[Presentation]
Ladies and gentlemen, please welcome Managing Director, Head of Strategy, Corporate Development, and Investor Relations, Andy Wiechmann.
Hi. Good morning. For those of you on the webcast who are in different time zones, good afternoon and good evening. Welcome to the 2019 MSCI Investor Day. I am Andy Wiechmann, Head of Investor Relations, Strategy, and Corporate Development. While investor relations is clearly and obviously my favorite job duty, I also oversee M&A, and all things related to our capital structure, so financing, repurchases, dividends, leverage, et cetera. I've been with the company close to seven years. In my prior life, I was an investment banker. I like to say that I'm a recovering investment banker, and MSCI is my rehab, and clearly, it's been going well. I've not been tempted to go back. Before we begin, I would like to draw your attention to the forward-looking statement and non-GAAP measure language included on slide two of the presentation materials.
Please take a moment to review those. I would also very kindly and politely ask that you make sure your phones are set to silent mode or vibrate mode. I would like to thank everyone for joining us. It's great to see such strong support here. So many familiar faces. I know many of you have traveled long distances to be with us today. We greatly appreciate that. Many of you have been following us and supporting us since the IPO, which is, I think, a testament to the strong story here. Like many of you, I was attracted to MSCI because of the amazing attributes and characteristics of the story. I remember thinking when I was going to join the company about the checklist of amazing characteristics.
You had this global equity benchmark franchise, which is one of the greatest businesses in the world. MSCI can license those indexes to ETF providers and mutual funds and ride the active to passive move. You have these very unique risk management and portfolio analytics tools that were unlike anything in the market. All those were just fueled by and powered by this incredibly passionate and inspiring leader. Somebody that's a true founder-type owner-operator, the type of person you just want to be around and work with and learn from. Needless to say, it was a no-brainer for me to join the company. I can say seven years into my journey here, all of those things continue to be true in spades. They are byproducts of something that is much greater.
The true value of MSCI lies in its unique position at the center of the investment ecosystem. The company has this symbiotic relationship with the world's largest investors and managers, where they are continually giving input and feedback and insights to MSCI. MSCI has this very distinct function that we call research and product development that synthesizes all of that feedback into content that powers products and solutions and services that help those investors and those managers achieve their objectives more effectively. All of that is enabled by this incredible performance culture that we have and this amazing leadership team, which is comprised of industry executives, industry executives from the investment industry. We have former CEOs of large asset managers, former CIO of some of the world's largest pension funds, and we have desk heads from some of the world's largest broker-dealers.
Those are combined with industry executives from some of the world's largest and most respected companies and bring functional expertise and discipline in areas like technology and finance and HR. Those executives are blended together with the team that really, alongside Henry, built the company into what it is today. When you look through the bios and the tenure of some of the people that you'll see today, you'll see they've been with the company for 15, 20 years. Really have been the ones that have grown the company into what it is today.
For all of those reasons and those unique characteristics of the MSCI story, we thought it was time to do an Investor Day, to pull back the curtain a little bit and allow you to see how special MSCI is and the amazing opportunities that follow from that unique position that we're in. I know we've tried to do that a little bit through the quarterly earnings calls, we want to make sure you get to hear it, as owners of the company, from the people that are doing this day today. With that, I would like to thank you all for joining us today, and I hope you enjoy it. I hope it's helpful to you. I do look forward to catching up with all of you after today's session.
With that, I'd like to turn it over to our Chairman and CEO, Mr. Henry Fernandez.
Thank you. Thank you, Andy. Can everyone hear me? In the back there? Thank you, Andy, again, and thank you very much for those very kind words about MSCI and about me personally. It means a great deal to me. I created MSCI some 23 years ago out of a call center that we had at Morgan Stanley, where I had been for over 10 years in a variety of banking, trading, and some investment type of jobs. I believe that MSCI, to me, is a little bit the American Dream. I'll tell you why. I came to America to go to school, college, and grad school, and eventually became a political refugee, escaping communism from the country that I grew up in, and my parents are from Nicaragua.
Then I said, "Well, what does it mean to be doing something in America?" Since I had gone to school in the Bay Area, the only thing that was worth anything from that perspective was to be an entrepreneur. I needed to figure out how to polish my English to begin with, right? Secondly, how to learn how to work. I went to Morgan Stanley at that time. The company that we have today at MSCI and the company that we continue to build is part of that expression of entrepreneurship, a desire to change the world, desire to make an impact in the world, and to live that American Dream. It's only possible in a place like America, which is incredible in the opportunities and the possibilities that it has.
Every time you get despair about what happens in our beloved country, I hope you think of MSCI, and I hope you think about the possibilities of somebody like me, as an immigrant, coming in here and trying to build a company. Now I'm immensely proud of continuing to lead MSCI because the promise that I made to myself from the start was I needed to develop the skill set and surround the company with the right people to always be at the forefront of the changes of the company and the managerial requirements of going from almost like a startup entity to a small private company to then a public company, and hopefully eventually a very large public company, particularly in shares, in the price per share, right? That's what matters to me and to all of you. We have a great franchise.
What I can tell you is that that franchise is getting stronger by the day. The kind of dialogue that we have with clients, that you're going to be hearing from Laurent, is incredible. That franchise is because of a number of factors that we are engaged in. One is we really are addressing the needs in the whole global investment process to build better portfolios, to have better insights into the risk and the return or performance of those portfolios. We are engaged and ingrained in the center of the investment process, which allows us to provide most high mission-critical tools that enable our clients. Because of that position, we have incredible opportunities that we see every day in that dialogue with clients to go into growth areas that will create value for them and for us.
I honestly believe that we're still on the ground floor of what is possible to achieve. A lot of people come to me, and they ask me, "Wow, you built a great company with your team, and isn't that incredible?" and all of that. I always tell them what I learned when I first came to Wall Street, which is you're always as good as your next trade, not your last trade. It's a great company, great this, but what are we going to do going forward? Therefore, we still have an incredible amount of opportunities and many, many more floors to climb to get to where we want to be.
My goal and the goal of my partner, Baer Pettit, and our other partners in the management team, is to give you evidence today of those beliefs and to convince you to be part of this incredible journey with us. That's what we're intending to do today. Let me briefly describe a bit more who we are and what we do. We have over 7,000 institutional clients, basically blue-chip clients, the who's who of the world, in some 90 countries. These clients are across the whole spectrum of different types of investment institutions and trading institutions. We also provide must-have, mission-critical products and services across the whole spectrum of asset classes, and for a variety of functions, particularly performance and risk and, obviously, portfolio construction. We are a true global company with about 3,200 very talented professionals in 20 countries.
That is made up of about 200 people in research. You are going to be hearing about that from Peter. About 1,500 or so people in technology and data science. Jigar is going to talk about that. Over 700 professionals in client coverage and marketing, and Laurent will be addressing that. About 150 or so people in product management functions, and you are going to hear from Diana and Jorge and Remy and Jay about our various individual product lines that are holistic in the way we approach the market. A lot of these people have unparalleled expertise and experience in the global investment process. Many of them come from the largest investment institutions in the world. What I can tell you today, particularly when I look back and compare 10 years ago to 20 years ago, is that we have become a real magnet of talent.
The hardest problem sometimes have is that among our most important clients, they call us up and say, "You know what? I am not sure I want to keep doing my job here. Can I go work at MSCI?" How you manage that process is touchy. That is a testament of the franchise of the company and the attraction that it provides to people. We have developed a very strong execution-driven culture. We have a lot of thinkers in the company.
When you have over 100 PhDs in the company, when you have over 40% of the employee base of the company having advanced degrees, you do not simply tell them, "Do this." They always say, "Why?" Therefore, managing a company like this with a lot of thinking, you have got to organize it in a way that, yeah, we can do a lot of thinking, we can do a lot of debating, but once we set the targets, we go execute flawlessly. That is a lot of what we do. I am extremely proud of the senior management team that we have put together. I recommend you go see in the back of the presentation, the bios of these people. They make me look like a true Latino immigrant, right? In the contrary, because it is incredible the amount of expertise and knowledge and experience that these people have.
You will see them in action today, and we have other partners that are running the global organization in various product lines and in various regional areas that are not here with us today, but we will present them to you at the appropriate time. What is it that we do? Let me tell you that you will not believe how many times shareholders and analysts and others come to me and they say, "Are you an index company? Are you a risk company? Are you analytics? Are you a data company? Are you a software company?" I tell them, all of the above. All of the above. Those are ingredients. Those are all means to an end. The mission of our company is to help global investors build better portfolios for a better world. That is what our mission is.
That's what we talk to our largest clients. That's where a lot of those big clients of ours that have known us the longest want to build strategic relationships with MSCI, because they see the power we can do for them in building those better portfolios, more efficient, more scalable, and the like. That's what we do, and therefore, in today's session, we're going to give you an attempt here to tell you how we look at that, and therefore, hopefully, redefine the company from your perspective, try to see the opportunities that we have in front of us, and how we can capitalize them and create shareholder value. What we do is being accelerated by very strong secular forces that are transforming the investment industries.
These are tectonic forces that we, all of us in the investment industry, don't notice every day. But when you sit back and you look at a five-year period, or 10-year period, or when you look into the future and you say, "What's going to happen in the next 10 years?" These are incredibly strong secular forces that are reshaping our industry, redefining it, and therefore reorganizing it. Those forces, among them, are continual globalization of investments. Everyone talks about how trade is getting a little more difficult, global trade, because of all the barriers and all of that. Nobody's talking about the slowdown of capital flows, thankfully. Nobody's putting barriers. There are no capital flow agreements between countries. Capital flows everywhere, and therefore you got incredible globalization that it is accelerating. You have diversity of choice.
If you're an asset allocator, you can buy real estate in China, you can buy farmland in Brazil, you can buy private companies in France, you can buy public equities in America. You can buy soft currency bonds in every emerging market in the world, hard currency bonds, sovereign, emerging market, incredible choices. That leads to a significant amount of complexity of the investment process. Also brings issues of scalability. How do you scale up a company? How do you scale up an investment process and make it still efficient? Because the cost of managing assets cannot go higher. If anything, it has to go lower given the returns that we're getting.
All of that leads to an incredible transformation in our clients' investment process, from public assets to private assets, from active management to passive, from absolute return to sustainable investing, from West to East, either in the form of where the money's coming from or where you're investing the money. We see the tilt towards East and China and all the countries in the region. From a strong home bias to clearly global portfolio, to manager selection in the case of a pension fund or asset owner, to internally managing those assets. Lastly, and very importantly, from providing products or widgets, as we call them at MSCI, to really providing outcome-oriented solutions that the owners of that capital are looking for. Quite a lot of transformation.
In that process of transformation, our job at MSCI is to help those global investors build modern portfolios that will endure all these transformations and that are mission-critical or must-have in their investment processes. You could think of our product lines into two broad and overlapping categories. On one hand is indices as building blocks for those better portfolios. On the other hand, performance and risk analytics also as building blocks to build better portfolios. Again, this is where the company comes to life together. It's not just about indices, just not about risk, it's just about performance. It's about all of those holistically are going to help a client build a better portfolio. In order to achieve that, we have built a large number of capabilities at MSCI, currently, largely in tools that help clients address the public asset classes of the world.
In that category, you're going to be hearing today about the major things that we're doing in doing more equity indices of all types. You're going to be hearing about factor models and analytics, about our ESG research and ratings and all of that. Very exciting area of our company. The performance and risk analytics, and how all of that gets bundled and enabled by state-of-the-art technologies that are available to our clients. In addition to that, we're also rapidly developing what we call the MSCI of the private asset classes. We started with real estate some years ago. We have been in the process of re-engineering and restructuring that product line, and therefore haven't been talking to all of you much about it.
The time has come in which we want to show you what we're doing and what our ambitions are in private asset classes. The two biggest ones are obviously private equities and private real estate, and we started with this and are looking to branch into private equities at some point. Again, in building the tools that are going to help those same global investors, who are our clients, to build better portfolios. In that process, in that mission, we clearly are fortunate to serve the whole ecosystem, from asset owners to the managers of assets, to the financial intermediaries, and we serve them in a variety of functions.
Our solutions become building blocks for them to define the investable assets, to allocate assets appropriately based on risk and return of those portfolios, to creating investment programs and products to scale up their businesses. To benchmark performance, to replicate performance passively, to understand and manage risk and the performance of those portfolios. Lastly, areas that are a little bit understated in what we talk to you about on a day-to-day basis is how do they report to their own constituencies? What are the tools that they need to report? Very critically, how do they not get in trouble with the regulators, right? How do they comply with regulation? Which in a complex world, it's becoming more challenging. Our unique position in the investment industry gives us a front-row seat of access to the biggest growth areas of the entire investment industry.
The reason is that because we're a research-driven company, our clients come to us very early and say, "We have this opportunity. What can you do to help me build tools for that? We have this problem. How could you solve it for us?" Very early in the process. Therefore, we have an incredible access to see those opportunities and then capitalize on them to build tools that are going to help those early clients do that, and then extend them to other clients as they go into that process. These opportunities, we're only scratching the surface. When you look at the left-hand side here, in terms of owners of capital, there are $100 trillion of professionally managed funds in the world, in which we're only helping those entities build better portfolios on a small part of that.
A lot of our current client base is in pension funds, it's mutual funds managing assets for individuals, obviously ETF managers as well, and the like. When you see we are not heavily yet in wealth management, in defined contribution. We only have toeholds in insurance companies. We only have toeholds also in endowments and foundations. But they have the same problems. How do I build a better portfolio? How do I use indices as building blocks? How do you use risk and performance for that? Some of them will be more fixed income biased, some of them will be more equity biased, some of them will be more private asset class biased, and the like. In terms of the managers of assets, we're only scratching the surface. We're largely present in the managers of equities, both active and passive.
We haven't yet penetrated extensively the larger universe of managers of active and private and passive fixed income portfolios. For sure, not the managers of private asset classes, which are increasingly becoming important in the world. This presents us with enormous opportunities to continue to do what we do best with the similar ingredients of what we've been doing so far. Now, it's good to say all of that, but to say, what is the proof of that? Well, we have a strong track record going back 25 years or so of doing precisely this. We started with the asset owners, particularly pension funds, and the active and passive managers. We went to the broker-dealers because they were executing basket trading, for example, for passive managers, or doing swaps and the like. We went to the hedge funds, both equity long-short and multi-asset class hedge funds.
For sure, we were among the very first entities that went into ETFs. Most people don't realize that we, working closely with Morgan Stanley, created the industry of international ETF in the world. We're benefiting immensely from that early move, early and a smart move. We're now working with exchanges around the world to create the industry for multi-currency futures and options in the world that will drive not only trading of those, but also over-the-counter products. We are stepping up our efforts on wealth managers because we see that a significant amount of the wealth of the world is going to wealth managers. Obviously, private asset class managers, particularly currently real estate managers. Now, if we look at another lens of that track record, we go back and we look at the capabilities that we built.
We started with equity indices in what we call global equity performance. With the acquisition of Barra, we went into equity performance attribution and equity risk. With the acquisition of RiskMetrics, we went into multi-asset class risk and performance. We also said, well, we can do this thing for hedge funds as well. Same process, same tools, same concepts with the hedge funds. Now we're going into fixed income portfolio management analytics, real estate performance and risk analytics, and eventually private equity performance and risk. What is the difference between a public equity and a private equity if you have the right tools? Yes, one trades in a stock exchange, the other one doesn't. That's a big complication. One has a lot of public information, the other one doesn't.
At the end of the day, if you overcome those issues, you need the tools for that. Obviously private credit, which is what is the difference between private credit and public credit? Not a lot of differences. We want to go in that direction. In order to achieve all of this, we built a three-pillar strategy in a highly focused and financially disciplined way. You're going to hear from Kathleen about that. For sure doesn't let us invest any money unless we have a high return on it. You should talk to her about that. The three pillars of that strategy are we got to continue to grow the core. Enormous opportunities in growing what we have been doing for a while. We're executing on in-flight opportunities that you hear us talking about. We're now planning to capture the next wave of opportunities.
In terms of growing the core, this is the area you're most familiar with. How do we continue to take our content in equity indices, in factors, in ESG, and in multi-asset class analytics and sell it more and more in a variety of different ways to existing customers and particularly go into new customers and new use cases? How do we take the MSCI platform that we're developing it currently for the analytics product line and expand it and make it deeper? You're going to be hearing a lot about that. How do we create more custom indices? We currently calculate 200,000 equity indices a day. Why not 2 million indices a day? Nothing wrong with that.
Lastly, we are changing the way that we service asset owners and managers, the existing client base, through solutions rather than simply products. You're going to be hearing from Laurent about what we're doing there. Next is we're executing in-flight opportunities. This is the things that you have started hearing us talking about. Fixed income analytics for the fixed income portfolio management. Major opportunity there for us. We already are in fixed income analytics in the context of the multi-asset class offering. How do we extend that, improve it, enhance it, and also do it for portfolio management? Fixed income indices. We already are doing that in terms of ESG and our partnership with Bloomberg Barclays. How do we extend that? How do we go into factor fixed income? We build factor models already in fixed income through our multi-asset class offering.
Going from fixed income factor models to building fixed income indices is not a long drive. How do we make the MSCI platform extend to all content of MSCI and unleash the power of that content in the hands of our clients? We started planning, but not yet executing on the next wave of opportunities that our clients are talking to us about and wanting us to go into. Clearly, once you have fixed income indices in ESG and factors, and once you have equity indices in ESG and factors, why don't you put them together and create a balanced index equity and fixed income with an ESG overlay or a factor overlay? We already have clients asking us for that, and we've done some work for them. Again, early view of what can happen leads us into that direction.
How do we extend ESG to private asset classes, to private equities, to real estate? Huge demand for that already. How do we go into new client segments that have similar problems like insurance and endowments and foundations and the like? Anyhow, these three pillars are fueling the growth of our company, and we look at them as waves of growth. We have a large wave of growth. We continue to capitalize on the core. We have an incremental wave of growth that we're already executing in those in-flight opportunities. We're planning the next wave of growth, which is the things that I just talked to you about. When I come to the office every day, first of all, my wife asks me if I'm coming to work, and I say, "I'm not coming to work.
I'm going to my hobby." Not only that, I get paid to do my hobby. I don't have to pay golf fees and tennis courts and all of that. I get paid. Isn't that beautiful? Therefore, when I come into the office every day, I feel like a child in a candy store. I am as excited about the prospects of the company as I was the first day that I came in. I hope that I can transmit that excitement to all of you, and I hope that my partners in the business show you strong evidence of all of that so we can go into this beautiful and incredible journey together and change the investment world. Thank you very much.
