We will go ahead and get going. Thanks everybody for joining us this morning. I'm Patrick O'Shaughnessy, Capital Markets Technology Analyst here at Raymond James. Up next, we have MSCI, and on their behalf, we have CFO Andrew Wiechmann. Andy, thanks for joining us.
Of course. Thank you for having me. Always wonderful to be here. Great event, great turnout. Thank you for hosting.
Great weather. Format is just gonna be Q&A, fireside chat. With that, let's get going. I'll kick things off by diving into the thematic debate around AI disruption risk, shockingly, I'm sure. I think most people would agree that your index franchise has a tremendous moat, but let's touch on your other segments, starting with analytics. How would you frame the moat around your risk analytics and performance analytics businesses? As part of that question, how much do those software solutions embed your proprietary data?
Yeah. I broaden it actually to proprietary content. For sure there's proprietary data, but there are proprietary content elements to many different layers of the analytic services that we deliver that are for sure a key part of the differentiation, a key part of that value proposition, a key part of the reason why we are the premium provider of solutions out there among many other reasons. Maybe I can touch on the proprietary data or content point, and then touch on some of the other big differentiators for the services that we have to offer. On the factor analytics side of the business, the proprietary content is the key there. That is ultimately what clients are licensing, signing up for. They are proprietary risk models.
In the case of things like our equity analytics, they are deeply embedded in the investment and risk processes of many large financial institutions from asset owners to asset managers, importantly the trading community and hedge funds. Our factors are intimately linked to market movements, intimately linked to capital flows, and so they are something that clients need to have and that is truly proprietary. On the multi-asset class side, we also have private asset risk models or factor models which are truly unique. Our ability to do that is because we sit on a tremendous amount of and a long history of private asset fund performance across private equity, private real estate, private credit, infrastructure.
We have risk models that cut across all those dimensions that are truly unique in nature and a big differentiator for us on the multi-asset class side. Beyond our factor content that I alluded to on the multi-asset class risk and performance service that we deliver, there are proprietary data and content aspects of many different layers, starting at the client portfolio level. Part of the service we deliver is we aggregate every position that a financial organization sits on. We go through fund admins, custodians, brokers, accounting systems to collect every single position. We house that into a security master which has unique value. It's proprietary security master.
Then we tag to each of those security information and asset information, and we're getting that information from a wide range of third-party sources and proprietary sources in certain cases. We're using many different providers to allow us to validate, standardize, assure quality and provide transparency and traceability to underlying asset information. We have the truly proprietary security level analytics, so security level analytics that sit on top of that, which are things like pricing and yield curves, valuations, cash flow models, prepayment models, Greeks. These are all proprietary security level analytics that underlie our broader analytics services. Arguably most importantly are those analytic engines and analytic content that fuel our analytics business.
I already touched on the factor models and factor analytics, but things like our Value at Risk, our scenario analyses and covariance matrices, simulations, these are all things that are truly proprietary to us, and they are best in class out there. Part of the reason clients rely on them is not only the history, the quality, the stamp of approval you get by working with us, and we've been historically the leader across factor and market risk, but it's also the traceability. It's something that is a key input into regulatory processes for many of our clients. They're using it to fulfill their Basel III requirements, usage regulation, various other securities regulations out there.
You not only have to be totally confident in the underlying metrics, otherwise you are exposed as a client, but you need to be able to defend it oftentimes. Our ability to trace from the analytic engine and model all the way through to that underlying security in a reliable fashion is a big differentiator. Yeah, proprietary content's a big part of what differentiates us on the analytics side. I would also add on top of that the interoperability of our tools, the fact that our analytic tools are built on the same frameworks that our indexes are built on.
If you're trying to understand a sector exposure, a factor exposure, a climate exposure, a geographic exposure, you're using the same frameworks and language across our risk tools, our factor tools, our indexes, even our ESG and climate tools, as well as your private asset portfolios. We also benefit from scale benefits, the fact that clients with over $50 trillion of assets are using our enterprise risk and performance tools, which creates a huge opportunity to get unique insights into the market. For us, AI is much more of an opportunity set for us. We're extremely excited about the ability to broaden the range of services that we deliver to clients, make their lives more efficient, and bring together the wealth of content and capabilities we have across MSCI.
