MSCI (MSCI) Q3 2025 Earnings Call Transcript

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DATE

Tuesday, Oct. 28, 2025 at 11 a.m. ET

CALL PARTICIPANTS

Chairman and Chief Executive Officer — Henry Fernandez

President and Chief Operating Officer — Baer Pettit

Chief Financial Officer — Andy Wiechmann

Head of Investor Relations — Jeremy Ulan

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TAKEAWAYS

Organic Revenue Growth -- 9% organic revenue growth, as reported by management.

Adjusted EBITDA Growth -- 10% adjusted EBITDA growth, reflecting operational leverage.

Adjusted Earnings-Per-Share Growth -- Over 15% adjusted earnings-per-share growth, according to management.

Share Repurchases -- The board authorized an additional $3 billion for buybacks over the next few years, with $1.25 billion repurchased since the start of the quarter and over $1.5 billion year to date.

Total Run Rate Growth -- Over 10% total run rate growth, including a 17% increase in asset-based fee run rate.

Total AUM in Products Linked to MSCI Indexes -- $6.4 trillion globally, with $2.2 trillion in ETFs and $4.2 trillion in non-ETF products.

Record High Asset-Based Fee Run Rate -- Nearly $800 million asset-based fee run rate, attributed to AUM gains in both ETF and non-ETF categories.

Index Segment Recurrent Net New Subscription Sales Growth -- 27%, with 43% growth in the Americas, highlighting client demand for index products.

Analytics Segment Recurrent Net New Sales Growth -- 16%, mainly from increased adoption by multistrategy hedge funds and new private credit risk tools.

Private Credit Factor Model Launched -- Based on data from over 1,500 private credit funds, offering enhanced transparency for a growing asset class.

MSCI PAX Introduction -- New AI-powered Private Asset Classification Standard launched, covering private companies, real estate, and infrastructure assets.

Index AUM Inflows -- $46 billion into equity ETFs linked to MSCI indexes, with notable traction in developed-markets ex-U.S. and emerging-markets products.

Index Segment Subscription Run Rate Growth -- 9%, including nearly 8% with asset managers, reflecting geographic and product category contributions.

Index Retention Rate -- Nearly 96% index retention rate, indicating durable client relationships.

Analytics Segment Subscription Run Rate Growth -- 7%, bolstered by 29% growth in equity solutions and strong hedge fund adoption in the Americas and APAC.

Sustainability and Climate Subscription Run Rate Growth -- 8% for the reportable segment, with 6% from sustainability solutions and 16% from climate solutions.

Sustainability and Climate Retention Rate -- Almost 94% retention rate, signaling continued client reliance.

Private Capital Solutions Sales -- $6 million in new recurring subscription sales, including penetration into endowments, foundations, and general partners.

Real Assets Retention Rate -- 93.3% retention rate, with new offerings such as data centers gaining traction among GP investors.

Expense and Free Cash Flow Guidance -- Raised lower end of expense guidance reflecting AUM-driven expenses; free cash flow guidance was increased for full-year 2025 due to business growth and tax benefits.

Active ETF Index-Linked AUM -- Nearly $30 billion of index-linked active ETF assets, contributing new revenue streams and up 10% quarter over quarter.

Fixed-Income ETF AUM -- Approximately $90 billion in AUM in ETFs linked to fixed income indexes, with the large majority linked to sustainability and climate indexes.

Equity ETFs Linked to Sustainability and Climate Indexes -- About $360 billion AUM, including $135 billion in climate-specific equity ETF AUM.

Non-ETF Climate AUM -- Approximately $316 billion, underlining institutional adoption of climate benchmarks.

AI-Powered Product Revenue -- $15 million to $20 million in revenue from 25 new AI-powered products sold this year, according to Henry Fernandez.

AI-Driven Efficiency -- Henry Fernandez stated, "We have basically saved hundreds and hundreds of employees, new hires of employees, by using AI in private assets, for example, in private capital solutions, in sustainability, in climate. For example, this geospatial product that we have is all based on AI. And the like. So that has created incredible efficiency for us, tens of millions of dollars. That are not yet, you know, that are just the beginning of what we can do."

Private Credit Database Scale -- Compiled terms and conditions on 80,000 loans covering 14,000 borrowers across 2,800 funds; 60 to 80 new private credit indices launched in the past few months.

