All right. I guess we're live. I guess we're going again. All right. Welcome to the afternoon. Well, hello again. Just as I said earlier, I'm Alex Kramm, Senior Research Analyst at UBS covering exchanges and business services. Delighted for another exciting opportunity to talk to MSCI right now. Andy Wiechmann, CFO, I think just basically came in for this. So, thank you very much for joining this. I think first time at this conference for you.
It is, it is.
So, why don't we just jump into it right away, and we'll go from there. So, look, I've started these fireside pretty big picture. So, you know, you guys have had pretty impressive long-term targets out there: double-digit subscription revenue growth, low- to mid-teens EBITDA growth. You know, we'll talk about business in more detail later. But, you know, in broad strokes, can you outline why the business is positioned for that growth and how comfortable are you in that, even in this tougher environment we seem to be still in, to achieve those goals?
Yeah. So we, Alex, you know this well, but we are in the business of providing mission-critical, must-have tools to investors for their most important investment processes. So asset allocation, portfolio benchmarking, performance benchmarking, portfolio construction. And we do that for the who's who of the investment industry. And so if you look at what's happening in the investment industry, you're seeing a growth in global savings being channeled into investments as those savers look for productive returns. That growth in investment dollars is fueling the need for more tools. And then on the other side, you have more, investable asset classes, more investable markets. You have more information about those markets and more complexity. And so the need for tools to help understand the opportunity set, segment it in a logical and systematic fashion, and then understand the drivers of performance and risk continues to grow.
And that is where MSCI really differentiates. So from the highest level, you have investable dollars growing, the need for MSCI's tools, and then you have secular changes taking place within that pool of investable dollars. So you see more investments going into sustainable strategies, more investments going into personalized strategies or customized strategies where an index can be a very efficient mechanism to reflect that customized outcome. So an explosion of growth in indexation. You see a growth in outcome-oriented investing related to that, involving bringing together multiple asset classes to optimally achieve a specific investment objective. And then you see a growth in private asset investing. These are all areas where MSCI is a leader and can continue to be a leader. And so, yes, there are cyclical pressures, to your point, but the long-term opportunities are very compelling.
Our growth rate will likely fluctuate above or below those long-term targets over time, but we have conviction about the long-term opportunity that will fuel it.
Good. Well, you mentioned the cyclical pressures already. So why don't we, actually continue there, on the near-term positioning. So can you actually talk about the current sales environment that's been coming up a lot? It's been changing, here and there. So are sales cycles still lengthening? And maybe you can talk about where things are getting, hopefully, better and where they're maybe still getting worse.
Sure. Yeah, and I, I alluded to this on our year-end earnings call. But we've seen for the last two and change years, really since the end of 2021, equity market levels that have been down. I think equity markets have just surpassed the levels, the peaks we saw in, in late 2021. You've seen elevated inflation, which is adding more cost to all organizations, including investment institutions. And you've seen elevated rates, which has drawn, driven outflows, from active management, particularly equity active management, into yield and rate-type products. And so, not surprisingly, our largest client base, active managers, but also more broadly financial services firms, have been feeling some pressure over the last two years. It's been slower moving than what we've seen in, in past down cycles.
But that is translating through to more budget controls, tighter budgets, as a result, longer sales cycles for us, and organizations looking for partners who can help them in these environments. And so we do see those pressures in buying decisions, buying behaviors. I think we're in a good position because we are delivering, as I said earlier, mission-critical, must-have tools. But it can take a little bit longer to drive those sales with our clients. Clearly, if equity markets continue to rebound, that's something that is helpful to our client base. If inflation moderates, that's helpful to our client base. But I would expect these pressures that we are seeing to persist here in the near term.
And then I just asked about sales. What about the other side? Retention tends to be a focus for investors as well. Is that coming down still a little bit, retention rates? It looks like during COVID that may have been artificially high. So are we now in a normal environment again? Or how do you feel about retention?