Thank you, Henry. Good morning, everyone. I'm Baer Pettit. I'm the President of MSCI. This is my 20th year at the firm. I spent roughly the first 12 years running our client coverage organization and marketing for about half of that. Subsequent to that, I ran the index product P&L for a number of years. Starting in 2015, I started running all the product P&Ls and became the Chief Operating Officer, and have now been the President of the firm since 2017. The way that Henry laid out the great opportunities we have in front of us, and I think the very strong track record we have of being able to create new markets and new opportunities. My emphasis day-to-day is how we make the most of those, how we take those opportunities and turn them to our competitive advantage.
Clearly there are many opportunities in the investment world. There are also many risks. The critical point from the firm perspective and from your perspective as a shareholder is, do we have not merely the right capabilities, do we have the right mindset, do we have the right people, the right management team to actually grasp those opportunities and execute on them? In doing that, my emphasis is on two key things, innovation and operational excellence. If we can continue to be a firm that innovates, and if we are a firm that has operational excellence and can execute across what we do, I think we're in a very good position to continue to deliver value, not only for our clients, but critically for you, our shareholders, and I should add, I am a shareholder myself.
This is our motivation, and this is really what, as Henry said, gets us excited every day in doing our jobs. My first point is that I do think, and that Henry alluded to this, that we do have a different mission and a different value proposition than many firms that we may compete against in the different segments that we're present. Clearly we have competitors in our various areas that we operate in indexes or risk analysis or what have you. I think it's striking that there isn't a head-for-head competitor for MSCI out there. That's because I think we have a different mission. We think about client investment needs differently, and that has been evolving our strategy significantly over the last, roughly decade plus. In looking at our, as I said, our focus on operational excellence, I build that on three pillars.
One is delivering actionable solutions to clients. Two is our research-driven content and the differentiation of that content and the quality of that content. Thirdly is our technology, because in the business and the industry we're in, ultimately nothing gets done without technology. Nothing gets delivered. When we put all of those together, I think we have the makings of a tremendous all-weather franchise at MSCI. As I said, I've been here 20 years. We've been in many different phases, different market environments from the very beginning after the crash of 1999, through the financial crisis, our IPO, et cetera. I think one attribute of MSCI is our ability to be resilient and flexible in the face of a range of different market environments. This slide really aims to encompass some of the points that were made earlier about the depth and breadth of what we do.
I think in particular, the sheer range of use cases that we're involved in is a reflection both of the skill sets that we have at the firm, also the opportunities in front of us. We have everything from banks in London who use our real estate benchmarks as a basis for calculating regulatory capital. We have asset managers in New York doing performance attribution on fixed income, broker-dealers in Frankfurt creating structured products, asset owners in Japan who are focused on sustainable investing. This enormous range of opportunities in front of us is multiplied as we build skill sets, as we build content that cross-fertilizes. If I had to talk to one slide, it would be this today. This emphasis on powering better investment decisions is what drives the whole team every day.
This concept of trying to be rigorous in thinking not merely around the opportunity today, but what will actually drive a better investment decision, which is not always so obvious point in time, creates enormous value over time. It may not always be the easiest thing point in time, but when you're looking ahead, whether it's in an investment category or around financial products, this emphasis on the better investment decision has really been a true engine of growth at MSCI. So this is built around these categories, which I label as actionable solutions, differentiated content, and flexible technology. Let me expand a little bit more on each one of those. By actionable solutions, we are really talking about the client aspect of what we do.
The client aspect of what we do is deploying the broad range of analytical skills, data, content, software to solve investment problems at our clients. Laurent will come on after me. Laurent's done an extraordinary job at reinventing our client organization to move not merely from our traditional product expert sale. By the way, we love the product expert sale. If it weren't for the product expert sale, we wouldn't be in the room today, and our share price wouldn't be where it is today.
There's nothing wrong with the product expert sale, but we're leveraging on top of that firm-level relationships where we bring together significant skills to truly create real infrastructural solutions for clients, whether they want to build new types of portfolios, whether they want to create efficiency in their infrastructure, or deal with the broad range of investment problems and opportunities that you know they face. A critical component in that, Henry alluded to that, is credibility. MSCI's strength commercially, which in turn creates business for us and ultimately shareholder value, is we have immense credibility because we have a track record of showing leadership in an enormous amount of investment categories. Some of those go back as far as the 1960s or 1970s. Some of those are more recent.
This credibility, and recent examples of it, including, for example, our leadership in E, S, and G, which was not at all an obvious category, let's say, five, seven years ago. This credibility in investments and this credibility in creating new categories of value, in turn, gives us access. It's that combination of credibility and access, which is the fuel behind this actionable solutions approach for clients. Clearly, differentiated investment content is the bedrock of MSCI. Without it, we wouldn't be here. I'd just like to make a few further observations around that. The research organization, as we call it, often gives people a misconception of what we're doing. Yes, our research organization writes white papers on various topics.
Our research organization, our research and product development organization, is really a group of investment experts who continuously reinvent models, methodologies, calculations, which serve as the underpinning for financial data products, et cetera. This element of thinking first about how we help our clients build better portfolios and having the rigor and skill set to execute on that is precisely what allows us to have leadership in factors in E, S, and G, in risk calculations, and all the other areas that we operate in. This is a really critical point. The other point I'd like to make, and this is, I think, something we've actually proven. Now, we like proving things by empirical evidence at MSCI. It's kind of how we get our jollies.
I think we have proven very clearly by empirical evidence that in the last number of years, we can take intellectual property that we build for a certain purpose, and we can redeploy it in other areas and monetize it. We have clear examples of that with our factor models and deploying them as factor indexes. We have clear examples of E, S, and G ratings and research, which we now have a large and growing E, S, and G index business, and we're redeploying all of that E, S, and G content into our portfolio analytics. We hired a team, actually, one of the top teams in the industry because of our focus on fixed income, to actually come and create a mortgage prepayment model at MSCI. It's industry-leading and is helping accelerate our growth rate in fixed income and multi-asset class.
What they're also doing is it's those same people who are helping us build fixed income indexes. This ability of us to take content, monetize it in a certain area, and then find other ways of redeploying it, is absolutely central to how we create value at MSCI. Of course, and you saw when Henry put up the numbers, about half the firm. Our technology and data area. There's good reason for that, because those are the people who deliver. Those are the people who actually make all financial concepts, algorithms, investment ideas. They make it real, and they make it deliverable for clients. For the purposes of simplicity, and Jigar will expand on this, just as Peter will expand on the research side, I will just divide the technology question into what I could call the internal and the external.
Clearly, MSCI has been, or if you want to call it the internal or the calculation part and the client experience. MSCI has always been a leader in the financial calculation business. We have deployed cutting-edge technology there for some time. We were what is now considered an antiquated topic. We're the first software as a service provider of risk. The entire environment we've built there is still industry-leading in terms of its capabilities. That area, which we continue to enhance with the latest data science, and there's a constant focus for us, it's clearly a strength, otherwise, as I said, we wouldn't be here today. Our new emphasis is on the client experience in technology, and we are in the process of building an integrated platform, which will significantly increase the quality of the client experience.
It will host all of our MSCI content, it will host third-party content, and it will be very much integrated into the client environment. We'll be talking to you more about that. As you could all imagine and believe, I am not merely committed to the MSCI growth story. I hope I've contributed to the MSCI growth story. In the manner that Henry described the layers of our expansion, I think in each category that we're operating, we still have tremendous growth opportunities. This is a selective group, but I've chosen them because I think they exemplify a few different aspects of what we're trying to do. The first one is E, S, and G. Clearly, this is almost a pure example of innovation. This is a category that was not obvious to many people, including myself, I got to be honest.
It was not obvious to me five or seven years ago that this would be the growth we have in this area, I have to thank Mr. Remy Briand, who will speak to you shortly for that. This is a great example of getting out ahead of the investment process, understanding the trends, and then being able to monetize them. Factors, I think is another story. Clearly, the index factor growth rate is higher than this 12%. This is a combined factor growth rate across index and all of the other applications. Factors is another great example of taking intellectual property one place and redeploying it another. We've got a few other examples here. Wealth management is more something that we think is an opportunity going forward. The growth rate here, this four-year CAGR, is actually low.
The most recent year growth rate is higher, and we'll show some numbers on that later. We believe there's enormous appetite in wealth management for the same type of tools that institutional investors have, and we think that's a great opportunity. Futures and options. Diana will talk about this. This is a great example of the globalization of the investment process and the role that we can play in it, and there's more upside there. Of course, Asia, ironically, we are extremely well-known, and we are integrated into the investment process in Asia, but it's still a relatively modest part of our revenue, and we think we're very confident we can turn that into a much bigger chunk going forward. That's an outline of what we're trying to achieve. I think we've got great opportunities with our clients.
I think we've continued to build differentiated content, and I think we have the technology to deploy that. Most importantly, I think we've got a fantastic management team who are motivated and ready to grasp this opportunity. On that note, I will turn it over to Monsieur Laurent Seyer who is my roommate in London. Thank you. Laurent. Thank you.
Thank you, Baer. Good morning, everybody. I'm Laurent Seyer. I'm French. I'm based in London. I am the COO and Chief Client Officer at MSCI. I'm going to talk to you about our go-to-market strategy and about our clients. As a matter of fact, before joining MSCI four years or so ago, I had been, for many years, a client of MSCI in various roles. My background is both on the sell side. I spent a lot of years with Soc Gen Investment Banking, then also on the buy side. Recently, I was with AXA Investment Managers, Global Head of Client Solutions, and I was also the CEO of Lyxor, the second-largest ETF issuer in Europe for six years.
Interestingly, when Henry started to talk to me about the opportunity of joining this great company, MSCI, originally I was intrigued, I had a few questions. I told him, "Look, I really like what you guys do. I've been a user for years, I struggle a bit to figure out or to see how they all come together, all the things you do, and especially from a client experience." Henry told me, "Well, my friend, welcome to MSCI, because that's exactly what we need, that's exactly our strategy. That's exactly what we want to do. We want to bring all of these things that we do for clients more together, because we believe that it's going to create more value for us and for the clients." Actually, the first days or weeks after I joined, I realized how great this opportunity was.
The reason is, why did we need to change this go-to-market strategy and make it more integrated and more holistic? There were two reasons for that. The first reason is that we were missing opportunities with clients. We did not really grab all of the opportunities we could, because as Baer explained, we had a model that worked very well and was extremely well adapted to what we have done in the past, which was basically an expert-to-expert model. We had state-of-the-art products, we had expert coverage people selling to the users. Great risk models sold to the risk director. ESG research sold to the head of ESG. Index sold to the ETF portfolio manager. That worked very well, extremely well. The problem is that with that, we created a huge client base. This is the largest, in my view, the greatest asset of MSCI.
It's our client base. It's extremely diversified. It's global, across all segments. That's why, by the way, we'll come back to that, we are an all-weather franchise, because we touch so many different segments of the client base and of the institutional world that we are extremely well-hedged, I would say. We had only a few entry points to the clients. Maybe the head of risk was using us for risk, he didn't know that he could do something with our ESG data, for example.
One of the feedbacks I got from the clients, the very first meetings I did, was always when I started to explain what we were doing at MSCI more holistically, the main feedback I got was, "Oh, I did not realize you guys were doing all of that." That was the first reason why we needed to reshuffle, revamp a little bit this go-to market strategy to make sure we grab all of these opportunities with our clients. The second reason was because our clients have changed. Maybe 10 years ago, five years ago, it was fine to sell a risk model to the head of risk because he was the user, he was making decisions for it, that was okay.
Unfortunately, a few trends took place in the industry, the clients, they got more global, more complex, at some point, they realized that they needed to centralize all of the decision-making process in terms of the procurement, in terms of the providers they use, the tools they use, the way they organize, their operational architecture. We realized at some point that if we were only talking to the users level, we were missing something. Sometimes there were clients who were very happy at the user level with our products, but there was a decision that was made to re-architect the operational infrastructure of the company, we missed it because we didn't talk to the COO, or we didn't talk to the CIO who were behind these changes.
That's basically what has been driving the changes, the transformation that we made to the go-to market strategy in the last four to five years. I'm going to tell you a bit more about that. There have been four pillars, basically, in this transformation of the go-to market strategy at MSCI. The first one, first of all, if you want to go out there, you need to tidy up your home place. We had to do some work around making sure that the coverage organization was as effective as possible. Second, we had to change, we did change, the nature of the engagement we have with the clients, from selling products to be more like a holistic strategic partner. Thirdly, we had to switch from a product-selling mentality to a service-providing mentality and operation.
Fourth pillar, we had to make sure we switch from a product-selling approach to a solution-selling approach. I'm going to say a bit more and give you more details about each of these four transformations. The first one was really to work on the effectiveness of the client coverage organization. Again, it worked extremely well in the past because it created this incredible franchise, Baer was responsible for it for many years, as he mentioned. Again, the environment had changed. If we wanted really to be strategic and holistic with the clients, we needed different types of people. The first thing we did was to change, actually, entirely, the client coverage leadership team. We hired people who came from the industry. The Head of Americas used to be the CEO of AXA Rosenberg in Orinda, California.
The Head of Europe was Global Head of Structuring Equity Derivatives at Merrill Lynch and Morgan Stanley. The Global Head of Transactions was the CIO of CalPERS and then the Alaska Permanent Fund. Most of the client coverage leadership team, we are not salespeople. We are investment professionals. That's our background. That's what we've been doing. When we interact with clients, we talk like peers, or at least we are able to understand what are their problems, where they come from, and hopefully to help them design the solutions they need to make better investment decisions and better portfolio constructions. The second thing we did was to integrate these coverage teams.
As we explained, we were very product-focused, and as a result, our organization was very siloed. We had to make sure that we brought the teams together, and we did that by enhancing and reinforcing the regional leadership, the country managers. We hired many good people there, and we tried to make sure that all of these teams were working together and trying to break the silos. That has been a significant cultural shift. The third thing we did was to change radically, with the help of our HR team, the incentive scheme for the salespeople and the client coverage people to make sure that we could foster a culture of performance and to make sure that salespeople were incentivized to grow the business, to beat their targets, their quotas, and I think it worked very well.
Lastly, with the help of our technology teams and our finance teams, we've been building a culture of managing by metrics. Extremely important because you saw Henry told you we have more than 7,000 clients. Actually, on my side, it's 4,000. It's the same number. It's just that I'm taking the clients at the parent company level, where the 7,000 clients number from Henry is each of the individual companies in a group. The large group have several entities. That's the parent company level. To manage such a huge client base with so many products that we have, you need to have a very strong infrastructure. We were a little bit all over the place. We integrated everything into our CRM tool, which is Salesforce. As the team often hears me saying, "If it's not in Salesforce, it doesn't exist.
You don't get paid on it. It's not recognized. I don't want to hear about it." It helped a lot because we created a war machine, to be honest. We have all of the insights about the clients, creating dashboards about the client usage. All of our sales reps now on their screen, they can look at what's my client's usage, when are the deals renewing, what's going on in terms of new opportunities, how much they spend with us, how much they've been spending in the past, how is correlated the usage they make and the money they pay us, all of these things. They did not exist, and it gives us actually now a huge comfort on the pipeline.
When Kathleen is talking to you about or answering your questions about the pipeline, behind it, we have all of this data that we've been investing a lot on, and that are extremely useful to us. That was the first thing that we had to do. Sorry, by the way, I went quickly, but obviously, you saw the numbers. The results of making this organization much more effective translated into significant growth. Total net new sales, 14% CAGR over the last five years. Our gross sales were $135 million in 2014. They were just shy of $200 million last year. I think we created a lot of value for the company. We did it, as you can see, with a strict control of expenses for the coverage organization, 3% CAGR growth for the coverage organization.
As a result, you can see sales productivity improving 15% a year over the last four years from $640,000 per sales rep to $1.1 million. I've been running sales teams for a while. That's a pretty nice improvement. The second thing we did was then to change the nature of the engagement with the clients. Now that we've put in place the right people, we've put in place the right infrastructure, we are able to have this dialogue and to elevate the dialogue that we have with people. We created this program that we call the Senior Account Manager program that is for the more complex and global accounts, and the Key Account Manager program that are for the less complex and more regional types of account. We have now 61 accounts that are SAM accounts and more than 100 that are KAM accounts.
It means there is an individual in the MSCI organization, which is a central point of contact for these clients and is coordinating the various sales team, making sure that the clients have access to everybody, making sure that we know the client well, and is also obviously engaging with the C-level and the top management of the company to get to know the client better. Of course, what we did also, in that respect, was to use a lot of Henry and Baer and myself and all of the rest of the EC team, the Executive Committee team.
I can tell you these guys have been on the road probably more than they have ever been, because that's really now the way we engage with clients is to try to tackle them at the highest level, be holistic with them, and make sure we can talk about how we can help them to better manage portfolios. It worked very well, the focus on the large accounts. Typically, these larger accounts, they have a higher retention rate and a higher growth rate than the average of the client base. The third pillar of this transformation of the go-to-market strategy has been really to focus on the service. Very often, people view us as a product provider. In fact, we want to be more and more a service provider. We are servicing clients. We are delivering services rather than products.
Clients are interested in the outcome of what they get out of us. We do it firstly because we are very close to our clients. We have an incredible amount of knowledge about the industry because of the processes, the forums that we have in place to get client feedback. We do it in a very institutionalized way for our index product clients through the consultation process. When we change the indices and all of that, we do it through many different users forums in the various regions for all of our products, and obviously through this C-level engagement and some annual survey that we did. Really here, the focus has been, again, to invest in client service teams, what we call the consulting teams, the consultants that are only here to make sure that the clients make the best use of the products that they buy from us.
That has served us well, as we can judge from the improvement, first of all, of our retention rate. You could see in the previous slide, 100 basis points of improvement of the retention rate over the last four years, and as well as through the survey and our Net Promoter Score, that has improved year -after -year, and especially by 4 percentage points last year. So servicing. Lastly, the fourth pillar of this go-to-market strategy is really, and this is maybe a little bit more forward-looking, is really to make sure that with this effective organization, with this holistic engagement at the C-level, and this focus on servicing the clients, we are extremely well-positioned to understand the opportunities, the trends in each of the client segments. You've heard Henry and Baer talk a lot about the client segments. You will hear my colleagues as well.
That's something we want to do more and more. We want to be more specific with each of the client segments because we know them very well now. We have people coming from each of these industry sectors, there are dynamics and trends in each of these sectors that are very different, but that are all generating great opportunities for MSCI. That's really our belief, that's why we believe that we are extremely comfortable and confident for the future. If you take asset owners, what are they doing? They have more need to basically manage their risks. They need more control. They want to be more hands-on on their portfolio. They use especially the big sovereign funds. They used to delegate to external asset managers, this is it. Now they've created these risk teams. They are more accountable.