Guidance on Sustainability and Climate Segment -- CFO Andy Wiechmann said, "the pressures we've been seeing there, how we expect to continue in the coming quarters."

SUMMARY

MSCI (NYSE:MSCI) reported broad-based revenue and run rate growth, driven by demand for index, analytics, and climate-related solutions, as well as continued product innovation. Management completed significant share repurchases and secured future buyback capacity, demonstrating conviction in the company's equity value. New launches, including AI-powered proprietary asset classification frameworks and private credit tools, signaled deeper market penetration in private assets and nontraditional client segments, with technology investments already contributing measurable operational leverage.

The analytics franchise targeted hedge funds with seven-figure renewals and comprehensive risk integration, enabling deeper client relationships during periods of market volatility.

Wealth management clients increased adoption of private asset transparency data and the MSCI Wealth Manager platform, positioning the segment for future demand growth in private markets.

Asset owners renewed and expanded multiproduct partnerships, showing reliance on MSCI benchmarks and total plan solutions as industry standards shift toward proprietary indices and frozen benchmarks for private capital.

Management detailed a goal to allocate cost savings from AI adoption to product development rather than margin expansion, targeting a "5%, 10%, 15%" reduction in run-rate operating expenses in 2026, according to Henry Fernandez.

The company cited "relatively stable" sales dynamics, according to Andy Wiechmann, and a "healthy product pipeline" but explicitly expects near-term pressures in the sustainability and climate segment to persist, as confirmed by direct commentary from the CFO.

INDUSTRY GLOSSARY

Run Rate: The annualized value of subscription and recurring revenues, reflecting contracted future business as of the reporting date.

Asset-Based Fee (ABF): Fee revenue derived from assets under management (AUM) linked to MSCI indexes, typically calculated as a percentage of AUM.

Private Credit: A market segment comprising nonbank loans and debt provided directly to corporate borrowers, often via specialized funds or private placements.

Private Capital Solutions (PCS): MSCI's line of products and analytics focused on private market assets, including private equity, credit, and real assets.

Frozen Index: A benchmark where index constituents and weights are locked as of a specific date, providing a static comparison for performance measurement.

General Partner (GP): In private capital, the entity responsible for managing private investment funds and making investment decisions.

MSCI PAX: MSCI's proprietary Private Asset Classification Standard, using AI to standardize and classify private market assets for benchmarking and analysis.

Full Conference Call Transcript

Jeremy Ulan: Thank you. Good day, and welcome to the MSCI Inc. Third Quarter 2025 Earnings Conference Call. Earlier this morning, we issued a press release announcing our results for 2025. This press release, along with an earnings presentation and 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 which are governed by the language on the second slide of today's presentation.

You are cautioned not to place undue reliance on forward-looking statements which speak only as of the date on which they are made, are based on current expectations, and current economic conditions, and are subject to risks and uncertainties that may cause actual results to differ materially from the results anticipated in these forward-looking statements. For a discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements disclaimer in our most recent Form 10 and in our other SEC filings. During today's call, in addition to results presented on the basis of U.S. GAAP, we also refer to non-GAAP measures.

You'll find a reconciliation of our non-GAAP measures to the equivalent GAAP measures in the appendix of the earnings presentation. We will also discuss operating metrics such as run rate and retention rate. Important information regarding our use of operating metrics such as run rate and retention rate are available in the earnings presentation. On the call today are Henry Fernandez, our Chairman and CEO, Baer Pettit, our President and COO, and Andy Wiechmann, our Chief Financial Officer. Lastly, we wanted to remind our analysts to ask one question at a time during the Q&A portion of our call. We do encourage you to ask more questions by adding yourselves back to the queue.

With that, let me now turn the call over to Henry Fernandez.

Henry Fernandez: Thank you, Jeremy. Good day, everyone. And thank you all for joining us. In the third quarter, MSCI Inc. delivered strong financial and sales performance that highlighted many of our underlying competitive advantages. We had organic revenue growth of 9%, adjusted EBITDA growth of 10%, and adjusted earnings per share growth of over 15%. Since the beginning of the third quarter, we repurchased $1.25 billion worth of MSCI Inc. shares. This brings our year-to-date share repurchases to over $1.5 billion, which demonstrates very strong conviction in the value of our franchise. Moreover, MSCI Inc.'s board of directors has authorized $3 billion worth in additional share repurchases for the next few years.