Those same dynamics that I alluded to in your last question are relevant for the cancels or retention question as well. Because we are seeing many investment organizations restructure, put in place cost-saving initiatives. We're seeing many fund closures. And so we see this pickup of, we call them, client activities or client events, which lead to cancels. And so, yeah, the flip side of your last question is there will likely be an elevated level of client events that will lead to elevated cancels and a drop in retention. Whether they were artificially high during COVID, I wouldn't say artificially high. I would say this. You know, I'd say three, four months after the lockdown started in COVID, you started to see a significant rise in equity values, equity markets. You saw very low rates, and you saw low inflation.
Those are all conducive factors to the investment process, and particularly the equity investment process. And so that was a very constructive environment for our clients. And I think we are seeing many of those pressures on the flip side, right now. And so I would expect, like my answer to your prior question, those to persist here in the near term.
Fair enough. Last one from a bigger picture, business perspective, whole business perspective, can't ignore pricing. You know, maybe you can speak to it a bit on a segment basis. It seems like, when I look at the peer group, everybody pushed pricing pretty hard last year with inflation higher. Now it seems like pricing is normalizing a little bit. So maybe give us an update how you're thinking about the current pricing environment, specifically to MSCI across the segment.
Yeah. So we've mentioned, like many others, that during 2023, we saw a higher contribution from price increases in our recurring sales than we've seen in recent years. We have an approach to pricing that factors in client usage of our content, client health, factors in, importantly, the value that we are delivering to clients, but also factors in the broader inflationary environment. And so because there was an elevated pricing environment or inflation environment, we did have higher price increases than we've had in recent years during 2023. I would say all else equal, moving forward here. So assuming those other factors, client health, client usage of our tools, the value that we are generating for our clients stays constant, in a lower inflationary environment, our price increases will probably be lower. And that just puts the onus on us.
Like, we are always focused on to continue to innovate and add unique value to our clients. And if we can do that, that helps us either push through price increases or, most importantly, for us, the biggest driver of sales, today, but also into the future, is going to be doing more for existing clients. And so that's where our primary focus is.
Excellent. All right. So why don't we kind of unpack some of the segments a little bit more in detail? So starting with Index, biggest business for you guys. Can you unpack a little bit more how you continue to be able to drive that double-digit growth that we've been seeing? And, yeah, why, how is that sustainable?
It relates to some of your earlier questions, particularly the first question. Those secular trends underline the investment industry. But it also relates to the last question, the value that we continue to generate for our clients and continue to add to our clients' organizations. So indexes are moving from being not only a tool that can be used for where MSCI has played in the past, defining a market, segmenting a market, and then doing performance benchmarking, but can be a tool to develop a critical tool that develops systematic investment strategies and then implement those systematic investment strategies. And so you see this trend of indexation manifest itself in a number of different client segments and a number of different use cases where we are capitalizing.
It's very exciting for us, because we come from a place of being a performance benchmark for primarily international investing, looking back, you know, 20+ years at MSCI's history. Obviously, we've broadened beyond there. But today, given that systematic approach we take, where we start with, here's the total opportunity set, here's how you segment it across assets across markets, sizes, styles, factors, ESG considerations, we are uniquely suited to help with that, personalization or systematic investing with our indexes. We're very excited about the opportunity in front of us. But that is what is driving the outsized growth. We're seeing outsized growth with some of these newer client segments and use cases that I'm alluding to, like within wealth management, with broker-dealers, with hedge funds, and related to that, additional content sets beyond our market cap modules.
And so those cut across everything from factors and ESG to, importantly, custom indexing, which is, some combination of all of our content or a customized, calibration of an index, where we can serve a wide range of use cases.
Excellent. We'll get to that in a minute. But before we go there, maybe just a little bit backward-looking. But on the index side, I think a worry that perked up in the second half was the little bit of slowdown in sales growth in the index segment. So, again, maybe flush out what happened and why this is not the new normal.