They start to manage more at the total portfolio level. They need to be able to compare risk and performance by asset classes. Obviously, some of them are internalizing, and they start managing themselves. Obviously, when we go to them with this holistic approach, we're not selling them a widget. We're not selling them a product. We're talking to them, how can we help you to internalize? You want to manage your equity portfolio by yourself. You want to replicate some benchmark passively and do it by yourself rather than externalizing. Well, we can help you with our tools. That's a completely different dialogue. It's not like going to a sovereign wealth fund and talk about, why don't you pick up my benchmark because it's better than the other guy's benchmark. It's a completely different dialogue.
The asset managers, you know that well for many of you, obviously, this industry is going through huge changes, huge transformation. There is consolidation. There is fee pressure. We know all of that. We see all of that. We've been part of it for many of us. That creates tensions and challenges for all of us, including us. That also creates incredible opportunities precisely if we are able, once again, to elevate the dialogue at the more strategic level. When there is a merger between two asset managers, the first reaction is to say, "Oh, damn it, as far as we are concerned, we had basically two clients, now we have only one. We had two licensing fees, we have only one in each of the countries." Maybe you can look at it this way, if you don't go further, you lose.
You can say, well, actually, these guys, you can go to them and say, "Yes, of course, you're going to consolidate your licensing fee with us, your licensing contract with us. What are you going to do about all of your benchmark? Don't you want to consolidate also? Maybe we can displace some of the small competitors you have in different markets. Maybe we can help you to reinvent your operational architecture because you have now to integrate these new folks that you just bought." That creates a lot of opportunities for us, even if, obviously, the client is going through some big changes.
The wealth manager, we talked about it, I'm going to give you an example to conclude, the broker-dealers, the bank, clearly, these days, they have to focus on less capital-intensive activities, so less prop trading type of stuff, and more client-oriented developments. It means, obviously, that they need to construct new products. They need to come out to the market with innovative ideas. Here again, if we are strategic enough, we can help them do that. Before I conclude, I just want to give you very quickly three examples, real-life examples that we took from the recent deals that we've done, just to illustrate what I just said. This example is about a broker-dealer in America, came to us, the head of trading, he told us, "Well, we'd like to create a new product for our hedge fund clients.
We want to create a basket of factors, but we want to be able to bring our own tilt to the way the factors are built, and because there is a need with this client base." We work with them. We basically brought our research team, spoke to their research team, and we created a process with them so that we can create these baskets of factors that they delivered through their derivative products to their hedge fund client base, and it's been hugely successful. Again, it's not a product that is on the shelves. It's not an index that you buy. It's a guy who came to us with a problem because he trusted that we could have this discussion. We basically brought in a solution.
The second example here is a very large ETF provider who created a new range of ETFs. They basically came to us because it was a factor-based ETF, and they were concerned with how all this will be received by their external financial advisor, because factor ETFs are a bit more complex than the usual cap-weighted ETFs. They came to us and they asked us, "How can you help us to build some analytics that are going to help the investment advisors to understand the product better?" That's what we did. Here again, there was nothing on the shelves. They came to us because they trusted us, because we had this relationship with them, and we built this data visualization tool that they have. We built the analytics that go into it and help their financial advisors to understand the product.
The last one is, I think that's interesting because we talked a lot about wealth management, a significant robo-advisor, one of the largest actually in the country, who again came to us. These guys, they are in the tech business, so they need speed. They had an idea. They wanted to create a product for the millennials client base, and they needed the product in the next two months. In fact, we were able to come to them and say, "Oh, okay, millennials, let's work on what they like." ESG, we came out with the ESG theme, and we created the three products, and they were in the market in three months. Once again, the product was not on the shelves. They came to us because they knew that they could have this strategic engagement with us.
Hopefully that gives you an idea of what we've been doing in terms of making the go-to-market strategy more effective, more holistic. It makes me and all the team obviously extremely, again, excited about the future because we believe that with this transformation, we are now extremely well-placed to take advantage of all of the industry trends that you will hear more about in the next few discussions. Obviously, as we all know, a great client coverage organization would be useless and meaningless without great content. How do we build great content? That's what my colleague, Peter Zangari, our Global Head of Research and Product Development, is now going to talk to you. Thank you very much.
Thank you. Good morning. As Laurent said, what I'll do is I'll spend a few minutes speaking about our research and product development program. Before I do that, let me introduce myself, Peter Zangari. I've been with the firm for eight years. I run research and product development for two years, and prior to that, I ran our analytics product line. I've been in the industry for about 25 years. Prior to joining the firm, I spent 13 years at Goldman Sachs Asset Management as a PM, and eventually the Head of Risk for their quantitative investment strategies group.
Part of that, I started my career at JP Morgan, where I established a connection with MSCI, because at that time, I joined a team of four to create a market standard for measuring market risk, known as Value at Risk, which later became known as the RiskMetrics brand, and then eventually under the ownership and leadership of MSCI. When I was thinking about what I want to share with you today, I wanted to share with you, which I will in a second, about what excites me to be at this firm in terms of the potential that I see. I want to tell you that in the context of a simple example, and the example starts with an index. If you think about an index, you can go back decades.
It started out as a market statistics, how are the markets doing, evolved into a reference portfolio, how is my active portfolio measuring relative to a benchmark? Over time, became very influential in the passive investing space. Clients want to get exposure to different types of risk, so they use indexes to capture that exposure. Over time, what we see is that those indexes are building blocks for an active portfolio. How do I assemble different indexes to take active bets? More recently, relatively speaking, we see that those indexes became active portfolios. Think of MSCI Minimum Volatility Portfolio. It's effectively an active portfolio with an index. I emphasize that because you see the evolution of an index, and you see how we serve clients with indexes, where you see that there are ESG considerations into an index.
What we talk about today and what the product team will talk about in their respective areas is that we speak about them at times, and it's interpreted at times as kind of separate and distinct. I wanted to emphasize, because my team is responsible for creating the content, that all of these elements are highly interrelated and interlinked. It's not because we think that's the right thing to do, it's because clients, when they want to take bets, or I should say manage risk or take risk, they want us to incorporate that information. Let me begin with a couple of points here about what role we play within the firm. We touched on Henry in particular and Baer in terms of the foundation of our strategic competitive advantage is our research-driven content. What does that mean?
An example there is that my team works very closely with clients, whether you're an asset owner, an asset manager, a wealth manager, hedge fund. We work with them to understand what type of investment problem would they would like us to address. As part of that discussion, we clearly learn more about their challenges, what opportunities they want to see, and we learn more about what different content do we want to produce. By that, I mean whether it's an index, a risk model, ESG ratings, what have you. Looking forward over the slide, we play a critical role in developing standards, right? We do that because we have the credibility and the content to support that. As Laurent was referring to solutions, we are at the center of helping clients solve particular problems, and that's what we call solutions.
That's one of the things when I took this role, really struck me in terms of how closely the research and product development organization works with the likes of senior PMs, CIOs, and CROs closely to them understand how they best use our risk models, use our indexes, use other types of content in their investment process. That's a point that I think is, I know, is not really understood in terms of the close relationship we have with those types of clients. Fourth I have here is around thought leadership. It all starts with what is research thinking about based off of not their own internal thinking, but their interactions with clients, right? The information we receive, the knowledge we receive from clients, and how does that work its way into the products and services and solutions that we deliver to the market.
That's what we call thought leadership, and it's something that it is critical for us because we're not just reactive, as important as that is, we have to be separate and think independently about what are our clients' needs. I could tell you firsthand that our very best clients want us to think, try to think one step ahead of them. The many conversations I have, if I'm speaking to a large, sophisticated hedge fund, I could spend 90 minutes with them going back and forth in terms of how they should be looking at factors, what are we doing differently about factors, so on and so forth. The last point I'll make here is around what we call technology and data science.
I could tell you a year and a half ago, when I heard more and more about data science, I started to think about what is this all about, approach it from a skeptical point of view. What I've learned over time, and we've learned over time, is the potential impact it could have on not only our organization, but on the client's organization. I'll go through that in a few minutes. Let me make a couple of points here. We referenced the team before, but I want to just call out very importantly, because this is critical, we are a team of experts. The research and product organization has a highly skilled level of employees. They are PhDs, scientists, what have you.
They're also, many of them, investment professionals such as myself, I put a particular emphasis on you not only have to be technically strong and rigorous, you have to understand the investment process. Too many times, one side is given more weight than the other, we have to be best in both, and that's what we strive for. For example, if you look at global equity investing, we have Dimitris Melas and Sebastien Lieblich, who oversee the equity research agenda. Sebastien, for example, has spent many years, and he manages our index management franchise. Multi-asset class investing, Peter Shepard, who works in our Berkeley office, has been a leader surely within the firm in terms of how we think about private assets, and he led the development of our multi-asset class risk model framework, which we recently launched. Then Linda-Eling Lee in ESG investing.
Some of you, many of you may know her. She is a clear leader in the ESG space. Last I'll mention, and Baer made a reference to it, is David Zhang who we hired a few years back from Credit Suisse, who's one of the authorities on mortgage-backed securities and analytics. As you can see here, we call out the different areas where we play a role, whether it's in global equity investing, multi-asset class investing, ESG investing, and so on. I won't go through it in detail, but in summary, we play a role from what we call client consultations, how we interact with clients, how we engage clients, to developing the indexes, developing the models from the time we start to formulate the algorithms, the equations, to the design through data analysis, and so on.
When it comes to ESG, the ESG research team is responsible for the ratings and oversees the ratings analysis. We talk about standards, and as you can see here, we call out a few. It's very expansive, and I think it demonstrates the influence that we have in the market. I'll call out one standard in particular, FaCS, our Factor Classification Standard, which we recently created. This is a really interesting one to me because I've been in the factor space for many years. My time at Goldman Sachs was effectively all around factors, building factor models, managing factor portfolios, what have you. What I see and hear over time is that so many different definitions around factors. One's definition of momentum is versus another one's definition of quality, so on and so forth.
It is very difficult for our clients to, when they have conversations with their clients, to say, "Okay, you're talking about momentum, you're talking about value, you're talking about quality. What exactly are you talking about?" To answer that question, we developed a standard so that regardless of whether it's right or wrong, it's a baseline that one uses to talk about, well, we're using MSCI's definition of momentum, for example. It's transparent. You can go read about it. When you look at how my definition compares to MSCI's, it's clear to see. The last couple of points here I want to call out, I mentioned data science earlier, and I can tell you that, again, starting out as a skeptic, I'm really excited, and I don't show excitement, but believe me, I'm excited.
It's one of my character flaws because I'm told, "You don't look excited." Listen, this is excitement. I'm jumping up and down inside. It's important because, again, I'll give you two quick examples. We fit models, highly complicated models that take in a lot of data and can take days and months to solve, using standard traditional methods. This is preliminary, but we are using these types of methods where you can go from what takes days to seconds, or even better. This all has to be fleshed out, but I've seen enough of these type of examples that is encouraging and makes me want to put more emphasis and focus on this particular area. The other example I'll give is in terms of helping us understand and the clients understand correlations or relationships amongst companies.
Traditionally, that's done by looking at historical returns. What we can do now is we not only look at the return data, but we can look at text information. We look at non-financial information, unstructured information to form what we call similarity scores amongst companies. I believe, simply put, that this type of work does have the potential to have significant impact on the industry and how we work with clients. Summarizing, I'll call out the last point around leveraging technology, which I'll turn it over to Jigar in a second.
This is an area that we will continue to focus on within research and product development because it will not only help us become more productive internally, where we could do more with less or more with the same, but also help us better provide more differentiated content and a greater volume of content to our clients. With that, I'll turn it over to Jigar Thakkar, who is a recent joiner, relatively recent joiner. He's our CTO and the Head of Engineering. Oh, Head of Technology Services. Okay, we just changed that. I can just tell you that in working with Jigar, it's been a real pleasure because he's very willing to learn. I'll talk about it.
He doesn't come from the industry, I find that particularly great because oftentimes folks may come into not just this company and other companies I've been associated with and don't take the time and aren't humble enough to say, "Listen, spend time with me, I've got to figure this out." With that, thank you very much.
Thank you, Peter. Good morning, everybody. As Peter mentioned, I'm the newest person in our executive committee. Somebody who runs technology division has to have a lot of growth mindset, like you mentioned, right? I used to wear a lot of hoodies at work, in the last few months, I've learned to wear a tie in under 30 seconds. I spent the last 20 years on the West Coast. Anybody from the West Coast here? Yes, I'm going to look at you guys more frequently. I spent 20 years at Microsoft before I came to MSCI around six months ago. I've spent all my time in the two decades in the various parts of technologies, riding the trends, going through the rise and fall of many technologies. I led teams in CRM, Windows Phone, Bing search engine, MSN, Skype, Office 365, and so on.
I've seen a breadth of technologies. I've seen a lot of trends. I mean, the big trends are common now. If you think about the last 20 years, the rise of the internet, the mobile revolution, the move to cloud computing, AI, and many forms of AI. It was a great approach to learn all those industry trends by shipping a lot of software. When this opportunity showed up to work in a different industry, then look at how the trends in investment and finance industries are going, and how can we influence those trends. To think about a company like MSCI, which is at the forefront of these trends. I felt that I had the fortune not just to ride through these trends, but actually help us lead the way in the technological revolution that is happening in the investment and finance space.
When we think about a technology and data science organization, you heard quite a bit from Henry about our vision. You heard from Baer about our three pillars of client coverage and research and product development and technology. After me, you'll hear a lot from our CFO about how we've done our finances, and we'll talk about the four key product leaders. Underneath all of that, you need an engine that can drive this innovation for the clients and drive growth for the business. In an industry like ours, the pace of innovation, the speed of execution is a strategic advantage and a key differentiator from our competitors. I feel great to say that we have some of the world's most leading technologies.
What is different about the technologies at MSCI compared to the folks I've seen who worked at Google and Microsoft and Facebook and Amazon, so on and so forth? I've recruited thousands of engineers over the years. The key difference I see is they're at the intersection of three key elements, technology and software architecture, quantitative investments, and data sciences. The engineers we have in the organization have excellence in all of these three areas. We've created a world-class culture, which spurs innovation and curiosity, because that's really key for decades to come, because technologies will change, investment needs will change, and trends will change. You need a workforce that can adapt to that. I'll talk to you about the technology platform we are building. It gives me goosebumps when I think about that platform.
It is the most cutting-edge technology and the most amazing set of solutions we are building to power the investment needs for the future. In the last two years around operational excellence, you cannot underestimate the value of having great operations, whether it be around automation, using AI for internal as well as external products, or around digital transformation of how we work as a company. Those are the areas that we contribute from a technology and data sciences space. First, let's look at the scale of our operations. It is mind-boggling, seriously. As we have heard many times, around half the folks at MSCI, around 1,500 folks, are in technology data sciences organization. That's in 10 different locations, key locations. Because we want to be where the talent is, and we want to be where our clients are. This is why we are in these locations.
Look at some of the scale of our data collection and our compute. To oversimplify, what we do is we collect massive amounts of unstructured, structured alternative data. We do incredible computations on all of them and create great insights for our clients and investments. Let's look at some examples. In terms of data collection, over 20 million securities are maintained daily. Security warrants and index warrants and bonds and fixed income mortgage-backed securities and so on and so forth. That has to be collected at the highest level of quality. Then we compute over 200,000 indexes on a daily basis. 1 billion positions are processed in analytics in a single day. 600 billion instruments are priced, whether it's Value at Risk or Monte Carlo simulations, back testing, all kinds of calculations are happening. Up to 1 trillion of these processes on peak days.
They happen on a daily basis. When all of these things are done, it comes up with the results of, in terms of our products and services and content. It helps you with portfolio construction, performance attribution, risk analysis, and so on and so forth. We have multiple ways to deliver this content. The way we deliver this content is through APIs, so it can help the developers and engineers at our clients' organizations. Content, the rich content that Peter talked about, as well as through great applications and great end-user experience, which is flexible and customizable. Let me talk to you about our technology platform that we're building. It's been almost four years we're building it, and the pace of development is now accelerating, and the pace of usage is also accelerating. First, let's talk about what are the key challenges.
Whether you talk to asset owners, asset managers, hedge fund managers, sovereign funds, anyone who's in our client base, they all have four sets of common issues. The first is the disparate systems. Over the last 20 years, they've cobbled together a lot of pieces of technology, and it's very complicated to put it all together. They do a lot of manual work. A ton of manual effort is invested to move a piece of data from one place to another, create Excel files, PowerPoint documents or PDFs, and go from one system to another and so on and so forth. The amount of data is increasing at an astronomical pace, and not all of our clients are equipped with the data science organizations like we have at MSCI. The need for customization.
With the complex world needs that Henry and Baer talked about throughout the globe, the need of customization to find that edge in the industry, the edge in the market, is increasing day by day. What have we done? We have built this amazing platform, I'll go into the details. There's a few screenshots here. Someday, we'll hopefully be able to show you a demo about it, too. Think about the Netflix for an investment industry. Netflix provides you with great content from many different partners, and they build their own original content, too. They have a distribution mechanism on various kinds of TVs and different Roku sticks and Amazon sticks and so on and so forth. Similarly, we built this technology platform which is extremely open. It combines the best-in-class content that we have from our research organization and our product lines.
From all the four areas of analytics, ESG, indexes, and real estate, and expanding in many different asset classes. For all of those products, we're building a common platform which can deliver all of this content. It's not just our content. It's open enough that our clients can take in their own content to deliver to their clients. It's not just about the content either. They can use their tools and their technologies and even their code to be executed at runtime through our platform to make it extremely customizable. Imagine a technology platform that investors can use for all kinds of things. It's a very open architecture. On top of that, the application that we have built provides the world's most best-in-class visualization reporting capabilities.
This is the core of our technology and how we are going to power innovation for our clients and growth for our business. Let's talk about a few cutting-edge technologies that we use to drive operational excellence. It is both for internal efficiencies as well as to drive faster product innovation for our clients. Maybe natural language processing, machine learning, automation, data mining. There are examples daily in all of these areas, in all our products, in all our services that we built. Our ESG business is one of the fastest-growing businesses, uses NLP to go through billions of documents of news on a daily basis to identify the severity of an issue that can impact the sustainability or diversity or environment friendliness of our company, as an example. The 200,000 indexes we built are ingesting 20 million equity contracts and so on and so forth on a daily basis.
