MSCI (MSCI): The Standard Setter

1. Executive Summary

MSCI owns the "language" of global investing. When a pension fund allocates to "Emerging Markets," they are implicitly buying the MSCI Emerging Markets Index. Roughly $15 Trillion in assets are benchmarked to MSCI indices, creating a tax on the global asset management industry.

Key Thesis Points

1. Passive Flows: The secular shift from Active to Passive investing benefits MSCI directly. ETF issuers (BlackRock, Vanguard) pay asset-based fees to license the indices.
2. Climate & ESG: Despite political backlash, MSCI remains the dominant data provider for climate risk modeling and ESG ratings, a high-growth adjacency.
3. Data Moat: The historical data required to construct these indices is non-replicable. You cannot "start a new index provider" today and have 50 years of back-tested history.

2. Business Overview

• Index: Licensing fees from ETF providers and futures exchanges.
• Analytics: Risk management software (RiskMetrics) for hedge funds.
• ESG/Climate: Ratings and data.

3. Risks

• Fee Compression: ETF issuers are brutally cutting fees. Eventually, they will pressure index providers to lower their licensing take-rate.
• Mergers: If major clients merge (e.g., banks/asset managers consolidating), MSCI loses seat licenses for its Analytics products.