Good day, ladies and gentlemen, and welcome to the MSCI First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, where we will limit participants to one question and one follow-up. We will have further instructions for you at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Salli Schwartz, Head of Investor Relations and Treasurer. You may begin.
Thank you, operator. Good day, welcome to the MSCI First Quarter 2021 Earnings Conference Call. Earlier this morning, we issued a press release announcing our results for the first quarter 2021. This press release, along with an earnings presentation we will reference on this call, as well as a brief quarterly update, are available on our website, msci.com, under the Investor Relations tab. Let me remind you that this call contains forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made and are governed by the language on the second slide of today's presentation. For a discussion of additional risks and uncertainties, please see the Risk Factors and Forward-Looking Statements Disclaimer in our most recent Form 10-K and in our other SEC filings.
During today's call, in addition to results presented on the basis of US GAAP, we will also refer to non-GAAP measures, including, but not limited to, organic operating revenue growth rates, adjusted EBITDA, adjusted EBITDA expenses, adjusted EPS, and free cash flow. We believe our non-GAAP measures facilitate meaningful period-to-period comparisons and provide insight into our core operating performance. You'll find a reconciliation to the equivalent GAAP measures in the earnings materials and an explanation of why we deem this information to be meaningful, as well as how management uses these measures in the appendix of the earnings presentation. We will also discuss run rate, which estimates at a particular point in time the annualized value of the recurring revenues under our client agreements for the next 12 months, subject to a variety of adjustments and exclusions that we detail in our SEC filings.
As a result of those adjustments and exclusions, the actual amount of recurring revenues we will realize over the following 12 months will differ from run rate. We therefore caution you not to place undue reliance on run rate to estimate or forecast recurring revenue. Additionally, we will discuss organic run rate growth figures, which exclude the impact of changes in foreign currency and the impact of any acquisitions or divestitures. On the call today are Henry Fernandez, our Chairman and CEO, Baer Pettit, our President and COO, and Andy Wiechmann, our Chief [audio distortion] point out that members of the media may be on the call this morning in a listen-only mode. With that, let me now turn the call over to Henry Fernandez. Henry?
Thank you, Salli. Hello, everyone, and thank you for joining us today. When we spoke at our Investor Day in February, I pointed to our 50+ year track record of building standards and our continued role in transforming the global investment world. MSCI's mission remains to enable investors build better portfolios for a better world. Our excellent first quarter performance demonstrates the financial benefits of our mission and the ongoing strategic and disciplined investments we have made in the client experience in our client segments and in our solutions and capabilities. For the quarter, we achieved total revenue growth of 15%, adjusted EBITDA growth of 21%, and adjusted earnings per share growth of 30%. We also generated free cash flow of $205 million, doubling year-over-year.
At Investor Day, my colleagues and I spoke about MSCI's strategy to support the investment process needs of various client segments with highly differentiated solutions supported by best-in-class capabilities. I would like to highlight recent selected advancements within each of these areas. Within clients, I would like to emphasize the wealth management segment, where industry trends toward digitalization, designing of model portfolios, and incorporated sustainability criteria continue to drive significant demand for MSCI's offerings. A growing interest in direct indexing in wealth management is creating opportunities for MSCI. These personalized portfolio solutions leverage MSCI's models, data, and technology from across the entire franchise, including our index capabilities, optimization tools, and ESG and climate data. Staying on clients, let me also touch on corporates, our newest end segment, where we now serve 53 corporate issuers, 42 corporate advisor entities, and two distribution platforms.
We continue to see strong corporate interest related to our ESG and climate offerings. Corporate needs range from benchmarking against underlying ESG and climate data to licensing our ESG ratings for new sustainability-linked financings. I would like now to highlight our progress expanding and deepening our solutions in climate change, which is increasingly recognized as an existential threat to our planet and a major investment and portfolio risk. Put simply, we believe that addressing the impacts of climate change will require the largest reconstruction of the global economy since the Industrial Revolution. Capital markets are an essential and critical force to drive the transition to a net zero world, with concerted actions from all participants. These actions range from a reallocation of capital by asset owners, effective channeling of funds by asset managers and banks to greener investments and innovation, to decarbonizing operations by companies.
Last week, my colleagues and I, all participants in the global investment community to support a net zero revolution. We urge asset owners and asset managers to decarbonize their portfolios, effect change on companies through voting and shareholder engagement, and transition to investment policy benchmarks that reflect a path to net zero. Providers, users, and intermediaries of capital have a fundamental responsibility to reduce their impact on the planet and join the journey to a decarbonized economy as quickly as possible. Failure to identify the investment opportunities and risks related to climate change will result in missed opportunities and avoidable losses. We're also holding ourselves to the same high standards. MSCI, as a company, recently committed to reach net zero carbon emissions before 2040.
This commitment is in addition to our prior pledge to reduce by 2035 our Scope 1 and Scope 2 emissions by 50%, and our Scope 3 emissions by 20%. This past quarter, we also became an official supporter of the TCFD. We integrated climate risks into our internal risk management framework and announced our commitment to the UN Sustainable Development Goals. As we said in our call to action, the time to act is now. Regulators, asset owners and managers, and societies are all encouraged to adopt and adapt a net zero emissions targets, especially before the COP26 conference, later this year. Supporting the investment industry as it undertakes this enormous paradigm shift makes investing in our climate franchise a critical Triple-Crown investment priority.