How do you quality check on that? It's not a trivial software problem. It's not a little bit of automation of software and a few manual testers. It requires very sophisticated high-end machine learning and AI to detect problems. MSCI is known for the most world-class quality, and that comes through these kinds of finest examples of implementation of cutting-edge technology for internal operations. We do a lot of automation for our products as well as for our internal processes. Peter mentioned the data science platform we built. One thing I learned in the search business when Bing was competing heavily with Google, it is not just the ideas that matter. It is experimentation and the speed of experimentation that matters a lot. This is why we have built this data science platform, so Peter's organization, and even our clients, can experiment at a fast pace.
If you could experiment 1,000x faster than you do today, imagine the better theories you could back test and imagine the different scenarios you can come through. At the end of the day, your people, your culture, and your technology are the core things when you think about a technology organization that powers your innovation and growth. We have to put our clients at the center of all of this. Start from the clients, start with Laurent's organization, start with the customers to see what their needs are. Once you understand those needs, it's important to stay extremely agile and move at a fast pace. We have been working on an agile delivery mechanism for many, many years.
You need a learning culture, which is what we have created here at MSCI, because you need to learn continuously and have a growth mindset to imagine new scenarios and imagine new solutions. We need to streamline our processes, and beyond our core, we have to invest a lot of energy in partnership and collaboration with the world around us. What are the key takeaways here? I think it's a very exciting time to be at MSCI. The only thing that is more impressive than what we have created is what we are about to create in the next several years. We have the right ingredients, the right people, the right vision, the right set of strategies, and the cutting-edge technology needed to accelerate the pace of innovation and serve our client needs, and that will turn into growth opportunities for our investors.
In technology, we're continuously investing in transforming our culture and our technologies to keep on powering this journey through. I'd like to now invite somebody who's one of the smartest persons I've worked with, who is a leader of our index business. Not just a leader of our index business, but she's also a thought leader in the industry for indexes. Please join me in inviting Diana Tidd.
Thank you. Hi there. It's great to be here today because I'm excited to talk to you about the tremendous industry trends that provide growth opportunities for our firm. First, I'm going to talk a little bit about myself. I have a master's degree in Latin American studies because I love global markets. In my 20s, I worked at Brown Brothers Harriman, spent a lot of time with stock exchanges, central depositories, and regulators, talking to them about their capital markets infrastructure. In 1999, I joined MSCI, and over the 20 years, I've held positions in client coverage and product management. It's really been quite a journey over the last 20 years, because when I started at MSCI, indexes were really a side note in the investment processes across the industry.
You fast-forward to today, as Henry said, our differentiated content and our tools are powering or empowering our clients to build better portfolios. At the center of that are our indexes. Our clients are using our indexes to power their portfolios for portfolio construction, performance measurement, and risk. The more clients seek to balance risk and performance, the more they use indexes. They're really integrated and vital to our clients' portfolio management processes. Today, my colleague Jorge and I are both going to talk about portfolio solutions. I'm going to talk to you about them from the context of indexes as building blocks for client portfolio construction, and he's going to talk about portfolio solutions from the context of our analytical content and tools that empower our clients to build better portfolios.
The key industry trends are actually strong winds at our back as our clients are looking to invest more of their assets internationally, a trend towards global investing, lowering their home country bias and increasing their allocations to international equities. They're using indexed and passive management more, and they're integrating factors in ESG into their investment processes. If you take these trends and you combine them with our strengths that many of our colleagues highlighted today, proven execution, top quality, a track record of delivering innovation, global standards, and a great brand, it positions us very well to drive growth because we provide solutions for global investing, we license the creation of derivatives products like listed futures contracts. For example, an MSCI Emerging Markets Index futures contract, as one of the many tools clients can use to get that increased global equity exposure.
We're driving adoption of factors in ESG into our clients' investment processes. We see client types like wealth managers doing more asset allocation and building more model portfolios using our content and tools. As of the end of last year, the index product line had over $800 million in run rate, about 60% in that great recurring subscription run rate and about 40% in asset-based fees. It's diversified globally and across many client types. I love talking about this because I think it's one of the true beauties of MSCI. What we're able to do at MSCI is harness all of that industry-leading content.
What Jigar spoke about, what Peter spoke about, our ESG ratings, our factor models, our technology, our optimizer, and our top-quality data, we harness all of that, and we're able to bring it into our indexes, and we bring it into our best-in-class index calculation engine, and then our clients are able to use it in, A, their portfolio construction, B, their performance measurement, and C, in their risk management processes. Clients can either access all of those tools and content directly, and they also access it by using the indexes that integrate it. Our clients are not just index managers, as I think some people tend to think. They're active managers, index or passive managers, quantitative managers. They're investing in equities, fixed income, derivatives, across ESG, factor investing, market cap investing, thematic investing, and more. It's a very diversified base of clients.
A was portfolio construction. How do clients use us in their portfolio construction processes? They start with our index universe. It's actually a starting point for the building of a portfolio. To take, for example, the ACWI IMI Index. That's a global equity index that represents the global equity investable market, all those liquid and accessible securities for our clients. It's perfect in that it has no gaps and no overlaps, and it can be sliced and diced into different pieces. For example, our famous indexes, like our EAFE Index and our MSCI Emerging Markets Index and our MSCI USA Index, are all within the ACWI Index. Let's say you're a portfolio manager, like many of you are, and you want to build a portfolio that's developed markets, but you want to exclude tobacco stocks.
You would pick, let's say, MSCI World ex Tobacco as an index for your performance measurement, but also the stocks in that index can serve as a starting universe. If you're an active manager, you may pick stocks from that universe. If you're an index manager, you may seek to replicate that index exactly, that's where we charge the asset-based fees. You may run a quantitative portfolio. Clients also use our indexes as part of their asset allocation process. They look at the index and seek to understand the country, sector weights, also the factor exposures, and more and more the ESG exposures, and they choose whether to over or underweight versus the index.
If you take a wealth management firm and they want to build a model portfolio for their financial advisors, they want it to be differentiated, they would take an index like ACWI. They may choose to over and underweight certain countries or regions. They give it to their financial advisor as a model portfolio, the financial advisor then can populate that model portfolio using MSCI-licensed exchange-traded funds, MSCI-licensed futures contracts, passive mutual funds, or many other vehicles in the market. B, in terms of how our clients are using our content and tools in their investment processes, is performance measurement. Indexes are used as the benchmark for funds, also our indexes are often used as a policy benchmark across the total equity assets of a pension fund, for example.
Our clients use our tools to calculate the tracking error versus the index, they understand their performance and tracking error relative to the index. How closely are they hugging the index? Again, the over and underweight versus the index. If you take a big pension fund, let's say a big pension fund in the U.S., they would use ACWI IMI as their policy benchmark, they would come to us when they wanted to make an allocation to factors. We would take one of our standard factor indexes. They'd likely have some ESG considerations that they would want embedded. Let's say they're concerned about climate change, they would want a carbon adjustment to the index. We would adjust the standard factor index, include the ESG considerations, create a customized benchmark for them.
The asset owner takes that benchmark and issues out a mandate to an asset manager to run money against that benchmark. The asset manager needs to subscribe to the custom index as well as the data underneath, the index subscription. That asset manager, let's say they're running a quantitative fund, likely uses our optimizer and our factor models to run the fund, our analytic tools to report back the performance, tracking error, and exposures versus that index to the pension fund. Finally, I'm going to give a few quick examples on how clients are using us in the risk management processes. They use our MSCI-licensed futures contracts to hedge their portfolios. Those are multi-currency, multi-market index futures. They're also seeking to understand the bets or the overweights and underweights versus the benchmark.
More and more, they're taking into consideration factor and ESG concerns when they're looking at their long-term risk profile. Now that you know what we do, I want to talk to you a little bit about some of the key trends in the industry and how they're driving growth for us. Global investing. What is that, really? That's when clients are lowering their overweight to domestic equities, for example, and increasing the weight towards international equities. I'm going to give you a couple examples. When I started at MSCI back 20 years ago, Canadian pension funds were not allowed to invest in international equities. A few years later, the regulations opened up, and they were allowed to invest 10% of their portfolios in international stocks listed outside of Canada, then 20%, and then Canada opened wide for investment internationally.
When you speak to Canadian investors, many people often reflect how sophisticated the Canadian pension funds are. One of the reasons is because back 20 years ago or before then, when they were trying to get their international equity exposures, they actually used derivatives contracts to get those exposures before they were allowed to get them directly. They tend to be a bit more sophisticated. In Mexico, it's another example of a market where Mexican pension funds are allowed to invest up to 20% of their assets in international equities. As countries around the world open up their regulations to allow more international equity investing, that provides tremendous growth opportunity for us.
To bring one more example right here to the U.S., if you look at wealth managers today and their high-net-worth clients, you'll note that their portfolios tend to be very heavily weighted towards domestic exposures. As those clients seek to diversify their portfolios, they invest more in international equity. That is a tremendous opportunity for us. ETFs are another example of a great opportunity for us. They're one of many ways clients can get indexed or passive exposure to the indexes. Actually, in fact, the non-ETF passive assets in the world are far greater than the ETF assets. ETF assets have been growing fast, and they're forecast to hit $7.6 trillion by the end of 2020. As an index provider, MSCI share of the equity ETF assets are about 20%.
My colleagues and I have spoken a lot about factors in ESG, and we take those ESG ratings and our data and our factor models and use them to create these indexes. For the index product line, the growth rate over the last four years has been about 46%, 46% CAGR. As Henry said, we're just on the ground floor here. The opportunity for growth in this category is tremendous. MSCI futures and options contracts are another growth opportunity. The real innovation here, and why this is so important, is because before these contracts, clients were using predominantly single currency, single market index futures contracts. If you think about that, a big domestic index provider, the contracts would be highly liquid and highly used. The innovation was MSCI working together with the exchanges to create these multi-currency, multi-market futures contracts.
Now today, clients can invest in a single trade. They can, in a single trade, get exposure to an MSCI index like MSCI Emerging Markets or MSCI World or EAFE in a single trade, where before, they had to cobble together a basket of a bunch of different domestic market futures contracts that didn't actually track the MSCI indexes. The growth opportunity here is tremendous for us as our clients increasingly use this efficient approach to getting the MSCI exposures. The CAGR in terms of the volumes on the futures contract is nearly 30% over the past few years, and the open interest is growing even faster. In fact, today, not many people know this, but the MSCI Emerging Markets futures contract is the fourth largest index futures contract in the world by open interest. We're really excited about this category.
I talked to you earlier about some of our high-growth client types, like wealth managers. Here I'll just highlight that within the index product line alone, wealth managers are growing at over 20% CAGR. We have several other high-growth categories. We're excited by these tremendous growth opportunities, and we combine them with the strengths of our firm. Proven execution, a track record of innovation. Think about that innovation in the last year alone, the launch of the Factor Classification Standards. In November, we launched thematic indexes for the first time. We launched ex-tobacco involvement indexes and tons more over the last year. We combine our strengths as a firm, and we have tremendous growth opportunities, and then we look to invest in them, the highest growth opportunities. For example, we're investing in our people. Laurent talked about our highly talented client coverage organization.
We want more of them. We want them to cover those high-growth client types. We're focused on investing in new product development. Peter talked about our incredible research organization. We want to drive even more innovation, the newer waves of innovation that Henry talked about. For example, fixed income factor indexes, fixed income or multi-asset class factor indexes. More new product development, speed to market. We want to invest in technology, AI. For us, AI is not just used to create exciting new indexes like our thematic indexes, but we use artificial intelligence also as another layer of quality assurance on our already existing very strong quality assurance processes on our indexes. We're really excited about our growth opportunities. I'm happy to commit to our long-term targets. For revenue, a low double-digit target, and for adjusted EBITDA expense growth, high single digits.
With that, I want to thank you, and I'm going to call out my colleagues now for Q&A.
Thank you, Diana. We're going to do a quick 15-minute Q&A session here before the break. Just to let you know, we will do a longer Q&A session at the end of the day, please keep your questions at this time focused on the presenters and the topics that we've covered thus far. We'll have the opportunity to cover the future topics at the following Q&A. A couple of points to keep in mind. Please speak into the microphone when you ask your question. Please introduce yourself. Please limit yourself to one question at this point in time. I will invite all the presenters who have presented thus far up to the stage.
I think we can probably stand.
Alex. Again, please wait for the microphone.
Oh.
Check. I'll stay here.
You sure?
Yeah.
Do you have the seats?
Yeah.
Yes.
Thanks. Yes, Alex Kramm, UBS. I think this is for Laurent. You talked a lot about becoming more of a partner with your clients, with those big organizations, and that obviously has been successful. Can you talk a little bit more about how you make sure that in those partnerships, that you're also extracting the right rents for your services? I've seen it time and time again where you're becoming a partner and you end up doing more and more and more, but you're not really getting more and more for it. I ask in particular because I think a few years ago in the analytics business, it seems like you're updating a product all the time, but it was more about retention versus actually getting more for the more things that you were doing. Just touch on that a little bit more.
Yeah, actually, I guess it's a pricing question to some degree.
Yeah, no, that's interesting because usually people ask me more about, is this pricing increase sustainable? Look, I think that's a fair question, obviously. I think the answer is very much in the way we describe how we tend to be more holistic with the clients. Trying to make sure that we look at also the way they spend with us in a holistic way, and that we make sure that it always creates value for them. I think we have also on our side, obviously, focused a lot on developing
Metrics, as I said, to track client profitability. Compare it to the usage, compare it to what we do with their peers and all of that. That helps us a lot to have a better visibility and understanding of how we monetize our IP and our services. We also try to be very innovative on that front of pricing. With Diana, we've developed some new pricing structures for specific use cases. A broker-dealer that wants to build their own quant strategy using our data, for example, they don't want to buy the index necessarily, and you need to. I think that's the way we approach this. I don't know if that answers your question, but this approach of being holistic gives us more opportunity, and through the innovation, that also includes the way we actually license and price our product.
I mentioned one of the example, which is that we have an on-site, a few actually now, on-site consultants that are working several days a week at the client's premises. That's also a different pricing because that's something which is very new and that we didn't do before. Trust me, Kathleen is making sure that we monetize the IP and the new services that we develop. Again, with this new culture that we have of being more metric-centric, I think we have actually a good base to manage that.
Toni? Ladies first.
Toni Kaplan from Morgan Stanley. I wanted to ask about the new client types that you're going after. The wealth, the insurance, the endowments. I guess, what has been your success in the past in terms of going after these clients, and what have been the hurdles that you've faced in sort of addressing these areas? Is it that now you have the ability to offer more customized or appropriate products? Is it the way the sales force has been structured? Just wanted to understand sort of where you are in the opportunity and how the plan of attack is. Thank you.
We have always covered a lot of these clients, but clearly, given the highly heavy equity focus capability that historically we have had, it has created limits as to what we could do with those clients because we have done really well with the equity managers and the equity long-short hedge funds and the like. We haven't done as well with the fixed income managers because we didn't have a lot of the fixed income capabilities, fixed income indices, fixed income portfolio analytics. With respect to the total portfolio investing group, like wealth managers or asset owners, which they look at the total portfolio, we didn't have all the pieces.
They would come to us all the time and say, "When are you going to build me all these pieces?" That is why we're pushing hard in putting more capabilities in place to serve those clients and ultimately then have a better offering. Clearly, fixed income managers, they want a lot better fixed income offering. Clearly, endowments and foundations, which are prime sub-target for a lot of us, they're heavily focused on private asset classes in addition to the public ones. That's the reason why we haven't been as effective, but that's the reason also why we're pushing in that direction.
Next question. Bill.
I think-
Again, make sure
I think he
Oh, sorry. Is that Joe?
Yeah.
Sorry, Joe.
You two guys go last, okay? I've already lost it twice, so I'll just hold on to it.
There you go.
I had a question for Jigar. You just joined MSCI. Maybe you can give us some of your impressions on what the technology landscape looked like as you came in the door. Some of your thoughts around where you're going to take the product over the short and the long term. I know you mentioned sort of a Netflix type event. Really what I'm getting at is you've got a great data set there. Anything around algos that you might be looking at short and long term?
Yes, that's a good question. When I came in, I saw the products, and I kind of was surprised at the amazing complexity that we actually deal with. In fact, going through the multi-month interview process, I did not understand actually really how complex these products are and what level of complexity the investment world itself has. When you think about our risk servers, for example, and the billions of calculations it does. There's some incredible amount of technology that we already have, actually. I think there's some low-hanging fruit here when you think about the future, how do we package these things in the right set of APIs, the right platform, and the right distribution channels with a great user experience on top of that, and bring this all together.
There are a few key trends around how do we. The key investment I talked about, the technology platform that we are building for quite a few years now, and it's accelerating now, and we're moving forward with that. Secondly, how do we even increase our pace even further by things like moving to the cloud or things like more automation, more cutting-edge technologies. There's not one particular formula, actually. It's a lot of hard work and a lot of creativity through a lot of sets of technologies in all of these areas. If you think about real estate, how do we ingest the data faster? How do we detect the issues when customers are sending us the data files? If you think about indexes, an example Henry was talking about, we have 200,000 indices. Why not 2 million indices?
What did we have 20 years ago? Maybe we had five indices. This is not far-fetched at all because there's a lot of need for customization. A lot of it comes down to the basics of how fast can we move in these areas. You think about ESG, the same thing about scaling. We have brilliant ideas, and we need to quickly execute on these ideas. Remy will talk quite a bit about this. How do we scale faster? How do we get that edge? How do we get such a far-ahead lead in the industry that people just look at MSCI and say, "They've got it. This is the leader in all of these areas, and just forget about investing in those areas.
Just rely on the expertise that MSCI has." I don't think there's one particular silver bullet I would say, but there is a need for faster pace and more innovation across the board and more automation and a lot of discipline. We are sitting on a goldmine of technology and content, and we need to just accelerate that even forward.
If I may just briefly add a sentence to that, and I don't want to put words in your mouth, Jigar, but Jigar and I have been having this conversation for the last six months. I think Jigar has made an observation somewhere along the lines of we're really good at doing complex things. We need to get a lot better at doing simple things. That's this question of scaling automation, and making our content more easily available. That's the emphasis that we're working on.
Laurent, you had a very nice
Bill, please introduce yourself.
I'm sorry. Bill Warmington from Wells Fargo. Laurent, you had a very nice explanation of the salesforce transformation over the past few years. I wanted to ask about what the incentive comp structure is for the salesforce today and the structure of that salesforce in terms of farmers versus hunters and whether that plays into it.
Right. Farmers, hunters, that's roughly 50/50. We have 620 people roughly in coverage. Half are, I would say, more sales, half are more consulting and client servicing. Let's make it 50/50. Look, part of the reorg that we did was precisely also to bring these people much more together. I'm not really interested in putting a stamp on people and say, "You're a farmer, so you just can't go to a new client or you can't pitch for an RFP," or, "You're a sales, you can't take care of the clients once the product is sold." It's not like that. We push really for the accounts management approach, which is much more, here is a client, here is a team taking care of the client.