Super helpful. Thank you. Maybe just to build off of that last point.
Yeah.
You know, flipping the AI conversation, what are the some of the areas where you see AI as expanding your opportunity set and accelerating your revenue growth?
There's several layers to that. The foundational layer, I think probably every organization sees this, but there are tremendous productivity benefits to us. That's not just in our standard functions, every function that every organization's probably benefiting from. If you think about what we do, it is aggregating, standardizing all the things I talked about in analytics data, running the data through models, and then delivering it to clients through various channels. We get enormous productivity benefits, especially in those areas of unstructured, less standardized proprietary data that we sit on. We're seeing dramatic improvements. That frees up additional investment dollars for us. We're able to deliver the same attractive margins, profitability growth, but be able to invest a whole lot more in innovation.
Those innovations, we are seeing very exciting breakthroughs in areas like you've seen it recently, our IndexAI Insights. We've had our AI Portfolio Insights. Things like our geospatial datasets are purely, or could not be delivered without AI functionality and insights. Several of our new private asset capabilities are enabled by and driven by AI functionality. We are rapidly releasing capabilities that are truly enabled by AI. The really exciting stuff for me is being able to bring together, and I alluded to this in your first question, bring together the capabilities across the firm to deliver new experiences, new value-add services to clients.
We'll be coming out with in the near future, a basket builder capability, which you can think of as a natural language interface that allows clients to very quickly and easily develop a basket to achieve their specific objectives that will then translate through over time into custom indexes. Then underlying that, we are bringing together analytic capabilities together with index capabilities together with sustainability and climate, and over time, even private asset insights. This vision that we have had as an organization to be able to provide risk and performance within each asset class and across a total portfolio is really coming to life.
The network and ecosystem benefits that can derive from that allow you to connect a client's portfolio to what's going on in the market and allow them to very efficiently achieve their objectives are things that are starting to become tangible and so super exciting for us.
Focusing now on the index business for a second. You recently extended your ETF licensing agreement with BlackRock. BlackRock represented, I think, around 65% of your total ETF revenue in 2025. How would you characterize MSCI's relationship with BlackRock?
I would say it's very strong. It's definitely been super productive. Obviously, the signing of a 10-year agreement with BlackRock, I think is an indication that we collectively see tremendous value in the franchise that we've built together, but also the opportunity set ahead. That growth has been really extraordinary in recent years. We've seen success in not only launching new products, new content areas where we are a source of innovation for them, and they are also a source of intelligence for us around what the market's looking for and where there are opportunities.
We are also having tremendous success creating these very liquid large ecosystems, particularly in places like Europe, where we've been seeing tremendous growth in the assets in what is today a smaller ETF market than the US, but a market where we have a strong leadership position, and a lot of that's together with iShares. That success has been very fruitful for both of us. We're very excited about the future here. I mean, just looking at what we've seen over the last year and a half, but importantly, the last two months. You know, over the last two months within equity ETFs linked to our indexes, we've seen $97 billion of inflows in January and February. That compares to a record level of $67 billion in the fourth quarter.
Our prior record was the fourth quarter, where we saw $67 billion of inflows into equity ETFs linked to our indexes. We've already seen through January and February of this year, $97 billion. A lot of that is BlackRock for sure, its broader partners that we work with. There is tremendous opportunity to continue to build these franchises in markets, and we see a long trajectory of upside.
It's a very helpful data point, and I think kinda building off of that, I think last year inflows were a 12% tailwind to linked ETF assets. Sounds like this year, 2026, is off to a great start as well. How do you think about MSCI's role in driving those inflows versus BlackRock versus the macro?