Our third quarter operating metrics included total run rate growth of over 10%, which includes asset-based fee run rate growth of 17%. Our asset-based fee performance was driven by record AUM levels in both ETF and non-ETF products linked to MSCI Inc. In my remarks today, I will discuss a few of the biggest themes from our third quarter results. Starting with our index franchise, Q3 underscored the depth and versatility of our index franchise. MSCI Inc. achieved recurrent net new subscription sales growth of 27% in index, including 43% growth in The Americas. Total AUM in investment products linked to MSCI Inc. indexes reached $6.4 trillion globally, including $2.2 trillion in ETF products and $4.2 trillion in non-ETF products.

There are now four ETF products linked to MSCI Inc. indices that have more than $100 billion in AUM. This helped our ABF run rate hit a new record high of nearly $800 million. The ongoing adoption of MSCI Inc. indices showcases the investment community's confidence in using our indices as a foundational element of their portfolios and to help them attract capital. In analytics, MSCI Inc. delivered recurrent net new sales growth of 16%, driven by strong adoption of our risk tools and equity models by multi-strategy hedge funds. Our growth in analytics increasingly supports our growth in private assets and vice versa.

Last month, for example, MSCI Inc. launched a private credit factor model powered by data from more than 1,500 private credit funds in our proprietary database. This factor model will provide investors with improved transparency and a consistent integrated view of market risk for a fast-growing asset class. Elsewhere in private assets, we recently launched a new global taxonomy known as MSCI PAX, the Private Asset Classification Standard. This proprietary asset classification framework aims to bring consistent comparable standards to private markets. Powered by artificial intelligence, this new taxonomy covers a wide range of private assets, including private companies, real estate, and infrastructure. The new framework builds on MSCI Inc.'s long history as a standards setter in public equities.

Investors can use it to benchmark, analyze, and communicate portfolio strategies and performance. As the last example illustrates, MSCI Inc.'s innovation teams are rapidly leveraging AI models, especially on our large proprietary databases, to enhance existing products and develop new capabilities. AI is allowing us to unlock significant value for clients, which will also lead to meaningful value creation for our shareholders. In addition to rapid expansion in new products, MSCI Inc. is significantly expanding our presence with newer client segments while deepening our penetration of more established segments, which Baer will discuss. And with that, let me turn things over to Baer.

Baer Pettit: Thank you, Henry, and greetings, everyone. As you are aware, over the past year or so, I have framed my remarks on these calls through the lens of MSCI Inc.'s main client segments, and I will continue to do so as we grow our footprint with newer segments and deepen our penetration of existing ones. With that in mind, as you saw in our earnings materials, MSCI Inc. recently enhanced our client segmentation strategy. Details and comparison points are available in our Q3 earnings presentation. Starting with hedge funds, MSCI Inc. delivered 21% recurring net new subscription sales growth. This was our highest Q3 ever for new recurring sales to hedge funds, with notable strength in analytics.

In particular, we see ongoing strong demand from hedge funds for MSCI Inc.'s equity factor and enterprise risk and performance solutions, which have become deeply embedded in many clients' investment workflows. For example, MSCI Inc. closed a seven-figure renewal deal with one of the world's largest hedge funds, in which our contribution to their alpha generation and risk management is central. We also completed a global deal with a large US-based hedge fund that will expand its use of our enterprise risk and performance tools. Our analytics solutions are now fully integrated into every aspect of this client's risk management process, including its capital allocation framework for individual portfolio management teams.

The common theme here is that amid elevated levels of market volatility and uncertainty, hedge funds want deeper, faster insights into key sources of investment risk and return. MSCI Inc. is fortifying our position as a trusted partner. Turning to wealth managers, we achieved nearly 11% subscription run rate growth, driven by a balanced mix of contributions from across product lines. Recently, a large independent wealth manager in the US licensed our private capital fund transparency data to enhance client reporting on private funds. This shows how MSCI Inc. is enabling both scaled data gathering and the standardization of private asset data to provide the enhanced portfolio insights clients need.

