MSCI (MSCI) Q4 2020 Earnings Call Transcript

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MSCI (NYSE:MSCI)
Q4 2020 Earnings Call
Jan 28, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the MSCI fourth-quarter 2020 earnings conference call. [Operator instructions] 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.

Salli Schwartz — Head of Investor Relations

Thank you, operator. Good day, and welcome to the MSCI fourth-quarter 2020 earnings conference call. Earlier this morning, we issued a press release announcing our results for the fourth quarter 2020. 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 U.S.

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 revenues. 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 financial officer.

[Operator instructions] With that, let me now turn the call over to Henry Fernandez. Henry?

Henry Fernandez — Chairman and Chief Executive Officer

Thank you, Salli. Hello, everyone, and thank you for joining us today. MSCI continues to deliver on its mission of helping investors build better portfolios for a better world. Our ultimate goal is to provide an index for every portfolio and tools for every investment decision worldwide.

Especially in 2020, we continue to deliver mission-critical tools to enable clients to navigate uncertainty and respond to industry transformations resulting from the unprecedented environment. Our relentless focus on execution, our disciplined approach to investments and our strategic capital allocation underpin our ability to deliver value to our shareholders. MSCI’s financial performance in the fourth quarter strongly validates this approach. We achieved total revenue growth of over 9% and total subscription run rate growth of nearly 11%, adjusted EBITDA growth of over 16% and adjusted EPS growth of over 17%.

In 2020, we achieved free cash flow of $760 million, up 16% from 2019. We feel this was outstanding financial performance in the context of a very tumultuous year in so many fronts. Our success and our momentum has been driven by us being able to identify and capitalize on major transformations taking place in the investment industry and our ability to support our clients with critical insights, thought leadership and actionable solutions. I will provide a few selected comments along the dimensions of clients, products and capabilities, and Baer and Andy will then give you some more details.

In the client category, we have been successful in expanding our footprint with both new and existing clients. In our strategic focus on wealth management, we are capitalizing on the focus of financial advisors on direct indexing, portfolio construction, risk and performance management and ESG and climate. We’re also seeing early traction with corporate clients, and we now have over 80 corporate clients for our ESG and climate offerings. We continue to expand our business with our established base of asset managers and asset owners.

In 2020, our asset management clients launched more than 150 new ETFs linked to MSCI Indices, over half of which were linked to MSCI ESG and climate indices. Regionally, our integrated client approach has led to high levels of engagement and activity. In Europe, regulatory requirements for our clients helped drive record quarterly recurring subscription sales during the fourth quarter. In Asia, new subscription sales in the fourth quarter improved 62% sequentially after a very slow process during the year, given the early pandemic disruptions in the region.

In the category of products and services, our product innovation is driven by our relentless focus on the needs of investors. One area of significant investor focus is the global transition to a low-carbon economy and its impact on portfolios. Our Climate Value-at-Risk products have seen excellent traction and are already helping investors measure and manage climate risk, as well as identifying investment opportunities. Fixed income is another area where we continue to enrich our offerings.

We are leveraging our strong brand in ESG, climate factors and risk and performance analytics to benefit our credit investor clients. Lastly, we continue to build critical capabilities, especially in technology and data. This includes accelerating the transition of our suite of products to the cloud through our partnership with Microsoft. We’re also excited about enabling clients further with more seamless access to MSCI data across all product lines.

You will be hearing more about this in future quarters, especially in ESG and climate. Another key ingredient of our strategy is allocating capital in a systematic and disciplined manner. This approach has been highly effective for us, including in a year like 2020. We activated our downturn playbook in the second quarter as the pandemic took hold and market volatility and economic uncertainty rose dramatically.