At MSCI, we have an enormous opportunity to be a leading provider of all the necessary data, models, and technology to help all capital market participants accelerate this significant economic transformation. Let me now turn to our critical capabilities, where I would like to highlight a recent strategic development. Last week, we announced a strategic collaboration with Royalty Pharma plc, the largest buyer of biopharmaceutical royalties and a leading funder of innovation across the life sciences industry. Together, we will develop thematic indexes for the biotech and biopharma mega-trend. Royalty Pharma will provide MSCI with expertise on various medical conditions, clinical trials, transformative therapies, and technologies that may lead to breakthrough medical treatments. This knowledge and expertise will assist MSCI in the design of a classification framework and in index methodologies.
Just as MSCI has become a standard in market cap-weighted indices, we are building a strong brand in non-market cap-weighted indices, including ESG, Climate and factor indexes, and now thematic indexes capturing the major megatrend opportunities in the world. If you consider the sizable business we have built in market cap-weighted indices and the significantly larger and broader range of applications for non-market cap indices, you can quickly see why we are so excited about these opportunities. You already have a sense for the potential for ESG, climate, and factor indexes. Let me therefore take a minute to describe what we believe is possible with thematic indexes. Our thematic indexes provide investors a ready-made way to tap into societal megatrends that are creating both disruption and opportunities.
The three most significant megatrends we have identified include high-tech, for which we have partnered with ARK Invest, biotech, for which we have now this new partnership with Royalty Pharma, and clean energy, an increasing area of focus for investors and therefore for MSCI. We will continue to build partnerships in these areas and others to ensure we have access to best-in-class subject matter expertise. Before I turn the call over to Baer and Andy, I will take a few moments to describe our observations on our global operating environment. Notwithstanding the ongoing risks associated with the [audio distortion] rollout of vaccines provides hope for our collective health and [longish] unprecedented pent-up economic activity, starting in the U.S. Many financial markets are already reflecting this expectation. MSCI is very well positioned to benefit from the secular trends that are accelerating.
We need to continue to scale MSCI to ensure we appropriately capitalize on these significant opportunities ahead of us. As we continue through 2021, we remain deeply committed to investing responsibly in Triple-Crown opportunities in order to leverage on the established scale of our business. We are confident we can continue to create long-term value for all of our various stakeholders. With that, I would now like to turn the call over to Baer. Baer?
Thank you, Henry, and greetings everyone. I'll echo Henry's enthusiasm for the strong momentum with which we've started the year. Total subscription sales across MSCI reached a first quarter record high. Asset-based fees also achieved a milestone, surpassing $500 million in run rate. As I highlighted during our Investor Day presentation, our very deep client relations are central to our successful commercial model. 20 client [audio distortion] MSCI's global Net Promoter Score, the leading indicator of client retention and loyalty, increased to 45 points, up 6 points compared to 2019, and above the average scores for the financial services, enterprise software, and SaaS industries. In the first quarter of 2021, net new recurring subscription sales were nearly $34 million, growing 46% year-on-year by ESG and climate, as well as double-digit growth across Analytics, Index, and Private Assets.
MSCI subscription run rate expanded 11%, or nearly $140 million versus the prior . This included a remarkable 32% increase or nearly $44 million in ESG and climate's run rate, as well as a more than $60 million increase in index's subscription run rate. Total retention rate in the first quarter was 96.3%, up 130 basis points year-over-year. Henry noted our efforts with wealth managers. As you are aware, this is one of our very promising client segments. We had a $64 million run rate from wealth managers, up 28% year-over-year. We also continue to see strong growth and continued momentum in our more established client segments. For example, subscription run rate from asset managers and asset owners, which together comprise about two-thirds of total subscription run rate, were up 11% year-over-year.
Let me make a few observations about this quarter from a regional point of view. In EMEA, MSCI generated 16% subscription run rate growth driven by strong growth across product segments, but with particular success in ESG and climate as the forthcoming COP26 conference, the need for TCFD reporting, and the significant increases in net zero alignment spurred strong client activity. In APAC, new subscription sales are regaining momentum and grew 36% year-over-year in the first quarter. Business activity is returning to normal subsequent to the pandemic. In Japan, opportunities were created by new regulations on liquidity. Total subscription run rate growth was strong across the regions, growing 16%, 9%, and 8% year-over-year in EMEA, APAC, and the Americas, respectively. On the back of a great start to the year, our global sales pipeline remains healthy across both products and regions, as well as above the last year.
As Henry noted, the rapidly growing attention to climate risk has been a significant contributor to our sales pipeline, as MSCI's expertise is well recognized. To that end, we continue to enrich our suite of climate data, models, and technology. Let me provide a few examples. Following our successful introduction of MSCI climate scenario analysis models, including Climate Value-at-Risk, we are developing climate models for new asset classes, including fixed income. We also continue to enrich our data sets, including for Scope 3 emissions, and to strengthen our TCFD reporting solutions. We have completed TCFD reporting projects for some of the world's most prominent asset owners and institutions, ranging from climate risk portfolio-level reporting to temperature alignment comparisons to benchmarks. We recently launched MSCI Fixed Income Climate Paris Aligned Indexes, following our successful launches at MSCI Fixed Income Climate Indexes and MSCI Climate Paris Aligned Indexes.