Indeed, wealth managers' growing demand for tools and standards in private markets creates a great opportunity for us. We also have a growing list of clients licensing MSCI Wealth Manager, which has allowed us to deliver unified solutions for the home office with advanced tools spanning personalized client portfolios and proposal generation, along with regulatory workflow support. Shifting to asset owners, we posted 9% subscription run rate growth, driven by analytics, private capital solutions, and index. In one of our biggest deals in the quarter, MSCI Inc. renewed our relationship with a major Canadian pension fund across our equity models and risk tools.

We also expanded our private capital solutions relationship with a US-based asset owner, as we support this client's increasing demand for total portfolio solutions and performance measurement and transparency as they grow their private markets allocation. In addition, a rising number of LPs are using MSCI Inc. private capital index and our newly launched frozen indexes as their policy or performance benchmark, reflecting a shift away from public proxy and return targets and an increased alignment with MSCI Inc. standards. We are therefore confident that our investments in private capital indexes will help create significant value both for clients and for MSCI Inc.

Moving on to banks and broker-dealers, MSCI Inc. delivered 9% subscription run rate growth, including a record level of Q3 recurring sales. This was driven primarily by Index, which also posted its highest Q3 ever for new recurring sales. Our most notable Q3 business win was a global index renewal deal with one of the largest banks in Europe that highlighted the mission-critical role of MSCI Inc. index data set in their trading, index rebalancing research, and product creation capabilities. Turning finally to asset managers, we achieved subscription run rate growth of just over 6%. MSCI Inc. is working intently to increase our growth trajectory with this segment, and our efforts had a meaningful impact in Q3.

In fact, we delivered our highest QCRM record for new recurring sales to asset managers and index, which helped drive 11% overall new recurring sales growth with asset managers across MSCI Inc. product lines. For example, we landed a seven-figure deal with one of the world's largest asset managers in support of their wealth management strategy. MSCI Inc. is providing financial advisers with ever more sophisticated analytics tools such as stress testing, which helps them grow their business and support their own clients. We also completed a large deal with a top European asset manager to help them develop a centralized program for their risk performance, factor, and sustainability analytics across investment teams in different global locations.

This was another great example of our ability to expand and deepen existing client relationships using our OneMSCI integrated solution. Looking ahead, we are encouraged by MSCI Inc.'s long-term opportunities and our ability to drive growth from recent areas of innovation and investment, all of which should help us remain the mission-critical provider of choice for clients across the capital market. And with that, let me turn things over to Andy.

Andy Wiechmann: Thanks, Baer. And hi, everyone. Our third quarter results highlight the momentum we are building across product lines, a dimension on which I will provide some additional color. Within index, where asset-based fee run rate growth was 17%, equity ETFs linked to our indexes captured $46 billion of inflows during the third quarter. We continue to see strong demand for ETFs linked to MSCI Inc. developed markets ex U.S. indexes and MSCI Inc. emerging markets indexes. And index subscription run rate growth was 9%, including nearly 8% growth with asset managers, an area where we saw some strength in The Americas.

We recorded our best third quarter ever for index recurring net new subscription sales, aided by our DM and EM modules, and solid subscription run rate growth in the non-market cap category. We've been encouraged to see that new index products launched since 2023 generated about $16 million of new recurring sales over the last twelve months. And the index retention rate remained durable at nearly 96%. In analytics, we had subscription run rate growth of 7%, driven by our highest Q3 ever for recurring net new sales. Recurring sales in analytics benefited from 29% growth in equity solutions, with strength among hedge funds in The Americas and APAC.

Additionally, we saw strong sales of our multi-asset class analytics, most notably with hedge funds as well. In sustainability and climate, we saw 8% subscription run rate growth for the reportable segment, with roughly 6% subscription run rate growth from sustainability solutions and 16% subscription run rate growth from climate solutions. The sustainability and climate retention rate was almost 94%, slightly higher than last year's level of 93%, and reflecting the must-have nature of our tools. Additionally, we are seeing solid demand for new such as our geospatial offering, which is seeing traction across client segments, including in particular, with banks.

In private capital solutions, we closed about $6 million of new recurring subscription sales in the quarter, with success across client segments, including established segments such as endowments and foundations, as well as newer areas for us such as wealth and GPs. Additionally, we continue to see strong momentum with our total plan offering. In Real Assets, recurring net new sales improved, aided by stabilizing retention trends. We're also driving sales from newly introduced product areas, including our data center offering, which is gaining traction with GP investors. Across PCS and real assets, the retention rate improved slightly to 93.3%. Finally, turning to our full-year guidance as we close out 2025.