It's made of product people, of coverage people, of servicing people. We all work together, and we have the account review. That's on the first part of your question. It's pretty simple. It's based on targets, which is pretty smart from a company standpoint because every year you reset the target. Basically, we have individual quotas for each of the sales reps. Depending on their roles, we have a specific scheme of incentive. You may be if you're more of a farmer type of guy, you may be more incentivized on the retention. If you're more a development type of guy, you will be incentivized more on the growth of the relationship. If you are a relationship person, you will be across all product line. Different schemes, but basically based on quotas. That's how it works.
For many people, more and more, we have actually team quotas, not necessarily individual quotas. Like the people who service the client, typically, they usually work as a team. We will have three guys, three people on the West Coast covering the Californian pension funds. We want them to be flexible, work as a team. We would say, "You cover this group of clients, and you are incentivized on how we do well with this group of clients." That's more or less the structure of it.
One thing to notice is that many of you are aware of the executive compensation plan that we created three years ago, highly leveraged incentive compensation plan, which that part of it is come to end now in terms of vesting, and another one has been launched. At the same time we were doing that, we were creating this very large and sophisticated incentive compensation plan for the client coverage organization. Actually, I'd like to take this opportunity to introduce Linda Riefler, who is the Chairman of our Compensation Committee of the Board who worked very closely with us and the other members of the committee to build that. If you have more questions about all of that, Linda will be more than happy to help you.
Sorry, Linda.
You think we should be paid more, you can
Chelsea, right here.
Hi, Greg Bardi from Barclays. Just wondering, as you're building out this open platform and you're also going after newer asset classes like private equity, fixed income, real estate, just wondering if that changes your view on building the content yourself versus partnering with third parties, or how you think of all that?
Sure.
Thanks.
Yeah. We have had a philosophy, which actually dates literally from the Barra acquisition in 2004 of being completely open platform. That relates both to where we will put our content and what content we will take onto our platforms. If you like, philosophically, we've been completely open to that. In practice, it was often very difficult. Our factor models are not easy to deploy into a typical portfolio operating system. So we actually had a relatively small number of third-party vendors who took our factor content and integrated it into their portfolio software. That was more of a practical limitation than a philosophical or business one. Similarly, we have been open today with putting anyone's content on our platform.
The only line where we draw is people who are in the habit of stealing other people's intellectual property, which we don't like very much. There are a few bad actors occasionally. I would say, really what this is, it's not a philosophical change, it's a practical change. We really feel that with the new platform, we're going to be able to deploy not merely what you call typical third-party data, obvious stuff like we have the Bloomberg Barclays benchmarks in our systems, and before that when they were the Lehman, we had them, and there's numerous cases like that. We'll also be able to host much more sophisticated client analytics.
I think we're really setting ourselves up for really achieving what has been our kind of business philosophical goal of being completely open, and that is grounded in obsession with the client need. We will deliver what the client wants and needs to do their investment process. If that means that they need third-party content from one of our competitors, as long as they're a good actor, we'll have that on our platform.
Good. I think we will stop here. We're gonna take a quick 10-minute break and start promptly at 5 till. Thank you again for the questions. We have a much longer Q&A session at the end.
[Break]
Ladies and gentlemen, if you could please find your seats, our program will start in a moment. Ladies and gentlemen, please welcome Head of Analytics, Jorge Mina.
Good morning. My name is Jorge Mina, I'm the Head of Analytics at MSCI. I'm battling a bit of a cold this morning, hopefully my voice holds up. Aside from Henry, I have the honor of being the longest-serving employee within the Executive Committee. I've been with MSCI and legacy companies since 1998, serving in a variety of roles over those 20+ years across research, client coverage, and product management. I also wear a second hat as the product manager for our new technology platform, which, as Jigar described, will help us distribute content not just for analytics, but across all product lines at MSCI.
Diana described how we provide clients with portfolio solutions in the form of ready-made portfolios or indexes as building blocks, and I will focus on the analytical tools and content we provide clients so that they can build better portfolios, measure and manage the risk of those portfolios. In the next 50 minutes or so, I will describe our capabilities across content and technology and how those capabilities allow us to solve a large number of problems for our clients. I will go over some important secular changes that are creating very attractive opportunities, not just for analytics, but across all of our product lines. I will describe the investments that we're making to capture those opportunities with an emphasis on how our new technology platform will help us unleash the value of our content. Again, not just for analytics, but across all product lines.
We're making these investments in a disciplined way to continue to accelerate growth while expanding margins. Let me tell you who are our clients and what problems we solve for them. We serve the portfolio construction performance and risk needs of asset owners, asset managers, and financial intermediaries. We help these institutions solve a variety of problems across various functional areas in their organization. We help their investment teams by providing tools and content to perform asset allocation, construct portfolios with specific exposures, attribute the performance on those portfolios to various sources of return, and understand the risk exposures in those portfolios. We sell those solutions to Chief Investment Officers, Portfolio Managers, and Research Analysts. We also help their product and operation teams with enterprise risk management, performance attribution, and reporting solutions so that they comply with regulatory requirements across jurisdictions around the world.
The consumers of those solutions are Chief Risk Officers, Chief Technology Officers, Chief Operating Officers, risk managers, and compliance officers. Finally, we help the marketing and distribution teams in those organizations by providing investor reporting solutions and digital delivery of content to enable them to distribute their products by articulating their unique value proposition more effectively to their clients. The buyers of these solutions are the investor relations teams and heads of sales and distribution in these organizations. We provide these solutions to clients globally, across asset classes, and across investment strategies and styles. We have a strong global franchise serving the top institutions in the world. Our clients are amongst the largest and most sophisticated organizations in their respective segments, and they trust us to solve an increasing range of mission-critical problems for them.
We have a large business, almost $500 million of run rate, and it's well-diversified across asset classes, across regions, and across client segments, which allows us to stay on top of trends across the entire investment ecosystem and continuously innovate to solve new problems for clients. I've told you a bit about who our clients are and what we do for them, but I'd like to spend a couple of minutes telling you how we do that. That's important because it's critical to understand our capabilities, to understand how we're going to take advantage of the large opportunities that we have in front of us. In general, we solve investment problems through content enabled by a flexible technology platform. These building blocks of content and technology are packaged and delivered through solutions that enable operational simplification for our clients. Let's talk about content for a minute.
Peter spent a lot of time on this topic. Our content basically provides research-led solutions to investment problems. What do we mean by that? Well, let me give you some examples. We refer to as content as the models that a research team builds. For example, the equity factor models, fixed income factor models, multi-asset class factor models, private equity and private real estate models. Also, we refer to as content as the methodologies and calculation engines that our clients use to price instruments, do risk and performance analytics, and run optimization algorithms. This content is leveraged across all product lines to offer solutions for clients. For example, Baer mentioned a couple of things. We use our equity factor models built within the analytics product line to build equity factor indices. We use our ESG research to build ESG indexes.
Another example is we use our private real estate data produced within our real estate product line to create factor models that are consumed by our analytics clients. Let's spend a couple of seconds on technology. Our content is enabled by technology that allows our clients to flexibly access and use that content to build better portfolios and run performance and risk analytics through interactive software applications, APIs, and reporting solutions. Increasingly, our clients are accessing content across all product lines through a single technology platform, as Jigar described. The last part here is solutions. This is where we make use of our own content and technology to deliver turnkey solutions for our clients.
For example, we can outsource portfolio data management for our clients, run performance and risk analytics on those portfolios, and deliver results by integrating into clients' workflows and infrastructures in a scalable way. These examples are real, and Laurent gave a couple of examples. If you remember that broker-dealer that wanted to build factor baskets or that asset manager that launched factor ETFs and wanted to distribute it through their wealth channel. These are the types of solutions that we're building. Also, as Laurent mentioned, we are increasingly operating as an extension of our client's staff, providing know-how across finance, business processes, and technology. These extensive capabilities across content, technology, and solutions allow us to solve not only the problems that our clients have today, but also position us well to help them solve for the challenges of the future. What are those challenges?
We identified three key secular trends that are changing the way investors operate and are driving demand for our solutions. The first one is investment differentiation. It refers to the increasing sophistication of investors that are demanding targeted solutions for their specific needs, whether that is funding a specific liability, providing for retirement, or growing assets at a given horizon. The second trend is regulation. Financial institutions around the world need to comply with increasing or changing regulations. The last one is operational efficiency. As we all know, fees are coming down. That puts a lot of pressure on asset managers' margins.
Asset managers are operating in an extremely complex environment, where not only need to retain and attract assets through investment innovation and product differentiation and comply with increasing regulatory requirements, but they must do so while improving their operations and infrastructures to reduce cost and complexity. We believe this is a very attractive opportunity to help investors build better portfolios that meet their clients' objectives, comply with the ever-changing regulatory framework, and operate more efficiently. Why do we think this is a large opportunity? Well, we think that because in the context of these challenges, most investors don't have the right tools to do their jobs. We can provide those tools.
Every institution is at a different level of maturity. Typically, their infrastructures have been built over several decades as a collection of several third-party and internal tools that have large gaps, overlaps, and inconsistencies across business units and functional areas in those organizations. In the past, they could justify building and maintaining such a complex infrastructure. Going forward, that is unsustainable given the increasing pressure on asset managers' margins. Investors need to refresh their entire investment infrastructure. They need help. We can provide them with tools to build better portfolios, to calculate and run performance and risk, to deliver transparency to their investors, and comply with regulations around the world consistently across the entire organization. Across business units, across departments, across functional areas, and so on. We have a large addressable market.
Let me tell you how we're going to grow by focusing on three types of opportunities. The first one is greenfield opportunities that are created basically as the industry evolves. For example, the trend towards factor investing and the rise of ESG are creating client needs that we can fulfill. Changes in the regulatory framework force institutions to update their systems. We can help them with that. The increasing sophistication of asset owners and asset managers are driving them to improve their investment infrastructure. We can help them with that as well. The second category is replacement of internal client spend. As we discussed, a lot of these organizations have historically built tools that over time become difficult to maintain and expand. We can provide them with robust and efficient alternatives to those internally built solutions.
Similarly, investors often waste valuable resources in operational tasks that do not give them any competitive advantage. We offer solutions that can release those resources to do more valuable things and reduce their cost and complexity through automation and technology. The last category is displacement of niche providers. Investors want to decrease the number of systems that they use to reduce complexity across their entire organization. Given the breadth of our capabilities, which we discussed earlier, and the strength of our client relationships, we are well-positioned to displace niche providers offering solutions across single asset classes or those offering narrow solutions to very specific problems. Now, we are making focused investments to capture this opportunity. The first, which we have discussed, is to the technology platform. We're building a flexible technology platform with two main objectives.
The first one is to unlock the value of our content across product lines through better distribution, we can solve more problems for clients and make our content ubiquitous across our organization. Historically, our content has been trapped in separate tools. We're integrating it in a single technology platform and allowing clients to access that content flexibly through highly interactive visualization tools, APIs, and reports. The second objective is to enable operational simplifications for our clients through integration. It will allow clients to connect disparate systems and data to create workflows that work seamlessly across the investment process. Now, the obvious question you might have is, where are you with this platform? The first version of the platform has been released and is being used by clients in their equity investment process.
We will continue to enhance the platform capability and expand its content over the next two, three years to incorporate all of MSCI's content, not just for analytics, but across all of our product lines. In short, we will help our clients simplify their investment process through an easy-to-use, highly visual, and interactive platform containing all of MSCI's content and integrate it with third-party tools and data to offer a complete solution. The second area of investment is content. Peter alluded to the fact that we're constantly expanding and enhancing our content to create competitive differentiation and also to be able to solve new client problems. We're doing this in three broad areas. The first one is we're always increasing our asset coverage across public and private markets to make sure we provide our clients with full instrument coverage across their portfolios.
An example of that investment is the expansion that we're making on our fixed income models, including the pricing models for securitized products. The second category is when we improve and enhance our risk and performance model. As Peter mentioned, an example of that is our newly released multi-asset class model framework. The last category is when we create new analytics to solve specific investment problems. An example of these are the analytics that we created so that clients could comply with liquidity risk regulation in the U.S. Finally, we're investing in solutions to create operational efficiencies for our clients. We help clients design and implement solutions to streamline and optimize their data workflows. We outsource some operations like portfolio management by collecting, cleansing, and normalizing data across various sources.
We also help clients design and produce custom reports that they use for their own internal reporting to provide transparency to investors and to comply with regulations. Finally, we automate and run enterprise reporting production processes across their entire organization for risk and performance. These solutions are designed to work at large scale. They often involve working with very large datasets and are computationally intensive. Working with clients, over time, we will continue to expand the range of solutions we offer our clients. So in summary, we have a strong global franchise that we will leverage to drive new use cases through our blue-chip client base. We will seize the high-growth opportunity to help clients navigate secular changes in the industry.
Our new technology platform will unlock the value of our content by allowing us to solve many more problems at our clients' organizations to drive higher levels of sustainable growth. We will win by leveraging our client relationships, our expertise, and broad capabilities across content, technology, and solutions. We have been transforming the analytics product line over the last three years to achieve higher levels of growth and profitability. That transformation is not over. This strategy will allow us to continue to accelerate growth while expanding margins. We are committed to long-term targets of high single-digit to low double-digit revenue growth and mid to high single-digit expense growth. With that, I will thank you for your attention, and I would like to welcome Remy Briand to talk about investing in sustainable solutions.
Thank you, Jorge. Good morning. My name is Remy Briand. I joined the firm a little bit less than 20 years ago. Prior to joining, I was an equity portfolio manager, so pretty much doing something similar that what you are doing right now. I got involved in the ESG business in 2010 when MSCI acquired RiskMetrics. At that time, RiskMetrics had just bought two small providers in the ESG space. We were faced with the need to integrate, create what is today the MSCI ESG research. Henry has this concept of a day job and a night job. My day job at that time was to really take factor investing and create a program on factor investing as head of index research, then my night job was to integrate these small entities.
Clearly, we did a lot of work at the beginning, to restructure and also as the business of ESG grew, essentially my night job became the day job, which is really what I am doing right now, is continue to lead ESG and continue to lead the growth of that segment. ESG is a lot about what I would call latent demand that needs to be turned into actionable solutions. If you look at the owners of capital, whether it be the pension funds, but also at the end of the day, individual, there is generally an aspiration or a push for their agent, the asset manager, to manage that portfolio in a more sustainable way. To a large extent, the global financial crisis sort of crystallized even more that latent demand.
Most of the time people have this aspiration, but they not necessarily really understand how it can be really applied in day-to-day portfolio management. That has been really what we've been focusing on from day one as we got involved as MSCI, is really to make sure that this concept of ESG investing is really something that can be actioned inside the portfolio. The underlying drivers are really a lower level of tolerance for ESG incidents, clearly. There's also generally now, within the asset management community, a better understanding on the potential financial benefit of ESG. Which typically is always one of the first question that our potential client ask is, "Will I lose money with this?" We've been working quite hard in putting things in context so that indeed you can integrate ESG without jeopardizing your strategies.
Clearly, we've been investing quite a lot in refining the signal, the rating, and that has helped also facilitate this process of integration in the investment process. What do we offer? We really want to offer solutions for every single step of the investment process. With the rating, which is really the basis, the signal that powers all the solutions, the rating covers roughly 14,000 issuers. It's more or less what a typical investor would own in public markets. We cover almost more 90% of the market value in equity and in fixed income. This rating can then be used clearly in the fundamental process as an input, when you would select stocks, for example. It can be also the basis for reporting.
That's really where the integration in the risk analytics is a key enabler and a key offering because we can not only then unlock the use case, which is linked to risk management, but also our clients can report in scale on the characteristics of their portfolio. Which is obviously useful for clients, their own clients, but also can unlock a very interesting discussion in terms of raising more assets, which gets us into the elements of communications to stakeholder. Obviously, the ESG rating is integrated, as Diana was explaining, into the indices, which unlocks discussion on the use of ESG benchmarks. As an example, Swiss Re has, two years ago, switched their entire benchmarks, equity and fixed income, to ESG benchmarks for their entire investments. That's clearly an element in the investment process that is useful.
Clearly, indices can be also used as building blocks in the portfolio construction dimension. What makes MSCI unique in this space and what are our key competitive advantages? Clearly you want a signal that works. That is really a requirement, and our signal is by far the best signal in this space. We've been really focusing on making sure that we focus on the understanding of long-term risks. A lot of the focus is to make sure that we're not trying to give brownie points to any ESG concepts, but really focus on what is material, and that really depends by sector. We've refined over the years our methodologies and our input so that it actually make the signal one that can be very useful in the investment process.
The second dimension is that as with any long-term risk question, you have to cover what is in your portfolio, right? You can't have an assessment of risk if you only cover a very small slice of the investment. Our efforts over the years have been really to cover pretty much what an institutional investor would own, and also to integrate into our risk system so that this analysis can be done in scale. The last point is the one on this common language. As investors, asset managers are integrating ESG in their investment process, as they become more sophisticated and come up with more and more signals, there is at the same time then a need to have a common language to understand the characteristics of the portfolio.
That need is really what we're seeing with our interaction with asset owners, with consultants, with the wealth managers that are buying funds. They all are using our ESG rating as a way to analyze the portfolio and get an answer on whether this process of integration that the managers are doing or claiming that they do is actually having an impact on the portfolio. This need for a common language is really something that we see increasing, and clearly us, as the leader in that space, are well-positioned to help in that process. In terms of the growth of the ESG business, there are really two drivers. First is new clients. This is still very much a first equipment sale.
We have a penetration rate on a large asset manager globally that is roughly 30%, so it's still very low, and every year we've been increasing that. Overall, there is still quite a lot of entities out there that needs or wants to integrate ESG, and we're here to serve those clients or potential clients. The second component is the one linked to new use cases. If you want to do ESG integration fully, you really want every step of the investment process to integrate ESG. Sometime it starts with an integration in equity, sometime it start in fixed income. Usually it starts with the front office, but then typically the CRO, Chief Risk Officer of the firm, will also want to have an assessment of the ESG risk, and that unlocks, for example, an additional use case for us and an opportunity for upsell.
At the same time that this process of diffusion within the various function of an asset managers is going through, we're seeing that a lot of the owners of capital also are getting more and more sophisticated in their own integration. Insurance companies will, for example, start to think through also how to use an ESG rating when they actually underwrite business. Wealth management is an area that we've discussed quite a lot in prior presentation. This is also an area where there's huge demand from the end investors, and then a lot more sophistication by wealth manager in terms of assessing, again, the characteristics of the portfolio, or also trying to convey in a relatively intuitive way the characteristics to their end clients as well. Reporting, for example, is a fast-growing use case for us.