Finally, coming soon, we plan to introduce cloud-native climate risk-focused application that showcases MSCI climate models and data. This offering leverages Microsoft tools and AI technology in connection with our broader efforts to deliver Investment Solutions as a Service. As Henry referenced, we're investing to capitalize on the sizable addressable opportunities in climate, including in areas like bank stress testing and corporate needs to capture climate stress tests. Both have the potential to become mandatory requirements in the future. Overall, MSCI's run rate from climate now totals over $20 million across the franchise. We expect this part of the business to continue to grow rapidly as we help investors evaluate, manage, and address climate risk in their portfolios. Before I move on from solutions, I'll provide a brief update on our progress in fixed income.
In analytics, our fixed income portfolio management run rate has expanded nearly 60% off a small but very rapidly growing base. We are gaining traction by bringing to market fresh solutions that improve upon the quality of models, workflows, and usability of legacy solutions. We're also benefiting from the investments we've made over the years to improve our single security analytics, factor models, and performance models. In ESG and climate, we're developing physical risk climate scores for US municipal bonds. We're also building new applications for our Climate Value-at-Risk tool, including for sovereign bonds. In Index, we have seen our clients continue to attract assets in fixed income ETFs linked to MSCI and Bloomberg Barclays MSCI indexes. AUM in those ETFs reached more than $20 billion at the end of the first quarter of 2021, growing more than 200% year-over-year.
As you can see, our strategy in fixed income is to differentiate ourselves by providing high-quality products that play to our specific areas of strength. Our ability to integrate offerings across the MSCI franchise also continues to be an important differentiating factor and driver for clients to turn to MSCI for fixed income solutions. Across asset classes, products, and data, we continue to prioritize an open architecture approach to enhance the client experience and flexibility across MSCI. Recently, we integrated MSCI's ESG research into our HedgeP latform, such that we can now provide ESG, and climate metrics calculated on position-level holdings, allowing hedge funds to support asset owner net zero goals. We're also further enhancing climate data integration capabilities in our risk management platform within analytics.
Given the strong momentum with which we've begun this year, we have accelerated the pace of our investments in key growth areas such as ESG and climate, fixed income, and private markets to enhance our data, research, technology, and client coverage. As always, we will make these investments in the context of our rigorous Triple-Crown Framework. Let me now turn the call over to Andy. He will speak more to our outlook as part of his review of our guidance, as well as further discuss our recent financial performance. Over to you, Andy.
Thanks, Baer, and hi, everyone. As Henry and Baer noted, we are encouraged by the favorable economic and market backdrop, and we are seeing a fairly healthy client environment. We're excited by the strong start to the year and the momentum we have developed across the business. In Index, we recorded subscription run rate growth of nearly 11%, now marking the 29th consecutive quarter of double-digit growth. As Baer noted, asset based -fee run rates surpassed $500 million. In Analytics, we saw a nice improvement in the retention rate to a record level, underscoring the leading and mission-critical nature of our solutions. Furthermore, Analytics continues to be a key enabler of our integrated franchise by helping build and distribute products in Index, ESG and climate, and Private Assets, ranging from calculation tools to modeling engines and flexible content delivery.
This was the first quarter we presented ESG and climate and All Other Private Assets as separate reportable segments. ESG and climate experienced a further acceleration in growth, growing 38% in revenue and 42% in run rate. Run rate in All Other Private Assets, which currently consists of our real estate business, grew 15%, as we are seeing strong traction with our revamped enterprise analytics offering in Europe. We showed operating leverage across all segments during the quarter. In Index and ESG and climate, revenue growth outpaced investment spending, and in Analytics and Real Estate, we had relatively flat expenses benefiting from continued savings in lower travel and entertainment expenses. Within our asset-based fee revenue, we saw solid performance across all components, with 27% growth year-over-year, fueled by exceptional growth in ETFs linked to our indexes.
Assets under management in ETFs linked to our indexes reached a record level of more than $1.2 trillion at quarter end, a record of approximately $1.26 trillion as of last Thursday. The exceptional growth in AUM during the quarter was driven by cash inflows of nearly $62 billion into equity ETFs linked to MSCI indexes, representing 23% of all cash inflows into equity ETFs, with continued strength in both developed markets outside the U.S. and emerging market exposures, where we captured more than 30% and 50% of all inflows during the quarter, respectively. At the product level, ETFs linked to MSCI ESG and climate Equity Indexes experienced cash inflows of nearly $25 billion during the quarter, representing 70% market share of all global ESG and climate equity ETF flows.
We are pleased to see the broader adoption of factor objective, with $10 billion of inflows into value and momentum factor ETFs linked to our indexes, which more than offset the flows we saw out of Minimum Volatility products. Our strong commercial and [audio distortion] success during the quarter translated into strong financial results. Our 30% adjusted earnings per share growth year-over-year was primarily driven by the significant revenue growth, with additional benefits from operating leverage and share repurchases at attractive prices. Turning to our balance sheet, we ended the quarter with a cash balance of approximately $1.75 billion after issuing $500 million in notes due at a coupon of 3.625%. In mid-April, we used the offering proceeds along with cash on hand to redeem all $500 million of our 2026 notes that had on 4.75%.
Pro forma for the redemption, we had about $1.2 billion of cash and a total debt to adjusted EBITDA leverage ratio of 3.3x within our targeted range of 3.0x-3.5x . With our leverage in the middle of our targeted range, I want to highlight that we continue to monitor the market and may raise additional debt if we see an attractive opportunity. We continue to be highly confident in our capital position, and our capital allocation priorities have not changed. We remain focused on reinvesting in the business as a first priority, dividends, adjusted EPS, and share repurchases with a strong focus on maximizing shareholders. This quarter, we returned more than $200 million to shareholders through dividends as well as share repurchases at an average price per share of $407.70. I'll now turn to our guidance.