The increase in the low end of our expense guidance range is consistent with our past comments and driven by the strong growth in AUM levels linked to our indexes. As a reminder, interest expense guidance reflects the previous notes issuance during the third quarter, and the increase in free cash flow guidance reflects business growth and the impact of tax benefits. In summary, MSCI Inc.'s strong Q3 results are reflective of our mission-critical durable solutions and our accelerating pace of innovation. We are seeing solid momentum in delivering new products, capabilities, and enhanced go-to-market efforts, and these are translating through to tangible results. We look forward to keeping you posted on our progress.

And with that, operator, please open the line for questions.

Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. And, again, participants are requested to ask one question at a time, then hand yourself back to the queue for any additional questions. And our first question will come from Manav Patnaik with Barclays. Your line is open.

Manav Patnaik: Thank you. Morning, everybody. Henry, I just wanted to ask kind of a bigger picture question on your strategy around private credit. Clearly, there is a scarcity of data assets out there, which is why some of the multiples these assets are trading at seem to be very high. But just curious from your perspective, where do you feel like you have the missing white spaces or whatever you feel like you need to fill in, and how integral is the Moody's partnership to your strategy there?

Henry Fernandez: Thank you for that, Manav. We are very bullish in our work on private credit. If you step back a little bit, the new banks in America and parts of the world, the private credit funds, the provision of private credit is moving, in addition to banks, to private credit funds. That's a secular trend. There may be some ups and downs, but that's a secular trend. It's just structural. And those private credit funds need to attract investors to fund the provision of credit. There's not enough institutional capital in the world to fuel the funds that are needed, the assets that are needed in this private credit fund.

So they need to attract, in addition to institutions, large parts of the wealth management industry, the retail industry, and now the 401(k) industry. In order for that to be viable and achievable in a sustainable and responsible way, they need the tools for these funds to demonstrate what's inside the fund, what's the creditworthiness of it, what's the market risk of it, what is the valuation of them, and so what are the terms and conditions on the underlying loans, etc. So in the last nine months, we've been very feverishly innovating on this. The first one was we created terms and conditions on our proprietary private credit database.

We found 2,800 private credit funds that are not asset-backed, and we developed terms and conditions on 80,000 loans that represent 14,000 borrowers in these 2,800 funds. Then we moved on to create credit assessment of these funds with Moody's. We licensed the Moody's credit risk models, applied it to the MSCI Inc. database, and we have launched the credit assessment of a lot of these funds, which are highly needed in this volatile environment in credit that we've been listening to in the media recently. Then we created a taxonomy of private credit in order to develop market risk measurements of these private credit funds, and we launched the factor risk models on them. So that's been another innovation.

And now we're looking into how we develop evaluated prices in private in order to provide an independent trusted source of valuation that can be the basis of liquidity. So none of those things are yet translated meaningfully into high revenue, high sales, but they will. And we are incredibly needed in this space as the trusted source of information about the benchmark. I forgot to mention that we launched, I don't know, 60, 80 different private credit indices as well in the last few months to basically make people understand the private credit fund relative to a market benchmark. So that's another innovation that we did.

So we are very bullish in this space, and we intend to be the leading provider of all these transparency tools. Thank you.

Operator: Thank you. And our next question will come from Alex Kramm with UBS. Your line is open.

Alex Kramm: Yes. Hey. Good morning, everyone. So last quarter, one of the messages was really that you're gonna start leaning in more into these other new client segments outside of the traditional asset managers. Obviously, Baer gave a lot of color already in terms of the growth rate there, but can you just talk about in the last three months, like what you've been doing in terms of new products, but also I think you're kinda doubling down on marketing and sales. So any new things that we should be excited about? And when do you actually see this can make a material impact here on results? Thank you.

Henry Fernandez: Thanks for that question, Alex. The strategy is really two-pronged. We believe strongly that the active asset management industry needs us in this difficult time. But it needs us not as a cost center to them and put more pressure on their financials. They need us as a company that can help them create new products. So we're very focused on creating that, especially in the active ETF space, so we can help clients do that.