These two drivers have been really pretty much driving the growth of the business, and we would expect them to continue forward. In terms of our key investments, we've discussed the need to cover the assets. This is an example on the left-hand side of the investment we've done through time to cover the high-yield segment in fixed income. Clearly, you need, at one point in time, critical mass for the signal to be useful. Typically, when you get to the 80% range, then you unlock for the portfolio managers that are running a global high-yield strategy, you unlock a new use case. Henry was mentioning that the evolution clearly for MSCI is to go more towards private assets and clearly, this will be an area of investment for us as well going forward. The second area of investment is the one on the signal itself.
If you look at our current rating and if you look at the inputs that gets into the rating, there are roughly 45% of these inputs that are coming from what we call now alternative data sources, that are essentially inputs not coming from the companies directly. There's sometimes an impression, and clearly a lot of our competitors are in that camp, an impression that ESG is looking at the company website and trying to get a few information reported by the companies. This is clearly something that we do, but we go way beyond that.
To give you an example of the types of inputs we like, and we've been, for example, gathering for many years in the U.S., we've been using the Freedom of Information Act to actually ask the EPA and OSHA, the Health and Safety Agency, for fines that they've been putting on companies. This is something that you will never find on a CSR report, you will never find on the website, but is really, really useful information that we're looking at. We've developed through the years, sector by sector, key concepts by key concept on the ESG, a range of inputs to the point that today it's roughly 45% of the inputs. This is where we will continue to invest quite a lot in refining our signal. Jigar mentioned some of the work that has been done to use the AI in the ESG business.
Clearly, we've been using it on the right-hand side also to be more efficient. Go through the regulatory filing in an automated way and extract the information. For example, today, 50% of the data points that we gather on the governance side in the U.S., 50% of those data points are automatically extracted through natural language processing. We haven't changed the quality control process, but overall, this is a huge efficiency gain for us. Again, where we see the most interest in terms of refinement of the signal is on this alternative data source, and that's where we're investing at the moment. These were really the main drivers for us to grow, and this is really the approach that we want to continue to pursue to essentially fuel the growth of the business. We really want to drive the adoption of ESG in every investment decision.
We think that is really what the end owner of capital wants. We want to continue to provide those actionable solutions to create those better portfolios. We're adding client-facing resources to capture that opportunity. We're investing in more data and coverage of securities, and we invest essentially in technology to create that better signal. This is really what we've been doing. With that, I will pass it around to Jay to discuss another very exciting opportunity for MSCI. Thank you.
Thank you, Remy. My name is Jay McNamara. I am Head of the Real Estate segment at MSCI. I've been at MSCI for nearly 17 years. I started my career in the client coverage organization. At various points, I've overseen the Americas client coverage organization. I did that for about five and a half years, and I also ran a global pension and sovereign wealth coverage team for about three years. Prior to joining MSCI, I too spent a vast majority of my 20s at Brown Brothers Harriman, as Diana Tidd, working with European markets, as well as three years in Asia, seeing firsthand the creation of the securities markets in China. My task today is to share with you some of the unique insight that we've gathered as we've discussed here today. Share with you how we're using that insight and what that insight is providing us with.
What we're hearing from our clients is that with the ever-increasing allocations to unlisted assets, they need the types of tools that we've historically provided them in the public markets. They need those for their private market allocations, funds, and the like. In order to stay true to our mission, which is to help global investors build better portfolios for a better world, we must take the next step at MSCI, and that's to build the MSCI for private markets.
I have four goals over the next 12 - 14 minutes. One, explain to you why we're focusing in more detail on private markets, because I'm aware that a number of you either may not even be aware we offer solutions in real estate today, or may be asking why in the world, in light of everything we've just been discussing for the last several hours, the tremendous upside and opportunities that lie ahead for us in the public markets, why would we be putting resources and focus in the private markets? Two, I want to explain what do we do today? What do we do for real estate investment portfolio managers, and how do we do that? Then at the end, I want to explain to you why I think the path ahead is so enormously exciting.
Today, with the acquisition of IPD back in 2012, MSCI is truly the only global provider of data, tools, and analytics for real estate investment managers. We have a foothold in the space that clients are putting an ever-increasing focus on. We know from the unrivaled access we've continued to mention, as well as those position level tools and analytics that Jorge described in his talk, we know these increasing allocations, it's just the beginning. Today, we're solving real estate problems. In the future, we expect that we'll be able to solve problems for clients in private equity, private debt, ESG for non-listed securities and the like. Currently, we can provide with over 30 years of experience, we can provide insight, data, and analytics for real estate portfolio managers who are based in over about 35 countries, investing in 32 domestic markets and increasingly cross-border or cross-regionally.
In the last 18 months, we've undertaken quite a significant restructuring of the segment. We're now able to power the end users who have historically relied upon our solutions in ways never before available to them. We're also engaging the C-suite in ways that we've never engaged within the real estate space. We've done this with a keen focus on building a modern, flexible platform. We've done this so that we can monetize decades of data and content that's unique to us, and we want to expose that content and the IP associated with it however the client wishes to consume it. As the real estate investment industry evolves, and let's be honest, other private investment management asset classes, as these continue to evolve, we're now positioning ourselves better than ever before to work and grow alongside them. The rise in allocations is taking place for a variety of reasons.
One simple one, pension plans with enormous funding gaps, needing to close those gaps at a faster rate than would be available to them in other asset classes. We at MSCI believe this is only going to continue in the years ahead. We're basing this strategic hypothesis on our own firsthand engagement with these clients as we help them solve their asset allocation, performance measurement, risk management needs. You can see here on this slide, third-party sources, whether it's Willis Towers Watson on the left or the Preqin McKinsey information on the right, that these allocations in the last several years are likely to ramp up in the years ahead.
In fact, we believe at MSCI that over the next 5- 10 years, we'll see an ever-increasing percentage of the world's capital get concentrated in the hands of some of the largest, most sophisticated institutional asset owners in all corners of the globe. These are the organizations that we have direct access to and work with in their investment processes. We believe these organizations are very likely to internalize much of their investment management. Again, we're working with them today on that process, whether it's previously largely managing their assets externally, or as I mentioned, increasingly managing those internally. We believe strongly that as these allocations increase to non-public markets, they will start to demand the type of transparency, data, and insight that they've grown accustomed to receiving from us over the last 40+ years.
Diana and Jorge talked a lot about what we've been building, either organically or via acquisition and the like over the last 40 years in the public markets. Our goal is to bring that same sort of transparency, insight, and rigor to the private markets. These increased allocations, which we've been talking about here, we need to provide these investors with a full suite of tools ranging from indexes and market data to analytics and research. Similar to Diana and Jorge, we're doing this in the public markets. We now are able to do it for real estate and then going forward in other private asset classes. Our clients are able to make better investment decisions using our tools and communicate better with stakeholders, regulators, and the like because of what we're able to give them for the investment management processes, in this case, for unlisted real estate.
It's the unique content we have and our ability, as Peter discussed, to overlay that data, which I should point out, we collect directly from our clients. The data we use to build our solutions, we're sourcing directly from the real estate investment managers. This is allowing us to provide an unrivaled suite of products and solutions to clients that no one else can give. As you can see here, we provide standard indexes, quite similar to what you heard Diana discuss we do for public equities and factors, and then increasingly ESG. We can offer indexes to real estate investment managers at the property level or the property fund level. We gather market data, operating metrics, things of that nature in over 200 cities around the globe. We're also able to offer customized indexes. Clients can filter and screen along geography, sector, peer groups, and the like.
Again, the theme here is the types of tools and analytics that we've been providing in the public markets, we're providing them today in real estate, and we'll be able to provide them on a going-forward basis in other private asset classes. We're doing this today for over 60% of the world's largest global asset managers in real estate and roughly half of the owners of unlisted real estate investment products. These clients are based in 36 countries, investing in 32 domestic markets, and as I mentioned a moment ago, increasingly, they're looking to allocate cross-border or within a region. U.K. investors investing into onto the continent and potentially, and we're starting to see early signs, more of a global perspective. They've tasked us to handle over $2 trillion of their real estate assets.
Every day we can see an increasing demand for more comprehensive solutions that have previously not been available in the real estate space. Our ability within the asset class itself, real estate right now, and increasingly other private asset classes, our ability to solve investment and risk problems, unlike anybody else within that asset class, as well as multi-asset class, is an incredibly important competitive advantage that only MSCI can provide these investors. Our clients are increasingly demanding a complete solution, particularly in an asset class, which over the last few decades has been very siloed and very disorganized and very inconsistent. They're asking us to help them consolidate all these views, all these data points, all these investments. I'll give you one example.
In late 2018, we licensed a European-based global insurance company to use Enterprise Analytics, our solution, our risk solution and performance measurement solution, which we relaunched in a more modern, flexible way last year. We licensed them to look at risk and performance across all their investment vehicles. You can imagine as an insurance company, the general account will have enormous allocations to asset classes like real estate. However, previously, they were unable to look at their investments, both within the general account as well as third-party vehicles, TCAS, mutual funds, unit trusts, and the like. Enterprise Analytics provides them with that house measurement, the enterprise view, so that they can make better investment decisions, conduct better risk management processes, and the like.
We believe strongly that this demand in 2019 and beyond will only increase, particularly with large global investment managers who similarly are starting to look to harmonize their operations and their investment processes. There's still significant upside ahead for us, particularly in regions, as you can see in the Americas and in Asia as well with our current roster of over 900 clients. In the last 18 months, we've undertaken a fairly significant restructuring in the MSCI real estate product line. We've engaged our clients quite differently. Whereas previously we might have engaged them in a very static, transactional, in an only, let's call it quarterly release of index points in time. To now, we're working with the clients in a much more dynamic way.
We're engaging them in ways, whereas previously, maybe it was just with the release of an open-end core benchmark or maybe a quarterly performance attribution report. We're now engaged throughout the investment process. We're doing this for them throughout the calendar year, again, to my moment ago, whereas previously it may have been just at the point in time of an index release. We're now solving investment and risk problems by exposing all the content and IP we have available to them throughout the calendar year. We're becoming a truly integrated partner by working with the users themselves and increasingly with the C-suite so that we have a better understanding of where they're going as they extend in from real estate to real assets and so forth and so on. We want to be going alongside them.
We want to earn the right by solving problems in real estate to work with them as they expand their asset allocation. The restructuring that took place in the fall of 2017, we revamped our executive leadership team. We revamped our program and our project management processes. We revamped our IT infrastructure, our culture, and the financial management of the product line. We're better able to engage our senior clients. We're doing this to expose the unrivaled content that we have built up over the last several decades. While we're not close to being done, the last 18 months suggest that we're on the right path.
We believe that the successful restructuring underway in the MSCI Real Estate product line is going to set us up to be the foundation to entry into other private asset classes for the sole reason that's what our clients are asking us to do for them. Having said all this, the realities are that investing in private markets is beset with all kinds of headaches and problems. Multiple sources of data, inconsistent sources of data. We're focusing our investment dollars on helping alleviate these pain points. In fact, we actually have a project underway in the product line called Making It Easier to Work with MSCI, which is focused on the exchange of data from the clients. As I mentioned ago, all the solutions we provide the real estate investment managers is based upon data we're collecting from them. We want to make it easier.
We know that even inside some of these organizations, there's multiple sources of data that to harmonize and to clean themselves is an enormous headache. The more we can do for them, the more flexible our solutions, our technologies can be, we can take those burdens off of them and thereby ensure that our engagement is focused on solving investment and risk problems and don't get bogged down in the operational data side of things. In recent years, we've moved what is MSCI Real Estate from a collection of local national franchises, which reflect, quite frankly, what real estate investing was for multiple decades, which was very local, and you tended to only invest either in your home city or your home market.
We've moved from those national franchises to one that's leveraging the broader MSCI footprint, the broader MSCI operations, the broader MSCI technologies that Jigar and Jorge discussed. We've simplified the business model, and we're better aligning with clients as they go cross-border, and as I mentioned, potentially globally. We will take a more disciplined approach going forward because we've increased the types of client consultations that we're doing. We're getting closer to the key decision-makers at the top of the organizations, as well as the users, to ensure that we expose all of this content I've mentioned a few times, and all of the IP associated with it. We want to make sure that we expose it in a multitude of ways, i.e., however the client wishes to consume it. We can monetize the unique data sets that we have here today, and we can grow alongside our clients.
I've talked a lot about private assets, what we're doing today, and for whom. I want to come back just a minute to private assets in general. The secular trends underway in capital markets suggest that we are well-positioned today, and our focus going forward on building the MSCI for private markets. We saw earlier the AUM levels over the last several years and potentially what they could be in 2023. This trend's only going to continue. Data around capital raising, as you can see here on the right side, and the feedback we gather firsthand from institutional owners of capital globally, are suggesting that this is the focus that they need us to have.
In conclusion, I want to leave you with five takeaways on something that I think some of you may have come in to today, or previously, without a lot of insight or perspective as to why we're focusing on real estate today and potentially or increasingly going forward unlisted asset classes. One, our clients are asking us to do this. Global asset owners are only increasing their allocations to unlisted asset classes, private equity and real estate being the two largest today, but increasingly going forward, it's going to be more complex things like debt and the like. Two, demand for transparency in private assets. Transparency, data, analytics that they've grown accustomed to over the decades in public markets. They're no longer willing to accept inferior product, insufficient insights in their increasingly larger allocations to private markets.
Three, the relationships we have with the owners of these assets and this capital, as well as the managers, gives us unrivaled and industry-best insight into what they're doing with asset allocation, portfolio construction, performance, risk management, and the like. Four, our investments today are allowing us to build a scalable and profitable real estate segment line, but also to set us up for entry into other private asset classes like private equity, infrastructure, and the like, either organically or via acquisition. Finally, our roots in the public markets, combined with the multiple decades we have in private real estate, position MSCI better than anybody else to offer true solutions to clients to help them build better portfolios for a better world. This should all translate into long-term revenue growth targets of the mid-teens.
With that, I'll stop, and I'll pass the floor over to Kathleen to give us a financial overview.
Thank you, Jay. I'm Kathleen Winters. I joined MSCI three years ago as CFO. I was hired based on my financial management experience from Honeywell, where I spent the previous 14 years. I was really fortunate to have spent a substantial amount of time there during the transformation of that company, the transformation into the operationally excellent, financially disciplined organization that it's become. I'm very happy to have been able to bring that experience and that focus on operational financial management and financial rigor to MSCI to help enhance the financial discipline here. I've had great support from my tremendous finance team. I've got a group of really talented and very dedicated individuals who've supported me in this process.
The support and engagement of the broader MSCI team, they really just jumped on this, and it couldn't have been a more fun process building time over the last couple of years. What I'm even more excited about, however, is the tremendous growth opportunity that's yet ahead. We have a lot to cover, so let's jump into things. In terms of financial overview, there's a couple of key topics I want to cover today. I'd like to review with you our track record of financial performance and delivering shareholder value. I hope that when you look at this track record, you'll agree and you'll see that we're a company that does what we say we're going to do. I'll give you an overview of our compelling business model. It's quite a nice business model.
About 98% recurring revenue, about 78% subscription, strong top-line growth, margins in the 50s, highly cash generative, not a lot to complain about. We've got a strong balance sheet. It gives us significant flexibility and optionality, and we'll talk about that. We'll review the disciplined capital allocation strategy, and importantly, I'd like to share with you and give you some visibility into how we manage investments. Lastly, we'll take a look at 2019. I'll give you an update on what we're seeing thus far and a refresh on our long-term targets. I mentioned our track record of financial performance. Let's take a look at the obvious metrics. From a top-line perspective, over the last five years, we've seen very nice top-line growth, a CAGR of 10%, and even stronger adjusted EBITDA growth of 17%. We're particularly proud of our free cash flow performance.
We've doubled free cash flow over this time period to $564 million. All of this has translated into adjusted EPS growth with a CAGR of 28%. How did all of this happen? Well, you've heard us talk about the very favorable secular trends that we've been capitalizing on, and you heard us talk about the growth initiatives that we have, growing the core, the inflight investments that we have. That, coupled with what we believe is really strong world-class financial management with an extreme focus on management by metrics.
We have really upped the game and done a lot of work around management by metrics in every part of the company, whether it's a product, a function, front office, back office, and hopefully, you got a little bit of a flavor for that today, particularly as Laurent shared a lot of the metrics that he uses to track progress and measure the effectiveness of his organization. All of this together, we believe, has translated into very nice results. What else has it yielded? Quite simply, we believe the answer is on this page. Whether you use a global MSCI ACWI index or the U.S. index, we believe the shareholder return has been pretty good performance over this period. We've generated over $10 billion of shareholder return for our shareholders, and we're really happy that we were able to do this.
Let's take a look at the business model, the financial model. As I mentioned, about 78% of our run rate and revenue comes from a subscription model, which Diana very well described during her discussion. I'd like to point you to the middle part of the page here and point out that we've taken the growth of that subscription run rate from 8% in 2014 to 10% in 2018. We've had great contributions from index, from ESG, analytics has contributed, and going forward, we expect analytics and real estate to be even bigger contributors as we continue to look to accelerate that growth rate. We've done this through capitalizing on the favorable secular trends, the continuous innovation that you heard the team talk about, a very client-centric approach, and quite frankly, really, really phenomenal work in terms of commercial excellence, our go-to-market strategy, and executing on that.
The very client-centric approach has yielded nice retention rates, 94%. We're quite happy and proud of the retention rates. The products are sticky as our clients use our tools to operate more efficiently and more effectively, and as we devise solutions to help our clients solve the most challenging investment problems. Let's shift gears a little bit now from the subscription side to the asset-based fee side of the business. Our asset-based fees are a little over $300 million. We've experienced a nice growth rate, 16%, across all the different components, ETF, non-ETF or institutional passive, futures and options. You can see the largest component is the ETF portion. On the right-hand side of the page, I'm showing you the AUM underlying that ETF, and you could see the growth over that time period. Very nice growth from $373 billion to almost $700 billion in AUM.
Importantly, I want to point out, while of course, we have the dynamic here of being subject to equity market levels with this AUM, in this particular period, look, sometimes it's a help to us, sometimes it's a hurt. In this particular period, quite small, the growth has been substantially all from volume, as we've done a really nice job capturing share and strengthening our position in the market. In fact, the $700 billion that you see here since year-end has continued to grow, and as of earlier this week, was approaching $800 billion. We continue to strengthen that position. Now, with 22% of our revenue coming from asset-based fees and subject to equity market levels, that presents some challenges. I'd like to give you some visibility and share with you how we think about it.