Yeah. I mean, the cyclical factors that you asked about earlier impact all of our segments, including index. Our largest client base in index is active managers, active equity managers. And so they are feeling pressure. So there are cyclical factors at play within our index growth rate. The only other thing that I would highlight is we have seen a slowdown in the growth of our factor and ESG modules as well. And we provide this data externally. But, I think some of the broader changes in buying dynamics around ESG, but also some of the factor rotations that have taken place, to certain factors where we're not quite as strong, have led to a moderation of the factor and ESG growth rate. Although I would point out the custom index growth rate has actually picked up for us and helped offset some of that.
But those would be the only things I would call out.
Well, why don't we just go there right now? I mean, that's, you mentioned custom now, I think, three times in the during the last six questions I asked you. So clearly, you like to talk about it. So, why don't we unpack that a little bit more? It's, it's actually, you know, when you first started talking about it a couple of years ago, I, I kind of looked at it as something that looked like could be very customized over or, commoditized over time. But it does seem like, you actually have a pretty strong niche there. So maybe, maybe talk about where we are on this journey and maybe what that what the TAM is. So any, any, any, any more about custom indices? Because, again, it seems like something that, doesn't seem to be appreciated quite yet.
Yeah.
I honestly didn't.
Yeah. You used the term TAM, which is a good way to think about it. And I alluded to this earlier. But the exciting thing about custom indexing is it opens up a much broader aperture of use cases and users and parts of the investment industry where we historically have not served with our indexes. Now, there is a wide range of, to your point, what custom indexing means. And so it can mean everything from something that looks very much like an active strategy through to something that is just a small deviation from a market cap strategy. It might be you're screening out certain companies or even a handful of companies, because you have some specific objective and everything in between. But it is, overall, a massive market. The unique opportunity for us comes from our position as a standard.
So our standard position is not just in a benchmark for, as I alluded to earlier, international investing or emerging markets. Yes, it is that. But it is also our standard in terms of how you define the total addressable opportunity, we call it ACWE, and then how you segment that opportunity set across, as I said earlier, countries, regions, styles, sizes, factors, ESG considerations. And so the end investors, that those are the frameworks they use to think about their portfolio and think about things like risk and performance and objectives. And so as they start to move down the path of implementing these more customized outcomes or personalized outcomes, they're doing it in the frameworks and the standards that we have created. And so we have a unique opportunity within that custom ecosystem, to serve a broader range of their, their, objectives here.
It is a massive opportunity. The range of competition is different for us. We're talking less about those traditional, incumbent providers that you're all aware of. When we talk about custom indexes, then there's much talking about players like, what is the role of a broker-dealer? What's the role of, you know, our clients themselves? To your point, many of them might decide they want to do this via a low-cost platform. They can come up with a strategy. The dynamics are quite different. The market size is quite significant. Leaning on one, our robust index infrastructure and the high quality we deliver, but also those standard frameworks we've created, allows us to serve many, many, unique use cases that I was alluding to earlier across many different client segments. Very exciting for us.
Excellent. Well, why don't we move on then from index and, perhaps get into our everyone's favorite topic, which is, ESG and climate? Now, obviously, the business is slowed. And I think, right now, we're looking at about a teens growth rate, the way I calculate it from a kind of, like, net sales perspective. And that was 30% plus maybe just two years ago, right? So, again, like, how much do you think this near-term headwinds, that many of us are aware of, or just the maturity of the business being at this for, you know, a decade-plus now?
Yeah, and you alluded to this. I think it was, yeah, two years ago, a year and a half ago, probably, we were growing at north of 40% in our ESG and climate segment. And so I don't think the business matured within an 18-month time frame here. I think there have been a few things that have taken place. And we've, we've talked about this quite a bit externally. But I think, one, there are the cyclical pressures. And I think those are probably more pronounced within our ESG and climate segment. Given the newness of the opportunity set, the range of different users and use cases we're serving, there probably are more cyclical factors at play. Or I'll call it more nice-to-have use cases that get impacted when, when client budgets get tightened.