Yeah. We play an integral role in driving those inflows. It's why ETF partners view us as a revenue center for them. Ultimately, the value we bring is we're helping them to attract assets, and we're helping them to attract assets that are willing to pay an outsized fee. The way we do that is a fewfold. One is, being that common language that is used within the investment industry, namely among the world's biggest institutions. They are using our indexes as their policy benchmarks. They're using those indexes to do their asset allocation, measure the performance of those allocations. Naturally, the investment community and assets are gonna be tracked along those same dimensions, which naturally fuels demand for tradable products and ETFs linked to those same frameworks.
Similarly, you have the managers that are then benchmarked against those indexes. For active management use cases, having the products linked to those underlying benchmarks is a critical differentiator. It's also, as I alluded to, driving innovation in new growth areas. It's been over time, fueling the growth of sustainability and climate strategies, where you've seen tremendous growth over the last 5 years. Factors, as I was talking about earlier, our factor franchise is tremendous, and that's one that ETF providers are very eager to work with us to license factor products.
Increasingly custom indexes and the reason why ETF providers wanna work with us on the custom index side is not only because we have the highest quality, flexibility, institutional-grade frameworks and reliability that fulfill very strongly all regulatory requirements, but it's because they are built on those same dimensions and frameworks that I was alluding to earlier. We've been also very rapidly developing two additional ecosystems that feed the ETF market. One is the wealth industry. As we continue to license wealth managers to use our indexes and model portfolio construction, that feeds downstream ETF usage, but then also the trading ecosystem.
As we are increasingly licensing index content and indexes to market makers, hedge funds, broker-dealers, they are increasingly developing over-the-counter products which naturally feed the listed products, both ETFs and futures. We are continuing to fuel for our ETF partners this rich ecosystem around the indexes. For sure, we rely heavily on our ETF partners for distribution, their knowledge, their insights, but we are continually bringing value to them and view that a key part of the growth opportunity ahead of us.
Does MSCI have the ability to diversify its ETF partners? If you do, is that really a desired outcome or are you pretty comfortable with your existing relationships?
We're always looking to maximize the ETF franchise that is out there, and that means not only fueling the very strong mutualistic relationships with players like BlackRock, but a long tail of most of the major ETF providers out there we are actively working with, and they, for the reasons I just highlighted, are eager to do more with us. We're continuing to find new partners from time to time. One of the things that's been so exciting about evolutions in the investment industry as well as tradable products, as well as the ETF industry, is this move towards systematic investing, towards custom products, custom indexes. That creates opportunities for many different ETF providers to differentiate, launch new products, create new franchises.
We are actively in dialogue with a wide range of ETF providers. Our goal ultimately is to maximize that ecosystem around our indexes and that means at times working with a wide range of providers. We are very intentional and thoughtful about who we work with where to make sure that we are creating those liquid ecosystems, differentiated products in the market that benefit not only us but our ETF partners. It is something we continually focus on but believe there's a big opportunity to work across a wide range of participants.
One area where your indexing franchise has seen a bit slower growth has been futures and options and licensing to futures and options exchanges, and that would stand in contrast to like S&P, for example, which has seen great volumes in the SPX. Are there levers that MSCI can pull to reignite futures and options volume growth?
You're right. The growth has been relatively flat for the last couple years. If you look at where we are relative to 10 years ago, we're quite a bit bigger, and you've definitely seen not only more run rate, but outstanding notional interest of listed derivatives contracts, but higher volumes. It has been, as I alluded to, relatively flat for the last couple years. If you look at where we are relative to some of the other players out there, you mentioned one of them, but even, you know, some of the smaller players have very liquid, robust, healthy contracts, or sorry, franchises around their leading indexes.
I think there is additional upside or there is definitely significant upside to what we can do within futures and options. A couple things to highlight. While volumes have been relatively constant, you have continued to see the OI continue to grow. That notional I alluded to continues to hit record levels. There is more and more contract usage out there. You see the liquidity removers, so asset owners, asset managers increasingly focused on using these derivatives as parts of their investment processes. We are actively, as I alluded to earlier, trying to fuel the trading ecosystem. As we continue to see the development of the over-the-counter markets in derivatives, that should feed the listed markets. That is something we're actively working on.