Then in the third quarter, we transitioned efficiently to our upturn playbook as our business remained resilient, our financials were protected and we saw expansion opportunities. It is also important to note that in 2020, our adaptable and entrepreneurial culture played a critical role in our success, especially given the major disruptions in our working environment and that of our clients. Following closely on the incredible momentum we have built in 2020, MSCI has never been better positioned to take advantage of accelerating secular and disruptive investment trends, which will allow us to deliver sustained and significant top line growth. We remain deeply committed to investing responsibly in Triple-Crown opportunities to leverage and build on the established scale of our business.

Our intention is to contin
ue to drive long-term value for our shareholders. We’re especially energized to talk further with you about our plans at our upcoming Investor Day on February 24. Before I turn the call over to Baer and Andy, I am pleased to announce that we will be reporting ESG and climate as a stand-alone reporting segment starting in the first quarter of this year. Our all other segment will consist of our private assets, the private asset product line, including our real estate business.

This incremental transparency will enhance awareness and understanding of these important growth areas for our company. You will have more insight into the drivers of segment growth, the actions that we are taking and the investments that we’re making. Finally, we believe it’s critical that we meaningfully integrate corporate responsibility principles into our own strategy and operations. We continue to enhance our processes and disclosures, including, most recently, publishing our 2020 TCFD report and FASB aligned disclosures on data security, workforce diversity and engagement and professional integrity.

I look forward to providing you with further updates as we continue to make progress in these very important areas. With that I’ll now turn over the call over to Baer.

Baer Pettit — President and Chief Operating Officer

Thank you, Henry, and greetings, everyone. I’ll echo Henry’s enthusiasm for the progress we’ve made this past year. We had our best-ever quarter for subscription sales across MSCI and in our Index and ESG segments individually. Assets in equity ETFs linked to MSCI Indexes passed the $1 trillion mark for the first time in our history.

As of last Thursday, these assets reached further all-time highs, above $1.16 trillion. AUM and equity ETFs linked to MSCI ESG and climate indexes were at $106 billion at year-end, tripling year over year. And seven of the 10 largest equity ESG ETFs globally are benchmarked to MSCI Indexes. We’re pleased with these accomplishments and excited for the momentum we see in our business.

I want to expand on some aspects of our strategy, starting with clients and client segments. Our key accounts, which represent nearly two-thirds of our run rate, drove 50% of new subscription sales this quarter. While in 2020, MSCI also gained more than 450 new clients. In ESG, new clients represented over 50% of new subscription sales this year.

Henry noted our efforts with wealth management firms. We are pleased both with the progress of our sales in this segment and our early steps in new opportunities like direct indexing. Wealth management was the fastest-growing client segment for analytics in 2020 with run rate up 11%, while index run rate grew at 20% and ESG research at over 70%. Our total run rate with wealth managers is now more than $60 million, up 23% from 2019.

For corporates, we recently launched an interactive industry ESG materiality map on msci.com. This tool helps corporates better understand how various ESG risk exposures factor into their ESG ratings. More broadly, issuers and corporate advisory firms are leveraging our ESG ratings universe for use cases ranging from benchmarking to climate modeling. From a regional perspective, in EMEA, our 2020 subscription run rate growth was 15% as strong recurring sales offset cancels.

In Asia and the Americas, we had 9% and 7% subscription run rate growth, respectively. A solid result for the year, especially acknowledging the challenges some of our clients face during the pandemic. We are now seeing our pipeline build as we would expect at this time of year. It remains healthy across products and regions and above pipeline levels at this time last year.

As I’ve emphasized before, I’ve been eager to make innovation in our products and services central to what we do at MSCI. In October, we launched eight MSCI Climate Paris Aligned Indexes. These indexes are designed to help investors incorporate climate change into their portfolios. They also help investors align their investment strategies with the 1.5 degree warming scenario targeted by the Paris Agreement.

Henry mentioned the success we are seeing with our Climate Value-at-Risk products. We recently integrated Climate Value-at-Risk into Analytics products to support clients with their regulatory requirements, such as TCFD reporting. We also integrated Analytics portfolio optimization tools into our Climate Value-at-Risk products. Thus, climate analysis feeds our Analytics products and vice versa.