You saw the recent launch with Goldman Sachs Asset Management of the private equity tracker fund, which is a very innovative approach to look at our database of private equity, understand the returns and the risk of all of that, and then replicate that through public equities in a way that provides liquidity. So that's an example of something that can generate revenues for the active asset management industry. And we saw early signs of that recovery for us. The industry continues to be challenged, but if we can help them develop products and generate revenues, we're gonna do very well with that. The second part, Alex, as you know, is the expansion into other client segments.

And that's the reason we presented in these slides at the end of the slides the two pages of the redefinition or not the redefinition, but the breakdown of the client segments at MSCI Inc. on the subscription part. And you can see that we can benefit significantly by helping the asset management industry because we have 46% of our subscription run rate on that, and we can benefit if we make it grow. Hedge funds are a very significant spot for us, and other parts of what we call the fast money, which is market makers and broker-dealers and all of that. We've done very well there.

And one of the reasons is not only the risk tools that we sell, but what we have begun to realize is that MSCI Inc. has a huge ecosystem of trading around its indices. It's $18 trillion benchmarked to MSCI Inc., of which $6.5 trillion is passive, and that has a huge ecosystem that needs liquidity. So we're developing datasets and products for all these market makers and broker-dealers to help fuel that liquidity. So we believe that we have a lot of opportunities with that segment more than we even estimated in the past. So that's an area that we're focused on.

Obviously, asset owners, it's always been our sweet spot in index and analytics, and now very intensely in what we call PCS, private client solutions, because these are big investors in private assets, and they need more and more transparency, understanding of performance and risk, and basing models and all of that. So we're stepping up significantly our PCS efforts, and we believe that we've seen some softening in PCS. We are going to turn the corner, particularly with the institutional asset owner space. And then there's wealth management.

The wealth management part, as I said before, needs us very significantly because a big part of the allocations into wealth management is into private assets, particularly private credit, but they need to do it in a way that is responsible and compliant, and they don't run afoul of selling products that the individual investors don't understand. So we are gearing up significantly for a major expansion in private assets and wealth management in addition to helping them build portfolios through what we call MSCI Wealth Manager. So it's a little bit of a rundown of where we are.

So we're very optimistic that with the significant revving up and ramping up of the new product machine at MSCI Inc. in the last nine months, that the softness that we highlighted in the prior quarter, last quarter, is beginning to turn, not necessarily because the investment industry is extremely bullish, the markets are bullish, but the budgets may not be as bullish, but it's because we can create a lot of new solutions that are gonna help these people solve a lot of problems. And that is the strategy. Deepening and helping become a revenue center for the active asset management industry, and obviously sell a lot of the things into the other client segments. Thank you.

Operator: And the next question will come from Toni Kaplan with Morgan Stanley. Your line is open.

Toni Kaplan: Thanks so much. Henry, you touched on in the prepared remarks that your teams are leveraging AI models to help develop new products, and I was hoping you could give us an update on where you see the greatest opportunities to leverage AI both on the revenue as well as on the cost side. And any quant would be great. But also just what those products look like and what the cost savings opportunities are. Thanks.

Henry Fernandez: Thank you for that question, Toni. And let me start by saying that we, in the past, haven't really talked a lot about AI because our style at MSCI Inc. is not to talk about intentions but to talk about actions and real tangible things. So that's one of the reasons you haven't heard us talk a lot about AI. But since ChatGPT was launched three years ago, we've been feverishly looking into and permeating every aspect of MSCI Inc. with AI. And the punchline is AI is a godsend to us. Let me repeat that. AI is a godsend to us. Because what MSCI Inc. is, is a company that collects large amounts of data, proprietary unique data.

AI is gonna help us scale up dramatically a thousand times more in the next five, seven years in datasets. Secondly, we then build proprietary and unique investment and risk models to apply to that proprietary data. You can only imagine how much AI is gonna help us do that. And then three, we gotta deliver all of that content to our clients in a way that they can consume it any way they want. So MSCI Inc. has never been a work software solution vendor. A lot of our proprietary sort of workflow system like RiskManager, BarraOne, and all that, they're there to sell the content that we got. And it's almost like a necessary evil. Right?