We are continuing to work with our exchange partners to get them to, you know, proactively work with their trading partners to figure out how they can optimize and make money around our index franchises. Related to that, you saw us launch options contracts with New York Stock Exchange slash ICE, where we've been tremendously successful on the futures front. There are cross-margining benefits between futures and options, as well as the established trading community around the ICE futures that should create opportunities on the options side. There are a number of areas where we do see upside. It takes time, it takes work, it takes conservative partnership with exchanges in the trading community, but it's one that should have enormous potential over time.
Shifting a little bit to the index subscription side of things, you've been seeing mid-teens run rate growth in custom indexes. What are some of the underlying factors driving that growth?
Yeah. It's been a particularly exciting area for us. We do believe it's a key growth area for our index franchise, but also the broader MSCI franchise over time. I alluded to the basket builder functionality that we're coming out with, which is closely linked to custom indexes. There have been a number of dimensions that have been fueling the growth recently. In recent quarters, particularly the fourth quarter, we saw tremendous traction licensing custom index content sets, in particular to hedge funds and the trading communities. Related to that, we've had tremendous success licensing custom indexes for things like over-the-counter derivatives, index-linked total return swaps, structured products.
Even within the more traditional active management process, we are seeing clients that are interested in creating custom index, custom benchmarks, especially as they move increasingly into systematic strategies. A custom index can not only be a benchmark for them, with that unique custom strategy, but it can also be a key ingredient into those strategies. I'd say the overarching theme that is driving the demand for custom indexes is this move towards personalized, rules-based, systematic investment portfolios, where an index is a very efficient and effective tool that can be used to underlie that. You obviously see it very directly in areas like direct indexing and model portfolios on the wealth side. You see it in insurance companies who are creating things like fixed index annuities.
There's a wealth of opportunities for us across the custom index opportunity. It's the reason why it's been the number one investment area for us, and we have a long trajectory of innovations and new capabilities that we're gonna be releasing that should further unlock that opportunity set for us.
Traditional asset managers are still the largest client end segment or end market within your index segment. Growth with those clients seems to have stabilized, if not modestly accelerated in recent quarters. How would you characterize or frame the health of that end market right now?
I'd say we've, as you alluded to, we've seen modest acceleration in growth with those traditional active managers. I would say there is for sure an element of innovation enhancements that we've been making. You've heard us talk a lot about the pace of new product introductions, the innovation, the enhancements in services we're delivering to clients. That definitely helps with some of the momentum that we've been seeing with active managers. There's likely, it's tough to be scientific about this, but there are likely elements of the overall market momentum, the market levels that feed into client confidence, you know, more favorable outlooks by these organizations. Ultimately, confidence is what feeds into buying decisions, there's definitely been some environmental benefits that are feeding through.
There are also some cyclical dynamics. You've seen rotations into international investing. We talked about this on the earnings call. Henry highlighted this, really over the last year and a half. As I was commenting earlier, you know, over the last even last couple months and the fourth quarter, we've seen extraordinary flows into international exposure strategies, funds. That is an area where we are a leader and have a natural leadership footprint. Around the margins, that is something where at the very least our content is adding more value to organizations that are already licensing it, but it does create opportunities for us to potentially license more to those organizations as well.
There are environmental factors that are helpful, but there's definitely elements of, and this is probably the primary factor, the innovation and new product introductions that we've been making. We see ourselves as playing a critical role in helping many of these active organizations transform their businesses to those models of the future, which relate to those more personalized systematic strategies. Many of the innovations we're coming out with around things like active ETFs, more broadly custom indexes, additional content modules that give our clients insights into markets and where markets are moving, are things that should be helpful on that journey. It's a very important client segment, as you know, across a number of dimensions, but we do see opportunity to do more with them over time.
I think another interesting opportunity for MSCI right now is private assets indexing. I guess the private asset space more broadly, but indexing in particular. I think there are a lot of, you know, serious competitors kind of going after that space. What is MSCI's right to win to build out private asset indexes?