Many of you have asked us, "Well, what are you going to do in a situation when the economic or operating environment is different? What are you going to do in a downturn? How is it going to look?" Let's look at a couple of different scenarios. Let me start with and kind of set the groundwork, if you will, by looking at the index subscription run rate growth. It's important to understand this. I'm showing you on the left-hand side of the page, the index subscription run rate growth over a decade. You can see that over that decade, in almost every year, we have grown that run rate double digit. Even in 2009, we had phenomenal growth. In 2009, high single digit, 9% growth.
This steady and strong subscription run rate growth gives us great reliability and forward visibility into the largest portion of our revenue. In an environment where we've got some volatility, let's first look at an environment where we assess it's a short-term thing that's going on, right? We've got some short-term volatility, whether it's a week or two weeks or a month or a quarter. What are we going to do? How are we going to manage the business? What will be different? We would expect, if our assessment is that it's short-term, not too much is going to be different, because we're running this franchise for long-term growth, and that index subscription strength gives us the ability to do that. Let's not stop there.
Let's look at a situation where there's even more a volatile environment, where we've got a deeper downturn or a downturn that we assess could potentially last for a longer period of time. What do we do? How do we think about that? Some of you have heard me talk about our downturn playbook. In a situation like that's when the downturn playbook comes out. On the right-hand side, I'll give you a high-level overview of what that downturn playbook consists of. Three tiers. Tier one, self-adjusting, metrics-based incentive plan. We lose $1 of revenue, it self-adjusts in our formulaic incentive plans. Tiers two and three are different. Tiers two and three require assessment, management decision, and actions to make it happen. Tier two, timing and discretionary. Various actions we can take. Non-metrics-based bonuses, pace of hiring, and various other things.
Tier 3, in an extremely volatile or long-duration downturn, we look at pacing of investments, reprioritization of investments, the pace of hiring, headcount optimization. Not important for you to remember the tiers or the actions within each tier. What's important for you to remember is that we have a playbook. We know it very well, and we are very prepared to use it should the need arise. We don't believe we're there today. We're feeling actually quite good about the operating environment, but we're prepared if we need to be. Now let's look at our track record on margin. Nice track record of adjusted EBITDA margin expansion from 41% in 2014 to almost 54%, 13 points of margin expansion. Huge work by the team to make this happen. There's been a lot of very thoughtful work around location strategy.
We've taken our emerging market census from 51% to 61% today. A lot of thoughtful work around organizational structure, headcount optimization, and resource allocation. We're always looking at how do we put our resources on the highest return activities and move them away from low return or no return activities. We're always thinking about, are there things that we're doing that we can stop doing? We're also always looking for efficiencies in our non-compensation spend, and we very much have a continuous improvement mindset, looking to rework processes to have lean process, to take waste out of a process. I believe there's more to do here. There's more margin to get. It will come at a slower pace than it's been over the last five years, but I firmly believe we've got more upside. Now let's look at our cash flow profile.
I mentioned really strong cash performance over the last several years. We've got great free cash flow conversion, well over 100% in every year. Strong working capital profile. Consistent, sharp focus on collections. We expect to continue to be able to deliver very strong free cash flow. That gives us a great ability to fund growth. Let's take a look at the balance sheet. Strong balance sheet position from a leverage standpoint. We target 3x to 3.5 x gross debt to adjusted EBITDA. We believe this gives us the right balance in terms of reducing cost of capital, giving us capacity and firepower for potential inorganic activity, and operating at a comfortable level of risk. We have a substantial amount of cash on hand. We look to maintain about $200 million-$250 million of operating cash at any point in time.
We have what we believe is a disciplined capital allocation strategy. Three key priorities, reinvesting for growth, opportunistically pursuing M&A, and disciplined return of excess capital. Our ROIC has doubled from 11% to 23% in 2018. We believe the strategy is working. Let's take a look at each one of those components of the strategy. Priority number one, organic investments. I hope you can tell and have come to the conclusion from our concurrent revenue growth acceleration and margin expansion that self-funding investments have been and will continue to be a key priority for us. Our investment profile is balanced across content, technology, and solutions. It's balanced across product segments and regions. Importantly, it's balanced across time horizons with near-term, medium-term, and long-term payback projects. I'd like to share with you a little bit about how we manage investments.
We have a program that we call the Internal Capital Allocation Program, or ICAP. Under our ICAP program, new investments are brought forward. We review those investment opportunities for strategic fit and financial returns. Once approved, that investment is prioritized, properly resourced, and then moved forward. Once an investment is in flight, if you will, we've got a very rigorous process for tracking and monitoring the execution of those investments. We will look at the costs, the benefits, the timing of the investment program as it's being rolled out versus what was originally promised when we approved the project. This process does some great things for us. It allows us to, 1, reinforce the strong culture of accountability that we have.
2, it allows us to look at a project as it's in flight and say, "Okay, what's different than what we thought when we approved it? Is it better or is it worse? If it's better, well, why is that? How can we do more of that and accelerate it even more and perhaps put more investment funds toward that? If it's worse, well, why is that? How do we course correct?" 3, this process allows us to take those learnings. Remember, we're a continuous learning culture that we have. We like to take those learnings and incorporate back into the next round of potential investments that we're looking at. I'm tremendously happy with the way we've designed the ICAP process and the way it's being rolled out and used across the company. Now turning to M&A.
Just as we're well-positioned and well-poised to fund organic growth, we're in a good position to look at potential M&A opportunities. We've got great passion and capabilities across the organization in this space. We're going to look at, of course, the obvious strategic and operational and financial considerations. From a strategic standpoint, we'll be looking at opportunities that enhance our competitive position and/or help us accelerate the implementation of our strategy. From an operational standpoint, we're very disciplined about making sure we think through operational considerations, the risks and the opportunities, the synergies, the dis-synergies, the cultural implications, the technology challenges of integration. What does the integration plan look like? Where would a new entity fit within our organization? What is the project management and the accountability and the ownership? Lots of operational considerations that we go through.
Of course, the obvious financial considerations in terms of what is the accretive impact of a potential acquisition and the various return metrics as well. Returning capital. We've got a nice track record of returning capital to shareholders. We target a dividend of 40%-50% of adjusted EPS. We believe that's a meaningful and sustainable dividend level. In terms of share repurchases, we're opportunistic in buying back shares based on availability of cash and market volatility. You saw us follow that strategy in 2018, where we were quite active at the end of the year. Since 2012, we've delivered $3.6 billion of capital to shareholders. Let's turn to 2019. It's early days, early in the year here. In terms of what we're seeing thus far, we're reaffirming guidance. No changes to guidance. Our subscription business remains on track.
We've got great transparency and visibility into our sales pipeline. You heard Laurent talk about how we use Salesforce to get really transparent information. We have daily visibility into that. On a biweekly basis, we have an all-hands meeting with key members of the coverage team and the broader leadership organization, where we delve really deeply into what's going on in the operating environment across the regions, across the products, what we're hearing from clients, what the client sentiment is. It's a really very effective process. The pipeline looks healthy. From an asset-based fee segment of the business, also looks healthy. Healthy cash flows into equity ETFs. Let's turn to the long-term model.
You heard the team describe the favorable secular trends, the great growth initiatives we have underway, the deep and broad client relationships that we have. Hopefully you'll see that we're a very financially disciplined and performance-driven organization. All of that enabled us to meet, and for some metrics exceed, our previous set of long-term targets. All of that is what I believe will help us continue to deliver attractive financial performance. Specifically, we are targeting revenue growth rate of low double digit. You'll see that some of our product segments are operating at those levels already. Particularly for Analytics and Real Estate, we've got more work to do, and we're excited to take that on. Adjusted EBITDA expense growth rate, high single digit. Importantly, expense growth rate will not accelerate unless revenue growth rate accelerates first.
Therefore, we're targeting adjusted EBITDA margin rate of mid to high 50s. We've been committed to and very focused on delivering positive operating leverage, and will continue to do so. In summary, we've got great growth prospects ahead. We've got a compelling business model, and we've got a management team that is experienced and knows how to identify and execute high-return projects. That, coupled with our financial discipline, our strong balance sheet, and our great cash profile, gives us great optionality and runway. We believe we have great growth prospects ahead, and potential for driving further shareholder value. As always, we look forward to keeping you updated on our progress. With that, let me turn it to Henry for closing comments.
Thank you, Kathleen. I hope you saw good evidence of the strong financial management and management by metrics that we've been pushing strongly at MSCI. It all started when we went around saying, "We're a quant company. We tell clients to manage their portfolio by metrics." We looked at ourselves and we said, "That doesn't apply to us. That's for clients." I said, "No, wait a minute. This has to apply to us." Therefore, we developed that whole framework and philosophy, and more to come. We set out this whole presentation to show you and demonstrate to you our excitement, and why we believe this, what I call American dream, is a company that is on a purpose, on a mission to change the investment world. Small corner of the world, not everything, but the investment world, which is a very valuable part of our society.
All of our savings, society's savings, are dependent on how they get invested for a better world, for retirement, for college educations, for second homes, for passing it on to the next generation, for better income equality, for production of creation of jobs, and the like. All the things that we see are creating havoc in our geopolitical systems. I hope that excitement that we have can be contagious to you. Also, as Baer said, we're a quant company. We're a whole bunch of, many of my colleagues, PhDs, and we all have gone through PhD dissertations, and we're used to looking at empirical evidence and demonstrating and proving beliefs. We went through a lot of that discussion this morning, trying to give you over and over again, tangible, demonstrable evidence of what we believe is happening.
That is the unique position that we have in the investment system. The blue-chip client list that we have, which gives us unparalleled access to the best ideas that are happening in the investment industry. The most have product lines that are already well-known in the investment world. The track record of having capitalized on all those opportunities over a 20+ year period, not just believing in the future, but believing that we've done it before. The management team that we put together that is hungry, ready to execute, ready to create, and make sure the vision happens. The financial results that we have achieved. As a fellow shareholder that I am with many of you, and many of you have heard me say, the difference between me and many other CEOs is I'm an owner that happens to be the manager of the company.
I'm not a manager that happens to own a few shares in the company. So my best chart is that one that showed the 300%+ return on our shares compared to our famous MSCI indices. Nice outperformance, and we hope that we can continue to replicate that. We set out, as I said, to convince you that the better days of MSCI, much better days, are ahead of us, not behind us. Frankly, one of the biggest comments that I get when I get on the road to talk to shareholders and prospects is, "I love your company. I love the business model. I love what you achieve, but the entry point is too expensive." What I try to do is I go around and revisit those people. I said to them, "It was expensive. Try it now." Good things in life are always expensive.
The question is, what do you do to prepare to buy into quality, to buy into hope, to buy into ambition? That's the purpose of what we did today. As a good, irreverent immigrant, that I'm not beholden to any political party, any country, any philosophy, and all of that, I would like to challenge all of you to join us in that journey to change the world, to make it better for better decisions in investment process, but more importantly, for better outcomes for the societies that we live in. In that better world of better investments, make sure we get paid appropriately to do that, because we're not a nonprofit organization. Thank you very much.
Thank you, Henry. We'd now like to invite all of the presenters from today up on the stage to do our final Q&A session. For this session, we will start by allowing one question and one follow-up. Just as a reminder, please speak into the microphone and please introduce yourself before you ask the question. For this session, all presenters are fair game, all questions are fair game.
Go ahead, there's one.
The last one.
Friday church. Your favorite.
There is a slot here.
Sorry.
It's okay. I'll just stand.
There you go.
There's plenty available.
Question.
I'm a short guy.
Have you got a seat?
I don't need those high chairs, man.
All right. All the way in the corner. Henry?
Hey, it's Henry Chien at BMO Capital Markets. Just high level, it's just a really awesome presentation of all the opportunities that you see in becoming and what it looks to me as like an investment partner for just global capital flows. My question is that there's a ton of opportunity outlined, there's a ton of solutions that you're providing the investment industry. I just want to bridge that down to the subscription model. It seems like you're moving a little bit more away from just selling indexes or selling data products to more of a solutions business model. How does that change that subscription dynamic and, to your question, how do you make sure you get paid to do all those things?
Yeah. Many of you, and I think Alex also asked the question of how do we make sure we get paid? Trust me, if you go talk to your colleagues in your own organizations, they know that we're not shy about asking to get paid. It's ingrained in the DNA of MSCI to do that. Secondly is we are for sure not trying to move away from the subscription model at all. If anything, we want to keep feeding that. Thirdly is the solutions that we're selling, we did talk about a little bit of customization and things like that, but we're customizing these pieces that are already made. We're just putting a layer of packaging those various pieces into a potential outcome that helps the client, therefore achieve the objective that they set out.
Therefore not get tied down to create high levels of customization that are not cookie cutter, that are not expandable rapidly. We love to be in the business of selling repeatedly, same thing over and over again in 101 different ways. That's not changing either. It's more taking all the pieces that we currently have, building new pieces, and putting them together in a way that is obvious, but it requires a little bit of fine-tuning to present it to the client. Lastly, we want to have a lot of strategic relationships with our clients, because being a vendor to selling them widgets, they put you in the cost center category. As you know, there are a lot of pressures in the investment industry. In parts, by the way, only in parts of the investment industry.
Not a lot of cost pressures all over, but in parts of the investment industry. We don't want to be a victim of that. We want to go to our clients and sell ourselves as a revenue center for them. In our most successful clients, you can go talk to them and interview them, and they say MSCI is a revenue center. Because we help them create products, differentiate them. We help them lower costs, create scale, create efficiencies, and therefore free up profitability, and so on. We help them prevent compliance problems with regulators and the like. I'm glad you were asking that. By the way, you got a great name.
I'm glad you asked that because my answer is precisely what we're trying to do to make sure everything we do is highly scalable with an increasing amount of margin, not a decreasing amount of profitability.
Next question. If we can get a mic down here in the front for Craig. Wait a moment.
Thank you. Craig Huber, Huber Research. Henry, you and I talked this briefly offline, can you just talk about the Asian opportunity for your company, China in particular? What's unique in those markets there? It's more of a longer-term growth opportunity there versus the rest of the world. What's your?
Yeah, let me just say a few things, then I'll pass it on to Laurent to talk about China. Well, Asia and China. I've been going to Asia and China for 40 years this year. Of course, I started before I was born, as a son. I fell in love with Asia, and particularly China. I tell my Chinese friends that we negotiate with all the time that I've been waiting a long time for the opening of the country. It's coming. China is the second-largest equity market in the world, the third-largest bond market in the world. I think many of you, actually, many people in the investment industries are now realizing how rapidly China's capital markets are opening up and the huge impact that it's going to have in the global investment process.
We've been in China now, I don't know, 15 years on-site, I think, with our WFOE license. We were among the very first parties to have started operations there. We're capitalizing significantly on that opportunity. One of the highest growth rates in our product lines regionally is in China, obviously from a smaller base. It's going to increase dramatically as the country opens up, and we have a great presence with all the asset managers in China, the asset owners in China, and all of that, and the same throughout Asia. China, I mean Asia, represents about 15% of the total revenue of the company, and is frankly significantly lower than it should be. Jack Lin, who we just hired as the head of Asia, comes from the investment industry.
The challenge to him was, how do we make Asia to be at least equal to the revenues that we generate out of EMEA, which is about 35%, or higher. A major opportunity. That market is a little bit different. It's a big asset owner market, which is great because they can pay you fees, and it's not a big local asset management market. A lot of the global firms obviously service those global asset owners there. The local asset managers or regional asset managers are beginning to develop. Clearly, we know the Nomura, the Daiwa in Japan or the Mirae or Samsung Asset Management of Korea and the like. The domestic Chinese asset managers, like everything in China, they're really ambitious. They want to be global asset managers, and we have very strong strategic relationships with all of them to help them.
Actually, one last anecdote is that the last two times I was in China, we were going around talking to clients and saying, "Can we be your strategic partner rather than your vendor?" In China, there were two clients that actually approached me and said, "We want to be your strategic client." I mean, your strategic partner. I said, "Great." They said, "Can we sign an agreement?" They asked me, "Can we sign an agreement to be your strategic client and make a public announcement?" I said, "Wait a minute. A strategic partnership is like a way of doing business. It's not an agreement." "Oh, but I want to sign it so we can publicize it, and that's going to make me a better asset manager in the eyes of the Chinese." That's an example of our position. Laurent?
I'm not sure there is much more to add. To be honest, you covered it very well. I think the only thing I would say specifically to China, what's really interesting for us in our position is that many of the domestic players are now getting international, which means for them, first step is to get outside of China, in Asia. Obviously, this is happening both through domestic China and through their Hong Kong offices. We obviously are present in both, and we have an integrated approach of these big clients. The more they become international and they want to expand abroad, obviously the more they will come to us for products, solutions, whatever. I think the top 10 broker-dealers in China, for example, are all risk clients of ours. They've signed in the recent couple of years.
The more they expand, the more they realize that MSCI can be a very useful strategic partner for them in their growth outside of China as well.
Great. Next question. Chelsea right here. Chris.
Thanks. Chris Shutler, William Blair. Henry, can you just talk about the private markets, so I guess real estate that you're in, but also private equity infrastructure. Just what product solutions do you think that you could develop that will be of particular interest?
Yeah. First of all, just the investment thesis, right? If you go back decades or 100 years ago, the world was private investing, not public investing. The world then created a nice invention, which was the public company and the public debt markets and all of that. It served society well because it has created more access to capital for companies, and it has actually democratized also the investment process for a lot of individuals that would normally not have access to those investment opportunities. What we see today is that the public markets are struggling in a big way. You saw that chart that showed that the number of public companies in America has been cut in half. A lot of companies don't want to go public nowadays. They want to delay dramatically.
For a lot of reasons, Dodd-Frank, activism, shareholder activism, lack of control of the company by the founders. That's on one side. On the other side, they got extremely high access to capital through private equity firms, venture capital firms, and all of that. The third reason is that a lot of the new companies in America and the rest of the world are IT companies. Technology, healthcare, consumer goods, and the like. They're not steel or iron ore and things like that that require huge amounts of capital, right? We have a problem in the public markets in equity, and we have another problem in the public markets in debt, which is because of the financial crisis, the balance sheet of banks around the world in the last 10 years have declined about 15%.
In that period of time, the largest economies of the world have actually grown about 15%. Not per year, but cumulatively over that period of time. You have now economies that the banking system, which was the typical private credit lender, so to speak, credit extension entities, are about 30% lower than the GDPs of these countries. Private credit is exploding because of that. The other problem is obviously because of the regulations, the banks, which were the traditional suppliers of liquidity to the public markets, are not there either. The public equity debt markets are becoming more private. Anyhow, all of that is pushing asset owners in the direction of private asset classes. One leading example of that are the Canadian pension funds, for example, and another one is clearly the endowments and foundations in the U.S.