We mentioned last quarter and at Investor Day our pace of investment may up or down based on the trajectory of our asset-based fees. We highlighted that our initial expense guidance was based on the assumption of relatively flat market levels for the year. This trajectory year-to-date, with AUM up nearly 15% as of last Thursday, together with the favorable outlook, gives us confidence to raise our upturn playbook. We're increasing our expense guidance range, reflecting our intent to continue to invest in Triple- Crown investments for future growth. As you know, continued investment in Triple- Crown areas remains a top priority for us. At the same time, we remain committed to building leverage and modest margin expansion.
We also reduced our tax rate guidance, taking into account the low rate in the first quarter, in large part driven by a windfall benefit from the vesting of stock-based compensation, as well as our current view on a number of discrete items. We increased our free cash flow guidance primarily to reflect our strong base fees and collections in the first quarter. In summary, the overall operating environment within many parts of the investment industry is healthier than it has been in recent quarters, and MSCI remains uniquely positioned to help investors across their most mission-critical needs. The first quarter was a very strong start to 2021 for MSCI. While the environment is likely to remain somewhat volatile, we believe we are well positioned for the longer term with our attractive all-weather business model, client-centric approach, and laser focus on establishing and solidifying standards for the investment industry.
Operator, please open the line for questions.
If you'd like to ask a question, please press star then one. If your question has an answer and you'd like to remove yourself from the queue, press the pound key. Our first question comes from Manav Patnaik with Barclays. Your line is open
Henry, I was hoping, just on your comments on the thematic side of your priorities. Can you just perhaps how big that is for you guys and how we should think about the potential there, really?
It's fairly large, Manav. When we sit back and look at the great business that we have built in market cap indices for equities, then we look at what we can build with more market cap indices ranging from ESG and climate and factors and thematics and the combination of all of that in equities, we translate all of that to fixed income and eventually translate all of that to equity and fixed income together in balanced indices, the opportunity is massive. If you were to think about the ultimate goal is every investor has a portfolio, every portfolio needs an index of some sort. We believe that the opportunity for non-market cap indices should be much bigger than the opportunity for market cap indices that we've created.
Okay, got it. That's helpful. Just on capital allocation, right? It sounds like obviously Triple-Crown Investments remain one. The partnerships obviously continue to be a focus to you guys. I was just curious, in terms of just outright M&A, how much of a pipeline or priority is that even for MSCI at the moment?
We continue to be extremely focused on organic investment opportunities. We have a very wide, deeper, and higher range of investment opportunities than we have ever seen, honestly. I think the set of opportunities in all aspects of what we do are accelerating from climate to ESG to non-market cap-weighted indices to fixed income to with more technology to the data, especially in ESG and climate, et cetera. Very, very focused on organic investment. Accelerator of the organic investment is clearly the partnerships. We cannot do it all together, we look for partnerships with people that have data, that have models, that have technology, that have distribution, et cetera. Some of those partnerships investment on our part in their capital structure. That hasn't traditionally been the case, we're open to that. We review the overall sort of M&A landscape always.
It's a fiduciary duty to do that, both small and large companies. Obviously, we look at it, we analyze it, but we continue to remain very focused on our strategy of building one MSCI with organic investments and selected bolt-on acquisitions.
All right. Thank you very much. That's good to hear.
Our next question comes from Alex Kramm with UBS. Your line is open.
I think you may have addressed some of it already, the strength in ESG and climate sales, can you flesh out a little bit more? You obviously mentioned some of the regulatory changes in Europe, it seems like those have benefited, can you maybe isolate those? Was that a very big contributor? Do you think that's sustainable for the near term as, I guess, more people have to get ready to comply, is it really just more of the same when it comes to ESG sales? Just a little bit more color would be helpful.
Sure, Alex. Look, I think that in terms of ESG, it is an acceleration of everything we've discussed previously on these calls. What was really striking is we had an asset owners survey in the last quarter, and it is actually in North America and the U.S. and Canada that ESG and climate is the number one concern of asset owners. That is for sure an important, I would say, change or acceleration, in addition to the things you mentioned, the regulatory context in Europe, et cetera. I think the other thing that's clearly happening is the weight of climate increasing in the ESG and climate mix. We've had extraordinary amount of interaction with clients related to climate-adjusted portfolios, transition risk, 1.5 degree alignment, et cetera.
The ESG trend is strong and is continuous, and the conversations and the client interest related to climate are going up even more dramatically in tandem.
All right, great. Secondarily, also coming back to the thematic points that you made this quarter, I guess one of the things I'm curious about on the market cap weighted indices, you've done a great job, obviously, establishing network effect, and that's why you have great economics there. In some of those areas of thematic factor and ESG, it seems like you're establishing that network effect, and it's very small. In some of those new areas like, I don't know, high tech and pharma that you talked about, it seems to me a little bit more like retail-ish, and maybe I'm taking the wrong approach here, but I just wonder how easy it is to really establish network effect and actually extract good pricing or that kind of stuff gets competed away as there may be 20 different pharma indices and 30 tech indices.
Nobody really cares what they do. I guess talk to that a little bit more of why you think you would in those areas. Thanks.