There also are certain shifts in buying behavior and, as I've alluded to, kind of the thinking around ESG in certain places, most specifically the U.S., that have led to a slowdown. Now, clients are not saying, "This doesn't matter. I don't care about it." It is a little bit of an evolution in thinking among many industry participants. But, you know, we were talking about this briefly before we started. You know, we're in the early stages of our annual strategic planning process. And we were just talking about the ESG opportunity set as a management team very recently. And the wealth of opportunities cutting across new content sets, across regulation, across broader services and solutions is massive still around ESG and then particularly climate as well, which is very early in its journey, where we continue to be very excited about the long-term opportunity.
I think the pressures and the dynamics that we've seen in the short term will persist in the near term. But these are secular moves towards sustainable investing. There, we know, there will be a wide range of regulations impacting our clients and a wider range of financial services firms, that we currently are not serving and can serve that create these big opportunities for us across ESG and climate.
So if I heard you correctly, you're pretty comfortable with your long-term targets. But I'll ask the question anyways. So your long-term targets for that segment are mid- to high-20s for ESG and climate. So I guess the question is, you know, how comfortable are you with that? And, how and when can we get back there?
Yeah. So we, we have made no changes to our long-term targets. As I alluded to, we have a lot of conviction and excitement about the opportunity set there. These are long-term in nature. So we don't give specific color guidances to the trajectory to get there other than to say, there is this massive opportunity in a space where we are a leader and see a number of avenues of growth to get there.
Fair, fair enough. You did highlight just a minute ago that you're particularly excited about climate, which I think is earlier in its evolution. But there are also other companies I cover who are very focused on that in particular because, you know, that market seems a little bit more open than ESG, where you're clearly the dominant player. So can you talk about your competitive position in climate and how you feel like you can compete against others?
Yeah. So climate is, as you alluded to, much earlier in that journey. It's very early in general in terms of what it means for investors, financial services firms, what, what, regulations, are going to be relevant for, for all the financial services organizations. And so it is it is more nascent than on the ESG side. I would say this. And you can see it just by the size of the business. So I think ESG and I'm talking just ESG excluding climate across all segments of MSCI is about $410 million of run rate. I think about $260 million is within the ESG and climate segment. That compares to $113 million of run rate for climate across all segments and about $58 million of climate run rate within the ESG and climate segment. And so it is still a much smaller contributor to the overall run rate.
We are seeing outsized growth there. We are seeing tremendous opportunities across a number of frontiers now. I'd say those use cases are still not fully established. We know investors are focused on understanding what climate means for their portfolios from a risk and return standpoint. We know they're wrestling with a wide range of coming regulations that are confronting them. We know that they are thinking about how they communicate their approaches to their investors. So it's early in that journey. I don't think the use cases are well established. But we are a leader and have the potential to be a leader, I'd say, for three reasons. So yes, every info and analytics company is focused on the same thing for the same reasons I highlighted. This is a massive opportunity.
And so they are all focused on collecting, you know, unique data sets or trying to provide services. But what MSCI brings to the table is, firstly, an ingrained client footprint. So we are serving the who's who of investors and the investment decision makers at those organizations. They are well accustomed to and day to day using things like our indexes, our risk tools, our ESG frameworks, increasingly our private asset insights. And so when they think about climate, they want it to be in the same frameworks and language. And so related to that, we have an ecosystem of tools that are interoperable. So indexes that are built on the same climate foundation, reporting and risk tools that are similarly using those climate inputs, and then private asset insights that are built on the same frameworks and approaches.
And so no other company has that same collection of tools using the same language that will allow investors or, more broadly, financial institutions to achieve their outcomes. And then, the last thing that I would highlight is, you know, we have also a well-established, yeah, I alluded to this earlier, go-to-market approach with these organizations as well. And so we are creating for them the materiality-based approach, which is something that differentiated us on the ESG front, where we are helping them understand why does why does climate matter from an investment risk and performance standpoint? Not only why is this data important because you need to comply with regulation? Yes, that's important. But why is this something that will impact your investment performance? And how do you communicate that to your investors? And so that's an area where we've always differentiated relative to others.