So every way, every type of access into our content, by themselves, we don't have to spend any time on that or any money on that. And that's gonna propel those to much higher levels. So we've been very busy in permeating every part of what we do. So, you know, if you start with the whole employee base, six and a quarter thousand people, almost 100% use AI every single day. I actually made it a year ago a condition of employment that everyone needs to use AI tools every single day, like using a phone, using word processing, or Excel and things like that. So we're very proud of that.

Then we have permeated AI into all of our operations, especially data capture. We have basically saved hundreds and hundreds of employees, new hires of employees, by using AI in private assets, for example, in private capital solutions, in sustainability, in climate. For example, this geospatial product that we have is all based on AI. And the like. So that has created incredible efficiency for us, tens of millions of dollars. That are not yet, you know, that are just the beginning of what we can do. And then lastly and most importantly is that we have used AI to build products. So a lot of our custom index factory is built by AI-driven methodologies.

That is not a human in research with an artisan trying to build an index and it takes six months and all of that. No. We wanna do this instantaneously using AI. So a lot of what we're launching in custom indices is AI-powered as an example. You know, the geospatial datasets that are being popular now that we're selling, it's all AI-driven. You know, and of course, a lot of the data that comes out of private assets and sustainability is AI-driven. So again, you know, we haven't really talked a lot about this.

You know, we didn't, we answered questions, but since you asked, and there's so much focus on this, we might as well tell you exactly what we're doing. And in terms of products, I think there's somewhere between $15 to $20 million of products that were sold this year out of 25 new products that are all AI-powered. So that's where we are. So if anybody, you know, at this is gonna be a godsend to us. Now I cannot tell you enough that the biggest problem MSCI Inc. has is that we got so many opportunities and so little investment money. And we want to keep the profitability of the company the same.

So that's not an easy thing to square. But if we apply AI dramatically and we can lower our operating run-the-business expenses by 5%, 10%, 15%, all of that money can go into investing into the change in the business, and that will create an incredible in the product development for us. That's a goal that we have for 2026. Thank you.

Operator: And the next question is gonna come from Ashish Sabadra with RBC Capital Markets. Your line is open.

Ashish Sabadra: Thanks for taking my question. So in the quarter, we saw really strong momentum in the index and analytics net new subscription sales. They obviously talked about some big deals there also with the asset manager and one of the largest banks in Europe. My question was much more focused on the pipeline as we get into the fourth quarter. Any comment on the pipeline as well as the sales cycle as we get into one of the highest seasonally highest bookings quarter?

Andy Wiechmann: Sure. Hey, Ashish, it's Andy. So definitely, as you alluded to, encouraged by the results in the third quarter. They've been fueled by the product innovation, the accelerating pace of product development, that you've heard us talking about here. And so that's encouraging. In terms of the overall environment and market backdrop, I would say it's relatively stable. We've seen fairly consistent dynamics to what we've seen in the past. On the margin, the sustained favorable market momentum is constructive. And we have seen pretty good results in The Americas, most notably in index and analytics, as we talked about. And so we are generally encouraged by the healthy product pipeline and acceleration in product development.

That is supporting a strong client engagement, as Henry alluded to, both across asset managers as well as the broader range of client segments that we're targeting. And so we are seeing a relatively stable dynamic across the business. I would highlight that we do expect the dynamics we've been seeing in sustainability to continue in the near term. So similar to what we've talked about in the past, those dynamics that we've been seeing there, the pressures we've been seeing there, how we expect to continue in the coming quarters. But overall, I'd say dynamics across the business are fairly consistent, and the performance is really being fueled by and driven by our product innovation. Thank you.

Operator: The next question is gonna come from Alexander Hess with JPMorgan. Your line is open.

Alexander Hess: Yes. Hi, guys. I hope you're all well today. Just wanna touch briefly on the non-ETF and the fixed income businesses. On the non-ETF side, you know, there's been pretty rapid growth in the ETF revenues, I think about 19% year to date. And the non-ETF is tracking a good deal behind that. Are there any prior year sort of hurdles that are pushing down that non-ETF revenue growth? And then on fixed income, can you remind us what the AUM is there as of 3Q and if there was any reason why, if my math is right, there was a little bit of a quarterly dip in the run rate for that business?

Just wanted to sort of unpack that a little bit.