Yeah, no, that's a great question, Alex, because we asked ourselves that same question over and over again. The first thing to note is that there has been institutional investment into these areas. The way that I normally would explain that is that compared to maybe 10, 20 years ago or so, there are very large structural changes going on in the global economy and the global investment universe that are not totally reflected in market cap indexes, for example. The traditional way that institutional investors invest will be either benchmark to a market cap index, an MSCI, for example, and their equity portfolios. Those new areas of clean energy and bio, more high tech and all of that are not yet reflected in the asset allocation of those indexes because they're on the come.
What we are seeing is a lot of those institutional investors are looking to put a segregated amount of their assets into those themes and those areas in order to sort of anticipate what is going to come in the future. A lot of what we're doing in these areas is largely for institutional investors, not necessarily for retail investors. Hopefully, we'll get that as well, but that's the direction of travel. Therefore, do we believe that we can build a large network effect as it relates to that because it's similar to ESG and climate. A lot of institutional investors are taking part of their portfolio and allocating to ESG-biased investment products with our indices or climate-biased portfolios, and the network effect associated with that. We think we can continue to build this powerful franchise across the board.
Now, the other part of the ecosystem is how do we build benchmarks for active indices for passive, and then the construction also of the development of derivative products, whether it's structured products or whether it is over-the-counter options and swaps and listed options and listed futures. With the dialogue that we're having with our partners in the broker-dealer community and the investment banking community and the exchange community with respect to ESG and climate and thematic it's always been in the past market cap weighted indices. The majority of the discussion today is about thematic indexes, and it's about ESG and climate indices.
All right. Very helpful. Thank you.
Our next question comes from Toni Kaplan with Morgan Stanley. Your line is open.
Thank you. Hopefully, this isn't too much of a repeat of a prior question. Henry, you mentioned with climate, we're looking at a paradigm shift. Maybe you can just expand on how you see this sort of playing out. Is this a significant bump in the next couple of years as people integrate climate and ESG into their thinking on investing? Is it that over time you can keep building new solutions and what you do best? Just trying to understand how sustainable this is or if this is just a massive couple year growth spurt.
Well, it is fairly front-loaded but is not front-loaded and then it peters out or slows down. We're going to be talking about this for the next 10, 20 years in a big way. Point one, Toni. Point two is that it cuts across everything we do, from indices to analytics. We're repositioning a lot of our analytics for climate impact on climate risk in the portfolios, climate reporting and all that. It clearly affects the private asset classes. We talked about real estate and how do we decarbonize? How do we look at climate change in the context of properties in coastal cities and all of that. Of course, in the ESG climate segment as well. It cuts across everything that we do.
If you were to think of what is the number one largest opportunity of MSCI in the next few years and going on for a decade or two, it will be climate. Therefore, we want to position MSCI as the leading provider or a leading provider of climate solutions to the whole global investment industry as a whole. We also have an opportunity to expand significantly into the issuer market, which has not been traditionally a place where we have been with corporates and other forms of issuers to help them in this incredible transition that will take place. This is a massive opportunity for us, and it's not backdated, it's not back-ended. It's now, and you're seeing the dialogue that is going on.
You're seeing the momentum in our sales, from obviously a very small base, but it's going to be a massive opportunity for.
That's great. Maybe Andy, this might be for you, just looking at the guide for a second, you raised free cash flow by about 5% at the midpoint for the full year. I don't know what your 1Q expectation was, but I'm guessing that 1Q came in better. Just is the higher guide a reflection of the beat? Like why wouldn't the trends that you saw do really well in 1Q continue for the rest of the year? Thanks.
Yeah. Thanks, Toni. Maybe I can spend a second on Q1 and answer your question about the strong performance, then I can extrapolate to the full year. As you alluded to, we did have very strong cash flow performance in the first quarter. The story was really around collections for us, on two fronts. One, business growth was stronger, very strong growth across the business. Two, also very strong collection performance for us. The first quarter also, we did benefit from some shifts in interest payments, which was affected by the recent financings that we've done, those will normalize throughout the full year. The biggest impact for the full year, to your point, is the picked-up business growth.
I think the collections activity will normalize quarter-to-quarter. The bigger impact is really just the stronger business growth, which we tried to reflect in the guide.
Thank you.
Our next question comes from Craig Huber with Huber Research Partners. Your line is open.
Thank you. My first question, can you, Henry, maybe touch on this, your options area. Just give us an update there, if you would please, in terms of going forward, what we should expect there. Are there new additional exchanges, for example, you're looking to get involved with there? What's the game plan here to get this area moving? Because one of your major competitors obviously gets a lot more revenue, north of 15% of the revenues from this area, and you guys, it's much smaller, but it's a heck of an opportunity for you as I view it. Thank you.
Yeah. Let me give you the business answer, and then Andy can provide some commentary on the shows. This is an area of significant expansion in all of MSCI, with our exchange partners around the world. As we have noted before, most of the market for listed options and futures in the world is a single country, single currency, index futures. In some cases, when it is multi-country, it's single currency, futures and options. This is an area prime for innovation, prime for expansion and creativity, which is what we're doing with our exchange partners, in all regions of the world. We're now also increasingly doing certain partnerships in emerging markets. We announced, obviously our partnership with Colombian Exchange, for example. We've had a partnership with the Saudi Exchange and the like. That's something that we'll continue and innovate.