Further in Analytics, during the fourth quarter, we launched Multi-Period Stress Testing capabilities. We’re acutely aware that investors look at their positions through a lens of different time horizons, and we want to provide them with industry-leading tools to do so. We believe MSCI is truly differentiated in this regard as these capabilities leverage MSCI’s market-leading multi-asset class factor models and stress testing tools. As you’re aware, fixed income is another area of focus for MSCI.

I’m pleased to note that we closed our first fixed income index subscription deal during the past quarter. This is an important milestone and a validation of our belief that this nascent product line has significant potential. We are also mapping our ESG ratings to bank loans, expanding our ESG ratings coverage of fixed income securities and enhancing fixed income factor content for our risk and performance analytics. Our footprint in fixed income continues to grow with run rate in this area up 10% in 2020.

Henry mentioned our focus on enhancing our data capabilities. Leveraging our partnership with Microsoft, we have made a great deal of progress with our API strategy in the fourth quarter. As one example, we are building accessibility to our ESG ratings and other ESG underlying data through APIs as well as through other state-of-the-art content delivery platforms. We must continue to support our clients’ ever-evolving needs, lean into our own tremendous opportunities and drive sustained high levels of growth.

MSCI will invest in several key areas in 2021. First, we will continue developing new innovative indexes and other tools that enable our clients to build portfolios that meet their investment objectives. Second, we will keep expanding the coverage of our ESG and climate ratings and capabilities, including the data initiatives I mentioned previously. And third, we will invest in our broader technology transformation and client-driven migration to a service platform.

These investments will be executed within our rigorous Triple-Crown capital allocation framework. We intend to continue generating strong free cash flow. As Henry noted, we look forward to highlighting our opportunities, our investments and the value creation we believe will result at our upcoming Investor Day event. Let me now turn the call over to Andy, who will discuss more specifics of the financial aspects of our performance.

Over to you, Andy.

Andy Wiechmann — Chief Financial Officer

Thanks, Baer, and hello to everyone on the call this morning. As Henry and Baer noted, we finished 2020 with a strong fourth quarter and significant momentum heading into 2021. In Index, we recorded double-digit subscription run rate growth for the 28th consecutive quarter. Market cap weighted modules, which represent the largest part of our index subscription run rate, continued to deliver strong growth of approximately 9% in the quarter; while our factor, ESG, custom and specialized modules grew at healthy double-digit growth rates.

From a client segment perspective, the index subscription run rate growth with asset managers, the largest client segment, was 9%; while growth rates among wealth managers, hedge funds and asset owners were all greater than 15%. Assets under management and equity ETFs linked to MSCI indexes reached record levels, driven by strong cash inflows of $59 billion or close to 30% of all cash inflows into equity ETFs during the quarter. This was driven by strong market share capt
ure of cash inflows across all geographic regions and particular strength in emerging market exposures. Equity ETFs linked to MSCI ESG and climate indexes experienced cash inflows of nearly $25 billion during the quarter.

These cash inflows represented nearly 80% of all inflows into ESG and climate ETFS. Overall, asset-based fee revenue was up over 15% year on year, reflecting higher results across the board, including from ETFs, non-ETF passive products and futures and options. Turning now to our adjusted earnings-per-share growth year over year. Underlying business performance drove the vast majority of our growth in adjusted EPS, while our share repurchases also contributed.

Operating revenue growth was strong, and year over year expenses were up modestly, once again, benefiting from lower travel and entertainment expenses, which were lower than the fourth quarter of 2019 by $4.2 million and somewhat offset by our reaccelerated pace of investments in the second half of 2020. Turning to our balance sheet. We continue to have strong liquidity that provides us tremendous flexibility. We finished the quarter with total debt to adjusted EBITDA of 3.5 times, at the top end of our targeted range of 3 to 3.5 times.