Andy Wiechmann: Because I know I threw out a lot at you, but hopefully, we can. Yeah. Hey. Hey, Alex. It's Andy here. So on the non-ETF passive front, to your point, we can have impacts from true-ups and true-downs, which can skew the period-to-period comparability. And so as you know, there can be some lumpiness in any given period. We can also, at times, see some modest fee adjustments on the client funds, and that can lead to some lumpiness in revenue and revenue recognition as well as run rate. And so wouldn't read too much into lumpiness in the growth rate there on the revenue side. This does continue to be a very important growth area for us.

We've seen some very nice new fund creation on the custom side. This is an area where a lot of the efforts that we've made on our custom index capabilities and the growing focus on customization and customized outcomes manifest itself, and we're in a unique position to help these organizations that are really anchored to our frameworks and looking to achieve objectives around our frameworks. And so wouldn't dig in too much to the revenue growth on that front. On the fixed income side, the AUM in ETFs linked to fixed income indexes, our fixed income indexes and partnership indexes, is around $90 billion. And so it's been a nice growth area for us that's continued to grow.

Similarly, I wouldn't read too much into revenue growth in any one period on that category. We are heavily focused on continuing to drive adoption, new innovation there, and fueling the overall AUM growth across the fixed income category, and it continues to be an important area for us.

Henry Fernandez: What I would add is that obviously, you know, we see the challenges in sustainability and climate in this segment of sustainability and climate, you know, at MSCI Inc., as you see it. But a meaningful part of the monetization of all of that is happening in equity and fixed income indices. And it's in both, but in fixed income indices, the percentage is even more as a total. So we've been very successful, especially in Europe, in having clients come to us, and we've helped them design lower climate risk fixed income indices that they can use as a portfolio either to give it to an institutional index manager or to turn it into an ETF.

And we see that continuing. And a lot of our investment in climate is not only climate as in its own in order to sell it directly, physical risk, transition of energy, and transition risk and all of that, but it's because we believe there will be a large monetization of a lot of these climate IP in the form of indices and index investing. So yes, you know, when you look at the totality of sustainability and climate, it's a little challenged. But you also have to look at the OneMSCI sustainability and climate franchise and see where the monetization is happening.

Andy Wiechmann: Yeah. Just to put a finer point on that, I think Henry hit a critical item here. That $90 billion of fixed income ETF AUM, the large majority of that is sustainability and climate-related. If you look at equity ETFs linked to our sustainability and climate indexes, it's about $360 billion. And within that, about $135 billion or so is climate-specific indexes. And on the non-ETF front, relating to your question where we are seeing incredible focus by institutions, asset owners to develop specific climate outcomes, the non-ETF climate AUM is about $316 billion. So these are becoming meaningful contributors in helping to fuel the growth of the business. Thank you.

Operator: And the next question will come from Kelsey Zhu with Autonomous. Your line is open.

Kelsey Zhu: Hi, good morning. Thanks for taking my question. On active ETFs, could you just talk a little bit more about the economics of the products and services you provide in that area as well as your competitive advantages? Also, if the overall AUM continues to shift from active mutual funds to active ETFs, is that a net positive or net negative for MSCI Inc.?

Baer Pettit: Sure. So active ETFs are quite a distributed category, with things which are really just quite literally putting an ETF wrapper on a purely active fund through to things which are very rule-based and which are much more like an index or which are an indexed version of an active strategy. So the good news is that we are able to monetize across a lot of that spectrum, not merely in the index business, but a fair amount of it also in analytics, portfolio construction, etc. So in terms of the more specifically index-linked component, we are now up to almost $30 billion of assets in that category.

And the AUM was up 10% quarter on quarter, not year on year, quarter on quarter. So we think this is an extremely attractive category. We're very engaged in it. I think it's difficult to say exactly how that will play out over time in terms of the economics and the scale, but it's growing dramatically, and it's certainly not cannibalizing at all anything we do today. It is literally new revenue, new money, new opportunity. So I think, you know, we're very excited about it, both, as I said, from a selling of tools, a selling of data and information, and also from an index construction and life point of view.

And, you know, we believe that we're gonna see those numbers become more important in the future.

Henry Fernandez: Yeah. And as I said prior, I just wanna emphasize this point. Over the last year or so, we've been seriously analyzing the active asset management industry.

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