What we're now talking to a lot of our exchange partners, as I said in my prior comment, are how do we go from market cap-weighted indices through ESG index futures and options to thematic? We recently launched a China tech index, for example, that we're in the process of licensing to an exchange for listed futures and options. That would be an example of expansion of the model that moves to banks and broker-dealers and their activities in structured products and in over-the-counter options and all of that, which that's also expanding significantly. We are becoming a large provider of basket building indices for broker-dealers and banks for them to then do their over-the-counter structured products. It's a whole ecosystem that we're building. Andy, on the financials?
Craig, as we've talked about in the past and as Henry just underscored, continue to be very bullish about the opportunity for us longer term in both listed and over-the-counter derivatives. In the current quarter, there was some points to flag here. Importantly, the comp, it's a tough comp. When you look at the first quarter of last year, that was a period of highest volatility and as a result, highest volume in derivative contracts traded. When you just do that comparison, there was a drop in year-over-year volumes. Given that we price and get paid based on the contract volume, that will impact the revenues that we receive. It is worth noting, the run rate did pick up, which you probably noticed. That was as a result of some of the repricings of agreements with our exchange partners.
It's worth noting this is the last quarter where you will see that benefit, so that was baked in as of Q2 of last year. Going forward, you won't see that pricing benefit in our run rate and will be much more tied to the contract volumes. I would highlight that specifically one area where you're seeing contract volumes pick up, but it's still behind, is the transition from SGX to Hong Kong Exchanges. Seeing the franchise and complex on Hong Kong Exchanges are to build out, but relative to where the volumes were on SGX are lighter today. When you start to do historical comparisons, volumes will look a bit lower.
Over the long term, we continue to be very bullish in this area, and that will translate not only through to the asset-based fee component, but also helping to drive some of the index subscription revenue as well, which is where we see the over-the-counter piece.
Also, guys, if I could just ask you, institutional passive products, direct indexing, can you size that for us as a percent of your revenues? How big of an opportunity is that right now, and is the game plan in Europe, how is that evolving versus the U.S.? Thank you.
Yeah. Non-ETF passive, as we call it, which it's really comprised of a few areas, what we call institutional passive. There's also index-based mutual funds, which are more retail-oriented, generally. Increasingly, there is direct indexing, which will show up or could show up in that revenue stream. It's an area that's been strong growth and extremely resilient, which you can see by the growth rate, which we've seen actually double-digit growth in each of the last six quarters within the non-ETF passive line, despite the market volatility. Relative to ETF, we actually see fewer redemptions and outflows in periods of volatility.
As we've mentioned in the past, the fees have been quite resilient in this area, as we're seeing tremendous growth in non-market cap mandates and non-market cap, non-ETF launches and products there, where the fees tend to be a little bit more resilient, or in certain areas, actually, we get higher fees. Just to dimension it for you, there's now about $2.7 trillion of assets under management in non-ETF index funds linked to our indexes. You can tell by the run rate continues to be a strong growth area for us, and it's a big focus for us, an increasing focus for us, and we see opportunities across all regions. One of the big drivers here really is the transition to ESG and climate. We're seeing tremendous growth in the non-ETF AUM bucket in ESG and climate indexes.
Overall, area we're focused on and should continue to grow for us.
Great. Thank you.
Our next question comes from Owen Lau with Oppenheimer. Your line is open.
Thank you. Thank you for taking my question. MSCI continues to gain traction in corporate. Henry, you mentioned some numbers on the prepared remarks. Could you please talk about what specific products are driving the growth there and also the outlook? Thank you.
A lot of what we're doing there so far is selling the underlying data and ratings, which, as you know, are organized along industry lines, sector lines to the corporate. If you're a corporation and you want to know what your rating is, and you want to compare that rating and the underlying information in the reports to other participants in your sector, in your industry, and if you want to do cross-sectoral comparisons, for example, then that's what you're getting. That's the corporate themselves. We also, as I noted, sell the information and the ratings to the corporate advisors. That could be accounting firms, could be investment banks, could be strategy consulting firms, et cetera.
Could be specialized advisors that are trying to help those entities figure out how to deal with all their ESG disclosures, their ESG data abilities, and increasingly, we will see as time goes by, their net zero pledges that they need to make, et cetera. This is a very fertile for us. As you know, just in ACWI IMI, there are 9,000 companies, and therefore, calling on or having 50 out of the 9,000 is a very small penetration. Now, increasingly, we're not there yet, but we're also going to begin to help many of these corporate entities think through with respect to climate, what their data projections should be, what their position with respect to emissions should be, with data, models, analytics. That was what Baer Pettit was referring to on that platform that we're building on top of Microsoft.
Again, another area of fertile growth for us.
That's very helpful. Then for the first EBITDA expense guidance, Andy, you raised guidance by around $15 million-$20 million. Could you please talk about how much of that was driven by top-line growth and how much of that is driven by the reopening of the economy, like higher T&M, maybe healthcare costs? Thank you.
Well, the two are related. It was definitely driven by the top-line growth and most notably an acceleration in the ETF growth rate and AUM in ETFs linked to our indexes, as well as accelerations in key parts of our business like climate and ESG, as you can see by the tremendous success that we're having there. Just as a reminder, when we set our guidance at the beginning of the year, we said that was based on the assumption of relatively flat market levels. Clearly, markets have improved thus far this year, and we feel pretty bullish about the outlook for the balance of the year. So those two inputs feed into our calculus in terms of how much we want to go to our upturn playbook.