Excellent. Thank you. Shifting gears, going through the different business analytics, it probably doesn't get enough attention, even though it's a big revenue base. But certainly, what stood out, I guess, in recent quarters is that that business sneakily has been putting up some really good sales, really, really, really good strength in the business. So the natural question is, A, where is it coming from? And then, of course, how sustainable is it? That business has certainly been choppy at times. So,
Yeah.
Probably surprised a lot of people in this environment how well it's held up.
Yeah. It's been encouraging to see. And so there have been a number of drivers of the acceleration and growth and the performance that we've seen, cuts across a number of different areas. But if I were to characterize it simply, it would be in a period of elevated uncertainty and changes in factor flows, changes in asset values, various rotations, investors have a heightened need for tools to understand what's driving risk and performance and then helping to manage their risk more effectively. And so that is what we do. And so, to be more specific, our front office tools, namely our factor models, performed extremely well during 2023. And some of our risk management solutions, our enterprise risk and performance solutions, that we're helping clients to understand, and importantly, manage things like liquidity risk, manage things like their enterprise risk exposures.
We saw a heightened demand for those tools. And the encouraging thing is those are two areas where we have been investing and focused. And that's been our strategy. Those are also very strategic areas for us as a firm. And so I think there is momentum there that will hopefully continue. We always give the caveat, and I will give the caveat that the business will be lumpy. One, because of the cyclical dynamics we talked about earlier, there will be elevated client events, particularly within analytics where we have a bigger exposure to client segments like broker-dealers and hedge funds. But also, there are parts of analytics where we have been investing less that have been less strategic for us that will create some noise in the results, period to period.
Okay. Maybe we'll come back to analytics later if we have time. But we should round it out on the business side, definitely, with the other segment. And others, I don't know if you've renamed it yet. But let's just call it real estate and private markets. Is that?
Yeah.
Is that the name for it now? So look, you know, with the Burgiss acquisition, the combined business is now basically as big as ESG, or as ESG was a year ago. Sorry. So it seems like people are starting to pay attention. Actually, we do these quarterly follow-up calls. And I got a lot of questions this quarter about Burgiss and the private business as a whole. So maybe for those of us who are still newer to what you're trying to do there, maybe you can just give an overview, why you're excited. And obviously, you've done two deals in the last.
Yeah.
Three years maybe. So yeah. What's the long-term plan here?
So we called our All Other Private Assets segment. Within that, we have our Real Assets business. We have our Private Capital Solutions, which was Burgiss. We've rebranded it Private Capital Solutions. The reason why we have, to your point, done two large acquisitions in the last couple of years, and we've been so focused on building out our capabilities here is because, as I alluded to earlier, there are increasing allocations from investors, both institutional investors, government-sponsored entities, as well as individuals to private assets. The objective and the reason they are doing that is to achieve better, risk-adjusted, uncorrelated returns or the perception that they will.
These investors are screaming for insights to understand whether, firstly, that is the case, but how to think about their investments in private assets more generally and understand the risks that they are taking, as part of their total portfolio or all of their investments. That is MSCI's sweet spot. That is what we do. So there is an evolution taking place that's in the very early innings of private asset investing. We think MSCI can play a key role in helping to drive that. So where we are today is we have, I think, tools that are mission-critical for the current investment process. In real assets, we provide data that helps investors understand the market. We provide portfolio insights that are helping them understand how their portfolio performs relative to the market and what is driving the market.
And then, on the Private Capital Solutions front, similarly, we are helping clients with basic things like, how do I understand how my private asset portfolio is performing overall? What's driving that performance? What are my exposures? So analysis, I would call it, even before we get to analytics. And so we're providing those fundamental tools that we're excited about. But importantly, through the capabilities that we've assembled, we have the best investment quality data set out there, which allows us to start to establish performance and risk standards, which we know the industry wants. And over time, will be a massive opportunity for us.