Yeah. It is hugely a greenfield opportunity for us, and it's a massive one. We have a very strong, well-established position with providing private asset tools and insights today. Things like indexes, more advanced analytics, insights into evaluated pricing, liquidity, market dynamics, those are at the cusp of being unlocked. Just to provide some foundational overview as to what we do in the private markets today, we are on the Private Capital Solutions side, we are generally acting on behalf of the world's largest LPs, so we're a service that LPs sign up for.
When they sign up for our service, they basically tell the GPs, so the managers, "Send every communication that you would send to me to MSCI." We get every fund document, every communication, every performance report that they would send to the LPs to us. Using that information, we can calculate for the LP, here's the performance across the 100 funds that you've invested in, here's what is in those funds, and then start to do the analysis, and this is where the upside is on what is in those funds, what's in their portfolio. What is your exposure to certain sectors? What's your exposure to VC? What's your exposure to technology, to certain geographies in a consistent fashion? You can start to do analytics on top of that. What is driving the performance of my portfolio?
What are the risks that I'm taking? What is the value that a manager is providing to me? That all serves as a foundation to your point, to start to, provide real performance benchmarks. Here's how the market's performing, here's how I'm performing relative to the market, and then create things like tradable indexes around that. I wouldn't call it necessarily our right to win 'cause we need to do a lot, we need to move quickly. As you said, there are a lot of participants moving into the market, but we are very uniquely positioned because we have the best data. Historical data and current data that we are getting at a fund level, cash flow level, but also asset level information.
We're getting it as fast as anyone, if not faster than almost everyone out there, and it's the highest quality data. We are also, as you all know, deeply embedded within the largest LPs. They are using us already for their, as I was talking about on analytics, where they're using us for their total portfolio risk. They're already thinking in terms of MSCI frameworks, but they're also using us for their public equity benchmarks, where we are their policy benchmarks. We are a natural partner for them as they start to think about more robust benchmarking of the private asset space. You have to, related to that, think about the interoperability of our tools.
The fact that these insights, these frameworks, these indexes are built on the same risk models, the same sustainability and climate insights, as the broader range of tools that we are providing. We are very confident we've got the ingredients, we've got the footprint, and we are in the process of evangelizing the industry, and we're getting nice traction. We have to move quickly, but we think there's a tremendous opportunity on the private asset side for us to be a leader in providing not only those insights, those analytics, but also things like benchmarks and market tools for the investment community.
That all makes sense. Maybe as we wrap up here, just what are some of the key messages that you wanna make sure people walk away with?
Yeah. I mean, we are a couple things that I would highlight. We are at a extremely exciting point in MSCI's evolution, where we have, we believe, most of the content, the capabilities, that we need to revolutionize how investors invest, how they achieve their objectives efficiently, especially as the world moves towards systematic investing. AI is something that is allowing us to unlock that opportunity. It's unlocking additional data and insights into what we do, but as I said earlier, it's bringing together the capabilities that we have across the firm into these very unique workflows and services that can revolutionize the investment process. It's an extremely exciting time for us. We see tremendous upside and opportunity across a number of dimensions.
Patrick, if you don't mind, I just want to sneak in a quick modeling point here as well as time winds down. I think you're aware, you know, we do have seasonality in our expenses. The first quarter tends to be a period of elevated Adjusted EBITDA expenses related to bonus payments, benefit-related expenses, payroll-related expenses, which tend to be elevated in the first quarter. We also had this first quarter elevated stock-based compensation expenses. If you're looking at the comparison to the fourth quarter, Adjusted EBITDA expenses, the first quarter Adjusted EBITDA expenses are likely to be in the range of $30 million-$35 million higher than those Adjusted EBITDA expenses in the fourth quarter. No change to full year expense guidance.
you know, continue to be confident in the overall expense trajectory and tremendous operating leverage in the business, but just wanted to point out that one modeling point.
All right. Well, we'll all update our Excel models accordingly.
Thank you.
Thank you very much.
Thank you for having us. Appreciate it.
Thanks, everybody.