The increase in guidance is really reflecting the momentum we're seeing in our business, but also the more bullish outlook that we see in the economy, in the markets, and our clients more broadly. We are turning our upturn playbook to invest in the Triple-Crown areas we've talked about in the past, and the areas that are driving our growth. It's in areas, non-market cap-weighted indices, areas like climate and ESG, as well as the data technology that supports both of them, and areas like research and go-to-market that are going to help continue to fuel these growth engines for the company. We're, as we've said we would do, and as we've done in the past, accelerating our investments when we see the opportunity to do it, and we think this environment lends itself to it.
Got it. That's it from me. Thank you.
Our next question comes from Simon Clinch with Atlantic Equities. Your line is open.
Hi, everyone. Thanks for taking my question. I was wondering if I could follow on from the opportunity on the corporate customer side. I'm just kind of curious as to how to think about how those customers are coming, sort of entering this business with you, in terms of size. When you take on a new corporate customer, are they toeing in, and is the ultimate opportunity for the individual customer to spend multiples of what they spend today, is that very much present and the real opportunity for you as well as just growing the number of customers? I have a follow on to that as well.
Clearly since this is a new segment for us, we're trying to start with a very direct and value-added and narrow set of offerings, which is the ESG ratings, and all the information and the data that goes with the ratings of that particular corporate and the comparison of that ratings to others in their industry and across industries. We have established a specialized sales force of a handful of people around the world to do that. As we build momentum and more success, we're going to reinvest a lot of the incremental revenues into expanding the sales force and the client coverage of that. On top of that, there are significant opportunities, and have large multiples of the revenue that we're getting as we go into other products and services that we can provide those companies, such as what I was talking about in climate.
We're not there yet. We're trying to make sure we go in a systematic approach to this, one step at a time, in a new area that we are covering. I would anticipate that there will be a fairly rapid expansion of our product set there, our sales force, and our sales and our run rate, and obviously more to report on that in coming quarters.
That's great. Just to follow on with that, when you talk about the advisory entities that you're selling to as well and the distribution patterns, are you viewing those as effectively opportunities to expand much faster given the limitations of your existing sales force, or do you view them as completely new, separate customer sets to those corporate customers, the direct corporate customers that you're targeting as well?
No, we clearly view those as separate. I think when you refer to the advisory firms, that's in the wealth segment overwhelmingly, so that's discrete from the corporate segment. We believe it's a pretty large opportunity for us.
Sorry. Yes.
Is that we-
All right.
Yeah.
Yeah, that makes sense. Thank you.
Let me just clarify, if you don't mind. I think what you were referring to, which is the comment that I made, is there are advisors to companies, such as the accounting firms, such as the investment banks, and all of that are advisors to the CEO, to the CFO, the treasurer, and the board of directors of those companies in trying to understand the ESG landscape, their ratings, their disclosures, what data they need to provide, et cetera. What we view these corporate advisory entities is in two categories, is the category of augmenting our sales force, into the corporates. Secondly, for them to provide advice with the data and the tools to the companies that were not in a position to be advising them as to what to do to enhance their ratings or enhance their disclosures and things like that.
We have different type of advisor networks, like financial advisors and investment advisors and whatever. In the corporate advisory segment, we're talking about the advisors to the companies, and it's in both categories. We're augmenting what we're doing, using them as a channel, and therefore, hopefully relying on them to be providing advice to the companies as to what to do with the data and the ratings.
That's exactly what I was thinking. Thank you.
As a reminder, to ask a question, please press star then one. Our next question comes from Keith Housum with Northcoast . Your line is open.
Good morning, guys. Hey, Andy, just trying to unpack the upturn playbook a little bit more and try to understand the $15 million-$25 million in additional expenses. As you think about the rest of the year, how does that compare to, I guess, what your original plan was in terms of % growth? What is also taken into consideration, I guess, a return to a more normalized work environment, if any?
Just to dimension that, as I said before, and we've mentioned, the original guidance was based on the assumption of relatively flat market levels. ETF AUM is up nearly 15% on the year. Non-ETF passive is up strongly, and we expect to continue to rally strongly. Just those two-line items alone are driving some pickup in our revenue above that baseline assumption when we set the guidance back at the beginning of the year. We're seeing strong growth in areas like ESG and climate. When you look at the growth, the increase in expense guidance, the midpoint going up about $20 million to your point, that's an increase in expense growth rate of 2.5%, which is relatively modest in the grand scheme of the impact on revenue that the pickup in ABF has for us.
We continue to be able to drive strong positive operating leverage, but really continue to drive investment in these key growth engines for the firm and continue to accelerate these Triple-Crown opportunities. To your second question about the return to kind of a pre-COVID world. I would highlight in the first quarter, there was about a $3 million benefit from COVID-related expense benefits. Obviously, that starts to go away in future quarters, where a year ago, we were getting those benefits as well. We do have some assumption about a return to normalization, but it's not a full return. Just to give you some numbers to dimension that.
Got you. Coming back to that $20 million increase in the upturn playbook, as you look at your operating expenses, how much of your operating expenses are currently invested in future growth, if it's the data centers or new solutions, new products?
I broaden it to our, and we talked about this at Investor Day, to our investment portfolio or change of business expenses, which is about $150 million of expenditures. That's against our total expense base plus CapEx, we define our expenditure pool. Of that total pool, call it about $150 million, is in these kind of change of business Triple- Crown areas, and these are the areas that we're going to really be accelerating.
Okay, great. Thank you.