OK. Well, diving a little bit more. So thanks for the summary here of the newer opportunities. But if I think about the near-term outlook, you know, real estate, you know, comes up every day as a tough place to be. And then, you know, private equity is still, for you, pretty new and untested. So how do we think about the growth profile in the near term, in broad strokes? And I ask that to some degree because, again, you have these long-term targets. And I think in that segment, it's mid-teens. But those are targets that you've made before some of these acquisitions. So how do we actually think about this business going forward?
Yeah. Actually, I think it's high-teens. And so.
Thank you.
Yeah. We do have big ambitions for the reason that I highlighted earlier. Yes, within our real asset franchise, there is a large portion of the business where we are providing transaction-related information. We're providing that to industry participants that are heavily tied towards real estate transactions, as well as the broader investment community. So we are serving developers, agents, lenders. And so that part of the business is feeling heavy cyclical pressure. I think the industry needs to continue to work through changes to the capital structures of many investment vehicles and, more broadly, to the capital structures underlying many properties, to enable that bid-ask spread to start to narrow and see a pickup in transaction value. So we do expect to continue to see pressures on those parts of the real asset business.
We do have the other portion of the real asset business, roughly half of it, as I alluded to, is providing things like portfolio insights, market insights, climate insights, income insights. Those parts of the business actually have been more resilient and are performing decently, I'd say. But the real asset performance overall will be, I think, dampened in the near term by those lower transaction volumes and the cyclical pressures on the real asset industry. On the private equity side, and I'll broaden it to private assets more generally, you know, as you alluded to, there has been a slowdown in capital raising, mainly among private equity as an asset class. But the tools that we are providing are really mission-critical that are needed by industry participants, and are still early in that adoption curve.
So we do see attractive opportunities on our Private Capital Solutions side of the real asset business. I think we mentioned that Burgiss for 2023 had mid- to high-teens run-rate growth, you know, despite some of those pressures. We continue to be quite encouraged about the opportunity and the outlook within that Private Capital Solutions offering.
Excellent. Why don't we, quickly, as a look at the time, switch to the other side of the ledger, the expense side? So maybe just talk broadly about expense philosophy. And then more specifically, I mean, you did give expense guidance. But how you think about it for 2024 and the puts and takes there?
Sure. So our approach to expense is consistent with our approach over the last several years, which is we are continually balancing investing for the long term. All these attractive opportunities that we've talked about, we want to continue to put expenditures and, importantly, our resources against developing new solutions, new content sets, new capabilities, go-to-market to unlock those opportunities, but at the same time delivering attractive period-to-period profitability and free cash flow growth. And so our expense guidance for 2024 is balancing those two dynamics. I would point out that the scenario, the market scenario that underlies our expense guidance is that AUM levels in ETFs linked to our indexes remained relatively flat for the first half of the year and then rebounds slightly in the back half of the year.
So, as we always do, we will continually monitor those levels, so the AUM levels, overall business performance and the outlook, and calibrate the pace of spend throughout the year. I would highlight that there is a heavy contribution from the acquisitions that we've done, most notably Burgiss, in the expense guidance and expense growth year-over-year. If you exclude the impact of Burgiss in the expense growth, the organic expense growth is more like mid-single digit to high-single digit growth. And within that mid- to high-single digit growth, we are growing what we call investment spend or investment dollars higher than the run-the-business expense. So we are always focused on, within our expense base, putting more of our resources against those things that are changing the business, so those things that are going to create outsized growth for us over the long term.
That relates to new products. It relates to new capabilities. It relates to, as I alluded to earlier, go-to-market, becoming more productive, efficient. Those are all things that we call investment spend. And so we are continuing to drive outsized investment spend relative to the run-the-business expenses. Just while we're on the topic of expenses and expenditures, I did want to highlight something that I mentioned in the year-end call, which was around the seasonality of expenses in 2024. So I mentioned that in the first quarter, we have about $10-$15 million of elevated benefits and payroll-related expenses that come in in the first quarter. If you are doing a comparison to the fourth quarter of last year, there is also about $15 million of stock-based comp expense that's coming through in Q1.
