Good morning. Historically, pricing has contributed 3%-4% to overall revenue growth. How do you expect pricing trends to evolve compared to historical levels given rising inflation? And what kinds of increases are you seeing in labor costs, especially in the more labor-intensive MIS segment?
Hey, George. It's Rob. I think our view is that they probably have a consistent pricing opportunity. I guess you might be able to argue, well, isn't there, you know, more upside with inflation? You know, I think we just have a long-term view on pricing in the rating agency and M&A. I mean, all across the firm. You know, we wanna be prudent and thoughtful about price. You know, price is obviously important to our customers as well. So, well it's really about, and, you know, we get questions about this in the rating agency. It's about making sure that we are reinforcing the value proposition that we deliver to our customers. I think an important part of that for MIS going forward is going to be around sustainable finance.
I mean, we hear from our customers all the time, you know, it's, I've got a sustainable finance program, and I want Moody's to be able to help me with, you know, my credit rating, my second party opinion, you know, various aspects of that. We're also integrating all that into our research for the investors and our issuers fixed income issuance. You know, that's how we think about supporting that value proposition. I think, you know, again, we're taking a long-term view. In terms of labor costs, you know, Mark touched on it. Look, we're investing in our people, and you know, I'm sure you've heard this on a number of calls of companies that you cover, we're no different.
You know, we're investing to make sure that our compensation increases are competitive with the market, but also making sure that we are retaining the key talent that we need to drive the company forward. You can imagine there are certain types of skills that are in high demand, and we're very focused on making sure that we can attract and retain that kind of talent.
Got it. That's helpful. You've made a lot of investments in M&A in the KYC market recently. If you look forward, what areas do you want to focus on in the M&A segment from an M&A perspective?
Across MA. George, you're right. We have made several investments in KYC. It's a pretty fragmented market. You know, we're building out our capabilities. We acquired some capabilities, and we're integrating those. There may be other opportunities. I mean, I think one thing that you hear from us as a management team is, you know, we're trying to invest in high growth opportunities where we think we're well positioned to win in the market. KYC is one of those. Yes, we have made some investments, but I think you'll see us continue to make investments, organic, it may be inorganic if it's, you know, on our business blueprints.
You know, we've been pretty clear about where we want to continue to build scale across the business, where we see very strong growth. It's, you know, it's KYC, it's insurance and banking, it's commercial real estate, and then ESG and climate.
Very helpful. Thank you.
We'll go ahead and take our last question from Christian Bolu with Autonomous Research. Please go ahead.
Christian, this may be one of those you're-on-mute moments from, the last two years of Zoom.
I'm a bit beating a dead horse here. On the 2022 outlook, if I look at sort of slide 22, I see lower issuance. I see what should be a negative mix shift given high yield and structured typically have better revenue yields, and those are going down. You seem very confident in your revenue growth outlook for 2022. Just curious, what's the delta? Is there a way to think about what the delta is if you have lower issuance and a negative mix shift, what's the delta to actually revenue growth? Is it pricing? Is it new folks coming on board? I'll be curious how you think about that.
Hey, Christian. Good afternoon. The outlook for 2022 includes both an expectation of a similar, though not as favorable, infrequent issuer mix going into certainly the first half of the year. You could typically think of us as making slightly more on the high yield and leveraged loans just on a per dollar basis. Equally important, leveraged loans serve as a funnel for structured finance, CLO creation, which provides further opportunities for the upside.
Yeah. Christian, we missed part of your question, but I think we get the question. You know, if you think about you know, where we are from a issuance outlook perspective and then kind of where we get to from a revenue growth perspective, you know, I'm gonna go back to those building blocks. You know, let's start with, you know, somewhere between a third to 40%, depending on transaction revenue is recurring revenue. That recurring revenue is growing, and that's supported by the, you know, north of 1,100 first time issuers that came into the portfolio last year. We've got, you know, pricing. There is an element of mix.
If you kind of look at where we are from a issuance outlook to a revenue growth outlook, that's probably a little more modest spread actually than maybe in some prior years or in some prior periods. That probably reflects a little bit of what you're talking about in terms of, you know, the mix.
Okay. Maybe switching gears to MA here. If I look at slide 11 and 13, you guys tend to talk about the MA business in terms of the end markets, like what's driving growth from an end market perspective, but it's not the way you tend to disclose the data. Just curious, are there any plans here to maybe give us more data that helps understand end market growth just to better understand sort of what's driving growth and a potentially better model sort of long term how this business evolves?
Christian, I'll take this maybe from a slightly different perspective. In addition to the medium-term targets that we announced today, in 2022, we intend to refresh the line of business reporting breakout for MA revenue to address some of the investor feedback that we've heard, and the comments that you've just made around the need for greater insight into the business's performance. This is gonna be a topic we're planning to cover as part of Investor Day materials, that at a high level, the lines of business we're considering adopting for MA include data and information, research and insights, and a decision solution sub-segment. You can think about data and information as being comprised of the vast and unmatched datasets that we have on economies, companies, commercial properties, and financial securities.
You could think about research and insights as providing customers with market-leading modeling and risk scoring, as well as expert insights and commentary. Decision solutions then is combining those components from our data and information and research and insights lines of business for the purpose of integrating those capabilities through software and workflow solutions. Again, a topic we plan to cover at Investor Day once we finalize approach, but certainly something we're thinking about.
Yeah. Christian, one other thing to add, I think we'll be able to give you some insights into how we think about the growth in those underlying markets that we serve at Investor Day. I think that's gonna guarantee that you're gonna be attending.
Yeah. If I could throw my two cents in here. I appreciate the way you talked about disclosing it. It would also be helpful just to get consistent look at the end markets as well, 'cause that's how you talk about addressable markets. That's how you talk about growth.
Yep.
It just feels like it's an easier way at least for us to think about potential of the business. You know, what's KYC growing? What's the revenue today, how it's growing, et cetera. Just my two cents in terms of as you think about disclosures. Thank you.
Yeah. That's great feedback, Christian.
With that does conclude our question and answer session. I would now like to turn to Rob Fauber for additional or closing remarks.
Well, thank you everybody for joining today's call, and we look forward to speaking with you at Investor Day on March tenth. With that, I think we'll bring the call to a close.
This concludes Moody's fourth quarter and full year 2021 earnings call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Investor Resources section of the Moody's IR homepage. Additionally, a replay of this call will be available after 3:30 P.M. Eastern Time on Moody's IR website. Thank you.