What I would add also is that the expense growth in our business as usual, maintain the business, is not very high. It's relatively muted. Therefore, our game plan, in the context of continuing to have modest leverage, operating leverage expansion or margin expansion is to increasingly squeeze the operating expenses of the running the business in order to transfer more and more of money into the investment plan. Therefore, the investment numbers are growing clearly much more rapidly than the overall expenses in running the existing business. As all of you know this, but I'd just like to clarify one more time, is that sometimes we talk about expenses. I just want to be very pointed that the large majority of these incremental EBITDA expenses are investment in Triple- Crown investment types.
As you know, the Triple- Crown is in areas of high growth, like index and ESG and climate, with high rates of return and fast paybacks, and hopefully in areas that have high multiples of valuation.
Great. Thank you.
Our next question comes from Sameer Kalucha with Deutsche Bank. Your line is open.
Hi. Thanks for taking my question. The thing I wanted to get some color on was the Investment Solutions as a Service initiative that you announced on the Investor Day. You announced there were four services that were going to be launched in 2021. Just wondering if the launch was on track. That's one. Number two, would the pricing be any different when customers use your solutions as a service versus regular contracts that they have right now? Would there be any difference in pricing and margins?
To some extent, some of that is a relabeling of what we currently do. Investment Solutions as a Service, Data Management Solutions as a Service, data as a service. In some cases, it's a new product and a new service. For example, ESG data as a service is definitely a major expansion of what we're trying to do. During the lead-up to Investor Day, as you know, we had a number of discussions with shareholders and analysts as to what they would like us to consider and work on, and the number one category was for us to expose our ESG and climate data way beyond the ratings products, the screening products, and the index products, right? That would be an expansion.
Another area of expansion is data management as a service to many of our clients, including our analytics clients, in which data management in their internal workflow is one of the biggest pain points. We're very good at that, so we are expanding that capability to do that, not only as a support to selling of our products and services, like analytics, risk and performance analytics, but also on a stand-alone basis. That would be an expansion. When you think about that totality, what is a relabeling, obviously, the pricing will be about the same as before, and what is a new service, we will definitely be looking at a new pricing of that. All of this falls into the category of something that we had talked about before, which is what we call colloquially at MSCI is renting the kitchen, right?
We have a great kitchen that creates great food, great experience. We want to expose that kitchen to people as well, right?
Got it. Thank you.
Our next question comes from Greg Simpson with BNP Paribas. Your line is open.
Hi there. Thank you for taking my question. Is it possible to find out if you have any updates on the partnership with Burgiss? I think you've said you've got quite a few products and solutions you've been working on. I'm wondering if you have any more color on the timeline around any launches. It seems the industry trend towards private markets seems to really be intensifying right now. Thank you.
Sure. I think, the main thing we've been focusing on is just working with Burgiss on running and optimizing their business day to day. There's a new president at Burgiss, as we've mentioned before, Jay McNamara, who used to be at MSCI. A lot of our emphasis is just working with them as a partner to grow the business every day, every week. Additionally, this quarter, we've been doing a lot of work on our private market strategy. That has a variety of different avenues in it related to both working together on their data platform, working on plans for ESG and climate for private companies, and our future path in areas such as real estate, which span across both assets that we have at MSCI and those in Burgiss.
There's a lot of work coming on there, and we'll likely have more products coming out during the second half of the year that come out of the work that we're doing at present.
Thank you. Then just quickly on the firm-wide ESG and climate run rate, which I think is now at $254 million. Is it possible to have some color on how this splits by geography, if possible?
Yeah. We'll have to follow up on that question. I'm not going to provide the exact breakdown right now by the two components. As you would imagine, on the index side, there is a heavy component that is asset-based related, and a lot of that tends to be U.S.-listed products, and very attractively, a lot of that flows into U.S. exposure funds, which as you know, is a place where we historically haven't had a strong presence, but it continues to be a driver of us capturing market share on flows into U.S. exposure products. Overall, I'd say that the run rate is pretty well spread across geographies with a heavy emphasis on EMEA and Americas. They're all growing at a nice clip, and as Baer mentioned in his prepared remarks, the EMEA run rate on the climate and research side has been growing at an incredible clip.
Great. Thank you.
Our next question comes from Patrick O'Shaughnessy with Raymond James. Your line is open.
Hi, good afternoon. Just one question from me. Is there an opportunity for MSCI to develop crypto indices and other crypto solutions? How might the massive energy consumption of the crypto economy impact your decision-making on that front?
We have been studying that deeply, investigating all of that, as you know well, at the top of the house, at the top of the thing is, there are 2 types of currencies. There is the central bank and digital currencies, which China obviously is leading the pack there, we're evaluating what impact of that would be on the pricing of financial assets, for example. There is the cryptocurrency, which is a little more like a gold type of investing. We're definitely looking into that to see what impact. We haven't come up yet with the right products or the right indices. We're analyzing that importantly. The second part, yes, cryptocurrencies have a role to play in climate change because of the energy consumption there.
That's another area that we're looking into, is how do we combine the topic of cryptocurrency with the topic of climate change. More to come on that in the future.
Thank you.
There are no further questions. I'd like to turn the call back over to Henry Fernandez for closing remarks.
Well, thank you, everyone, for listening. As you can see, we have enormous opportunities in front of us. We are very relatively bullish on the operating environment, and therefore, we'll step up our pace of investing, and continue to do that at the same time as having some modest margin expansion. Thank you very much, and we look forward to your questions, your comments, also, to Salli and the team.
Ladies and gentlemen, this does conclude the conference. You may now disconnect. Everyone, have a great day.