And so if you're doing that Q4 to Q1 comparison, there is about $25-$30 million of expenses that we didn't have in the fourth quarter that'll come through in the first quarter here. No change to the expense guidance for the full year. But it does create some elevated expenses and some elevated seasonality in the first quarter here.
I appreciate the clarification. At least you're not backing out stock-based comp. That's good. You're treating it as a real expense. We had a debate with someone about this yesterday. Anyway, last, maybe to finish up here, capital allocation. It sounds like M&A. I mean, obviously, you've done more. But also, I think the appetite seemingly is a little bit higher, maybe because prices have come down a little bit over the last few years. Look, what are the basic question is, what are you looking to add? What are the capabilities that you may be lagging? And then as you think about M&A, is there any framework for how investors should be thinking about, in particular in this environment, the parameters you think about when you approach M&A?
Yeah. So we always are looking for bolt-on acquisitions, as well as, more broadly, you've heard us talk about M&A partnerships. We think they can be a way to, one, accelerate our strategy and keep growth areas, but two, generate attractive returns. And so, the reason why you've seen a pickup in the bolt-on acquisitions recently is, as you alluded to, we've seen more of these early-stage companies who are willing to, one, engage around a potential transaction, but two, at more reasonable prices. Not always. And many of them still have very elevated expectations around the valuation that they need to transact. And so we will continue to be disciplined. But we are seeing some that are more willing to do something at a reasonable value.
and so it presents an opportunity for us, as I said, to accelerate the build-out of our capabilities and get unique content sets in key growth areas for us. And so, to your question, we're looking for unique content sets, like what we did with Trove, which is getting a very unique, well-built-out, research-driven content set around the voluntary carbon markets, which we know is something relevant to both investors and corporates and something that is a key part of our climate agenda.
It allows us to get unique capabilities for key client segments, like the wealth segment, which is what we did through the Fabric acquisition, which was we got a capability that allows us to broaden our value proposition to that core client that we are serving at wealth management organizations, which is the model portfolio team or the strategy team and helps bring together all of our content into a bundled value proposition to that wealth segment, which is very exciting for us. And then in the case of the Foxberry acquisition, which we announced recently, allows us to accelerate our custom index capability for specific use cases. And so these are both tactical and strategic. But they are ways for us to bolster our competitive advantage and accelerate our build-out in these long-term growth areas. And we'll continue to look at these opportunities.
In terms of the criteria we look at financially because you asked about it, we are heavily focused on the returns that we get. Yes, we look at the pro forma financial impacts on the business. But importantly, what is the return that we're getting from an IRR standpoint, from the capital we put in? But importantly, also cash-on-cash, ROIC-type returns. And how does that compare to alternative uses of capital, namely share repurchases? And so we are continually evaluating these opportunities against things like share repurchases, or other alternatives. And we will continue to be very, very disciplined around the risk-adjusted returns that we need to get on these opportunities.
Time is running out quickly. But I should at least ask if there's anything that we forget in the room. We do probably have mics. But with the 20 seconds we have left, I'll just lob a very quick one since we only talked briefly about the expenses. You mentioned the upside/downside playbook. You mentioned your expectations for markets doing better or AUM doing better in the second half. Markets are off to a good start. So seemingly, you could be running ahead. So are you already deploying your upside playbook a little bit? Or is it too early and too uncertain still?
I would say we are continually monitoring the outlook, the AUM levels and the business performance and continually calibrating the pace of spend. We have a number of different layers and dimensions of what we can release at various paces. There are certain things that'll impact near quarters and future quarters. It's something that we are actively looking at and, and monitoring and managing. Leave it at that.
Fair enough. All right. Very good. Andy, thanks for being here. And, yeah, have a great conference because you're still going to be here today and tomorrow.
Yes. Thank you for having us. Thank you all.