Now, we see a lot of allocations to these asset classes, particularly private equity and private real estate and increasingly private credit. The problem is that those allocations are constrained because these institutional investors are used to the tools that they use in the public asset classes, such as I want to understand my underlying portfolio. I want to know what I own. I want to have a performance attribution. I want to have risk management and understand what the risk of my investments are. I want to have a better sense of pricing. All of that doesn't exist in the private asset classes in a major way. Here's where friendly MSCI comes in, is that we're going to do all of that. We're going to be able to create pricing models. We're a model company. We can create pricing models in everything.
We're going to create pricing models so that we don't have to rely on appraisals in real estate. We can do that through algorithms, through a lot of publicly available information to create better pricing models on a daily basis. Private equities as well. Once you have the pricing and once you have the underlying information about the companies and the real estate and all of that, then you can create indices, markets. You can create performance attribution. You can create risk management and the like. It's a long way to develop that, but we want to be that change agent. We want to be that disruptor. The asset allocators love us because they need that. The GPs, general partners or the asset managers, they don't like us because we're messing up their game, right? They do their thing on the basis of lack of transparency. It's okay.
We know how to do that. We'll kind of trailblaze through that major opportunity. Major. It's just a question of how do we execute, how do we block, and how do we go about it in a financially disciplined way?
Next question. Why don't we come back down here in front, Alex?
Thank you. Alex from UBS. This one is for Kathleen. Looking at your guidance or the long-term guidance, obviously pretty impressive and ambitious numbers. The one number I have a hard time wrapping my head around is the index expense growth rate, high single digits. I understand you're innovative, and that's why you're in a leadership position, but it just seems like that business should have more scale and you should be able to, even as you innovate, move people around to new projects and not necessarily you need to grow expenses at that range. Maybe you can just flesh out why high single digits is what you need to do in that business that clearly has a great foundation. I have a quick follow-up after that.
Thanks, Alex, for the question. The answer is a pretty simple answer in that there are a huge number of opportunities for us to go after here. You saw some of what we're doing already in terms of going after, we've got these in-flight projects and the next wave of growth. Whether it's factors or ESG, there's a lot more for us to do there. In addition, client segments, right? We've got a fairly small position now in, for example, the wealth segment. There's a lot to do, which requires some level of investment to do it. The business is operating at a very high margin rate. We can stop investing and drive that margin rate up further, but I don't think that's in the long term best interest of the company or the shareholders.
What I would add to that, if you don't mind, Alex, is that we're not solving for margin. It's funny, sometimes we all get caught up on what is the percentage margin and what is We're solving for dollars, not percentages. The way we look at it is very simple. We like the index product line at $800 million and 70% margin. We're going to like it a lot more at $2 billion of revenue and 69% margin.
Fair enough. Just a very quick follow-up. You talked about the downside playbook, which you've talked about. What about the upside playbook? ABF fees can obviously, if we get a good market backdrop, then
Baer's already grabbing the microphone away from me. We have an upside playbook.
Yeah.
How much are you going to let fall through is the question, obviously, if markets help us
Sure
or you.
Look, I think that that one is pretty straightforward. I don't think any of you have ever been in a budgetary process where you haven't had requests excessive to those which you are allowed. We have, having gone through our strategy and our operating plan and showing you the enormous range of opportunities we have, believe me, in all of the areas that we have, we have more opportunities for investment. I think taking that question and then bringing it back to the index business and Henry's response, I think for sure we see enormous opportunities for investment. The question is really just the pacing, right? In almost every category that we showed to you, we have what we believe are very attractive return investments.
There's always a natural element of financial caution in saying, "Okay, this is a good investment, but let's take a sober view of it." Whether it be, I would say, certain specific categories where ESG, where we still have enormous amount of upside or client segments like wealth. Then the upside playbook may depend a little bit on the sustained nature of the environment, right? Certain things could be a short-term investment, like in marketing, and other things could be more infrastructural if we feel more positive about the environment going forward. Don't worry, we got plenty.
Actually, our board sometimes thinks the opposite in the sense of if you were to do an optimizer, obviously we're in the business of creating asset allocation models or optimizers and all of that. If you were to do an optimizer without any constraints of being a public company and maintaining certain margins and all of that, you would put enormously more money into the index product line. Why? You line up all the projects. Look, if this project were public companies, all of you will be in that room because we have a large number of projects that have IRRs in the three digits. IRRs in the three digits, and some of them are not like five, 10 years, they're shorter term. We're trying to sort of balance it all out, right?
When you sit through the budgetary process of equity indices. This is the part of the company that has the highest payback of any investment that we can make. It is constrained by the segment reporting and what we promised, and obviously, the impact on the margin of index has a huge impact on the margin of the whole company. That's the discipline that we go through. The reason why those returns are so high is because this is the place where we have the most competitive advantage. This is the place we're building at the margin, right? The cost of a new development at the margin has a huge infrastructure in place.
We already have the relationship, we already have a lot of the data, we already have a lot of the technology, and therefore, investing on top of that, the marginal cost of investing is much lower than the marginal revenue relative to other parts of the company.
Also, they do take some intellectual property from other product segments.
Yeah.
For free.
For free.
We should not forget that.
Next question, Toni.
Thank you. Toni Kaplan from Morgan Stanley. Jay, in your section, you mentioned that your clients are giving you the data. I'm not sure I appreciated necessarily before how proprietary and unique the data is. Is it a contributory data model? Are you paying the clients for the data? Are they giving it to not just you, but others, or is it really unique to you? Just wanted to understand the model a little bit better within real estate. Thank you.
Sure. Yes, we're not paying for the data. The clients are providing us with their underlying positions down to the property level, as well as performance metrics and whatnot for the funds. In some cases, they will provide similar data to, or portions of it, to industry bodies. As some of you may be aware, in real estate, whether it be some of the industry bodies in the various three different regions, in the case of the U.S., they've been around for a long time as well. What we find is that the extent of the data that we're receiving and the extent of the data that we collect, clean, and normalize so as to provide the full suite that I talked a lot about is well beyond anything anyone else is even imagining, never mind delivering.
What that presents for us sometimes is, you have some organizations saying, "Well, look, why do you need all this data?" It says, well, we need it because we're gathering it for you and for all your peers, we're providing you these benchmarks, these analytics, geography sector, peer groups, whatever it may be, because it is a more sophisticated, more robust investment tool. We're not paying for it. It's extensive. That project, one of many that I alluded to, it wasn't that creative. We do truly call it making it easy to work with MSCI, because what we're trying to get to is the investment and risk problem faster than historically what had happened in real estate, which was, yes, we want the insight we want, but I don't even know where some of this data sits inside my own organization.
The client would be saying that. What we're trying to say is just get it however you can get it. If it's uniform, if it's not, it doesn't matter. Come at us. Jigar talked a bit about APIs. Real estate is one of the areas that's utilizing these, and will do so going forward even more, building portals, things of that nature. It'll also compress the delivery of the solution. Rather than a time lag, because if we have to do this manually, we have to take it in, clean it, normalize it, whatnot, have it get checked by the client, that process, we want to shrink it.
What-
Reduce it. Excuse me.
Just to add to Jay, to make it even sharper is that the business model here is that you go to clients, asset managers and owners of real estate, you tell them, "Give us your data. We're going to convince every other manager and owner to give us their data. Help us do that as well. Once we have all of that data, we're going to know what the market is in various parts of the world. We'll give you back, for a fee, a performance attribution report. We're going to take your portfolios, and we're going to compare it and contrast it to the aggregate of all the other clients' portfolios.
We're going to tell you where you're making money, where you're not making money, where your risk is, and all that. The reason I harp on that is because if you do this early and you're the first mover to do that, it creates huge competitive advantages because you're the one that captured the whole market. You need to have 60%+ of the market or some statistically significant part of the market in order to make relatively good comparisons. Once you're locked in and they're giving you the data, and you're giving them performance attribution, index returns, and risk returns and all of that, risk reports and all of that, it's a virtual circle. If you do that in private equities, if you do that in private credit, it gives you that. We were early in buying IPD 5+ years ago.
Seven years ago now. Six, seven years ago. We had to re-engineer the whole thing. We didn't want to go into another private asset class until we felt that we had mastery of the business model and the product line because it's different than public asset class. We now do, therefore, we now are ready to ramp up the private real estate and use that mastery of the model to ramp up or get into the private equities. If we do it successfully, it's going to give us enormous competitive advantage.
Next question, Joe.
Hi, Joe Foresi from Cantor. Maybe you could describe for us the difference in the sales process in going to an asset manager with your product versus some of the new clients like hedge funds and wealth management. I just wanted to see if the product needs to be sold there versus bought on the indexing side. I have one follow-up.
Yeah, sure. First of all we do have already a lot of clients in the hedge fund and wealth segment. They are new segments in the sense that they are growing probably fast, but we already are there. I'm not sure there is really such a difference. It really depends what type of service and solution they're looking for. Typically, wealth, we've had processes where we went through significant RFPs for a risk infrastructure, for example, that is disseminated throughout the entire network of advisors. That was a kind of a normal RFP. We've had other situations where we have to sit down with the clients, try to figure out. We always do it the same way. We go to the top. When we approach the wealth segment, we are targeting the central decision-makers. We're not going obviously to the local advisor.
We are going to the house center. That, in a way, institutionalized and in fact pretty similar to the way we would approach a broker-dealer or an insurance company going to the CIO or the CFO, depending on the angle. I wouldn't characterize it as being very different. Where it's probably a bit more different is with the asset owners, obviously, because the asset owners, very often they have smaller teams, less professionalized teams. You have fewer people. They are not equipped as much as an asset professional your money managers are. Here, you need education. It's depending also on what you know and what you understand from where they're coming from, and what is their strategy.
Typically, we would have a very different approach when we go and talk about ESG if we go to an organization we know is extremely convinced about ESG and a public pension fund in this country who is still struggling to figure out how that ties in with their fiduciary responsibility, where we need to explain to them why this is also creating value in the portfolio. It's more, I would say, the nature of the use case and our understanding of what the client's strategy is and how we can help them that may differentiate and create a different client engagement than really which segment they belong to.
Quick follow-up.
Yep, then maybe you could talk about the assumptions behind the ESG long-term growth rate and what you see for competition in that particular group.
Remy? Sure.
Clearly as we sort of described, we're still at the very beginning, but we do think that the number of new clients and the number of new users would allow for still quite a lot of room to grow. Clearly as with any growing market there will be and there has been new entrants, but as we've covered partially, we think it's not that easy to actually create a good signal, and we definitely want to continue to invest in. That's why, again, it's very hard to define precisely how big a totally new market is. To some extent, we and some of our sort of the lead clients that are, especially the asset owners that are pushing will influence the size of the market, but we think there's plenty of room to grow, and we're really at the beginning of the story there.
It is a race, literally a race for grabbing beach line, right? On equities, we are already fairly advanced. In fixed income, medium advanced. We need to accelerate that. Then once you get those two way on the way, then the decision is do you go into private equities? Which is already getting some demand. I happen to get involved a lot in private equities. A lot of my friends, relatives, and all that are in private equities, and you're beginning to see RFPs by asset owners asking for ESG considerations in private equity investing. Real estate as well. That's where we're putting an enormous amount of resources. To do it in a highly scalable way, the data, the technology, otherwise, you got to throw enormous amount of bodies at this problem and then lower the profitability.
Next question. Maybe back there in the green.
Marshall Jaffe, Neuberger Berman. Can you give us a picture of how advanced the penetration is of factor-based investing versus other index-type investing and how fluid the development of factors is? Where are we in that trajectory?
Yeah. Let me start it, then Jorge or Diana can touch upon that. Penetration is very small. Why do I say that? All of you are factor investors. You just may not realize it, may not know it, but your own recipe of investing is all full of factors. You may say, "I want to build my portfolio with growth stocks. I want quality. I want low leverage. I want this, I want that." You may say, "No, I want to build my portfolio with momentum investing." "I want to be defensive because the market is really tight right now, therefore I got to put low volatility stocks." It's just that it's all in your head in the way you're building a portfolio.
If we were to quantitatively decompose what you do, we can get to 80%, 90% of what you do, and then the balance is really that human sauce, right? The secret sauce of a little bit of alpha. Sadly for many of you is that since we're still early, it's going to create massive disruption to the way stock picking and putting portfolios together, both actively and passively. It's going to happen. We're really early in this process. We're scratching the surface. A lot of what we're doing is accelerating, but it's a long runway. Jorge, Diana, Baer?
Yeah, along the lines of your comments, Henry. Historically, factors had been the domain of heavy quants, so they dominated this space. What we're seeing is that many more organizations with different investment strategies and styles are beginning to understand that they need to adopt some of these techniques. In some cases because they want to be of better portfolios, but in many other cases simply because their clients, their investors, are starting to think that way. We still think there's a lot of runway to penetrating to all of those organizations. There are also certain newer markets and pockets of the world where we're seeing high growth as investors start adopting these techniques. China is an example, we've already talked about that, where our factor analytics have been growing quite a bit in the last few years.
I'll just add some examples in terms of the increased growth, we do feel there's a tremendous amount of additional runway. If you look at the mandate sizes coming out of pension funds to factor indexes, right? Historically, in a U.S. pension fund, you may see the size of an initial allocation of just $25 million, right? Whereas now we're seeing allocations much higher, like $200 million, $300 million, $400 million. Sizes are increasing globally. Those allocation sizes tend to, by the way, be much bigger in certain markets. In Asia, you tend to see asset owners allocated bigger size in general, and Europe as well. We're seeing an increase in the size of the allocation. Also, another good indicator is looking at the exchange traded fund market. We look at that because it's publicly available.
We've seen tremendous growth, for example, and we love the story on the MSCI Minimum Volatility Index as one example. If you recall when that was initially launched as an iShares product with the MSCI index, and it historically has been the MSCI USA Minimum Volatility Index that has taken market share there, and it's because of the strength of our methodology there. It's grown tremendously. The assets in MSCI-based factor ETFs are up in the $60+ billion range, so tremendous growth. We're seeing through the ETF, you can see an increase in both the single factor ETF assets, but also now the multi-factor ETFs are showing growth. Multi-factors, investing across a basket of factors, is something that pension funds did earlier than we saw in the ETF market.
Now you can see that growth into the exchange traded fund market, but it's still early days there.
Maybe down here. Chelsea.
Hi. Adriano Almeida with Victori Capital. I'm intrigued by the fact that the organic growth in index was 13% and you're still guiding to double-digit growth. I believe that's an acceleration that's occurred here over the last few years. When you envision this double-digit growth, how much of it comes from, let's say, if you can just comment about this, not break it down exactly, but comes from the ability to price versus adding new customers versus penetrating different verticals? It would just seem like the assets are actually accumulating in fewer hands, so it should be a challenge to grow customer base very much in this more mature part of the business. If you can comment on that, just help me understand.
Yeah. On the index product line, we tend to be about 30% in price, and the rest from new clients and new services. As I described with the global investing and these other trends we talked about in the market, factors and ESG growth, they have a tremendous runway for growth there. If you think about ESG indexes, they both grow through our asset-based fees in terms of clients making allocations to ESG benchmarks. Also on the subscription side, you see clients as ESG gets adopted. From a benchmark perspective, that's happening fastest in Europe, where it's not only an incredibly quick trend, but the regulators are focused on it and increasingly adding a focus in the finance industry to ESG that's producing demand for ESG benchmarks. They can be used both as overlay benchmarks, but also as secondary benchmarks for our clients.
We see the same trends in factors as well. We see between global investing factors, ESG, a brand new family for us is our thematic indexes. When clients buy them, they buy the subscription to the module, but they also can buy customized indexes that I described earlier, and that is also a subscription.
Great. One last question. Actually, why don't we go over here?
Thanks, I appreciate it. Question for Jorge and Laurent. As we look at the analytics business, can you guys provide a bit of color on the methodology and what you guys are thinking in terms of convincing customers who are currently doing that on their own of how do you guys ingrain yourself into their thought process and convince them that you guys have the better, cheaper, and more efficient way of doing it?
Yes. There are multiple ways in which we work with those clients. It depends what their needs are. I'll give you a few examples of categories. There are, for example, a lot of sophisticated investors that build their own models, build their own factors, et cetera. Sometimes they think that. They do have their unique way of looking at things, their unique special sauce. We don't go there and try to change what they're doing. We can, for example, give them the data and the ingredients to take all of the operational burden of collecting and cleaning the data that they need to use anyway, in order to add their intellectual capital on top of that.
We go to these institutions. We basically give them the same data set that our researchers are using to build our factor model so they can do the same on their own. That's one category. Another category is when they have built internal systems for risk and performance attribution. What they're all doing is assessing the viability of doing that long term. Depends on the size and the scope of those organizations. What you see in many of the larger ones is that they've done this in pockets and they're trying to rationalize across their organizations. You will have, for example, the equity team doing one thing, the fixed income team doing another thing. The multi-asset class team might not have anything to work with.
Typically the COO comes in and says, "Look, we got to rationalize this infrastructure because all of you need to build portfolios. All of you need to do risk, performance, report to investors," et cetera. We're having more and more of those conversations with clients in terms of all of these building that occur in pockets being rationalized.
Yep. We covered quite a lot today. There were still a few questions left. Andy is going to direct us to lunch, we're available to answer a lot of those questions. Very importantly, we're hoping that this is not the end of a process, it's actually the beginning of a process that we can engage with many of you individually and in smaller groups to drill down into each one of these categories. We intend in the next few months to do mini investor days, so to speak, in which we can get groups of people focused on the specific areas, so that we can go deeper and also go maybe more quantitatively. We try to strike a balance here, giving you the bigger picture, the bigger direction with some numbers and some targets that we're committing to.
Along the lines Kathleen said, we want to deliver what we say, and we have delivered what we say in the last number of years. Anyhow, hopefully it's the beginning of a process and please don't hesitate to reach us, Andy and others who will direct it, because we love to talk about what we do, I'm sure, and it's more of a question how much time you have, right?
For those here in New York, we would like to invite you to join us for lunch. We're going to do a leadership luncheon, go outside, get your lunch, bring it back in, and you can mingle with the management team here. Happy to continue the conversations. I would like to thank the full MSCI team, who's up here on stage, but also over here, who helped contribute to getting to this great end product here for the day. Special mention to Jay Penn, whom many of you know, who quarterbacked most of this, and then also Corbin Advisors-
Robert, please stand up.
Yes, our trusted advisors that helped us get to a successful day here. Most importantly, I want to thank all of you for the huge time commitment you gave us today. Hopefully it was helpful, and we look forward to keeping you posted on our progress. As always, please feel free to reach out to me and I or our team with any additional questions. Thank you.