Lower cash tax payments and disciplined client collections led to significant outperformance in our free cash flow generation in the fourth quarter relative to our guidance. As Henry noted earlier, we have been pleased with the success of our capital management strategy, and we’ll continue our disciplined and patient approach to allocating capital. We are keenly focused on reinvesting in the business as a first priority, optimizing our leverage profile to enhance returns and maintain flexibility, providing a consistent quarterly dividend that grows with earnings and is based on a payout ratio of 40% to 50% of adjusted EPS, opportunistically pursuing MP&A and share repurchases with an intense focus on maximizing returns to shareholders and preserving a strong liquidity position. As Henry noted, to enhance shareholder awareness and understanding of our progress in pursuing key growth opportunities in ESG and climate and in private assets, starting this year, we will present ESG and climate as its own reporting segments and all other will consist of operating segments and private assets.

Beginning in April, when we report Q1 earnings, you will see the same financial and operating metrics we currently show for the index and analytics segments also for the ESG and climate segment and for real estate. So that you have historical information for comparative purposes, we will provide information for the new reporting segment annually for 2018 and 2019 and quarterly for 2020. Revenue and operating metrics from ESG and Climate indexes will remain within our Index segment. We are excited to bring this incremental transparency to our disclosures and to continue to update you on these exciting areas of growth and opportunity.

Before I turn to guidance, I would like to highlight that recurring subscription revenue has lagged subscription run rate by a slightly larger amount in the last couple of quarters. As noted in our disclosures, there are several factors that can contribute to this, including, but not limited to, the timing of sales and cancels; modifications; FX movements; delayed contract start dates, also known as advanced bookings; and implementation periods. In response to the COVID pandemic, we have selectively used advanced bookings recently to help drive new business in key areas. When these are offered, the client is contractually committed to a subscription agreement, but may have access to the service prior to the beginning of the fee period at no cost.

In these cases, the sale may be recognized before we begin recognizing revenue or we may recognize a lower amount of revenue in the first year relative to the size of the sale. We used these tools selectively this past year. And while we do intend to continue to use them going forward, we don’t expect the magnitude to increase materially. However, as we said at the top of the call, we would caution you not to place undue reliance on run rate to estimate or forecast recurring revenues.

Turning to our guidance. Our expectations for 2021 reflect what we believe will be another strong year for MSCI with several guiding principles. Our expense guidance assumes relatively flat equity market levels for the year. As such, our expenses may flex up and down depending on market conditions and the trajectory of our asset-based fees.

To that end, we will continue to implement our upturn and downturn playbooks if and when they are needed. As we’ve noted throughout this call, investing in our business remains our top priority. However, we are also committed to delivering positive operating leverage, although you should expect to see more modest margin expansion than in recent past. Our free cash flow guidance reflects strong operating performance and strong collections; relatively flat market levels, although we could, of course, see markets perform better or worse; margin expansion over the course of the year, again, likely at a more modest pace than in recent past; and higher cash taxes in 2021.

In summary, 2020 was a very strong year for MSCI despite the global hardship related to the pandemic. We have continued to deliver innovative indexes, research, data and other tools. We’ve executed against our strategic priorities, staying incredibly productive and engaged as a team. And as always, we remain committed to driving further value for our shareholders.

We look forward to speaking with you in a few weeks at Investor Day. And with that, operator, please open the line for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Toni Kaplan from Morgan Stanley. Your line is now open.

Toni Kaplan — Morgan Stanley — Analyst

Thank you. So looking at the expense guidance, you’re targeting about a 9% increase in expenses for the year, which is a relatively normal percentage for you, but it’s off of a year where you didn’t increase expenses at all versus the prior. And so just running through the model, I’m getting that maybe you could expand EBITDA margins by about 100 basis points off of a year where margins were abnormally high because of COVID savings, like lower travel, etc. So my question is, why not invest more in the business to support the growth? Is this caution because maybe we’re not through with COVID yet? Or do you view this COVID savings items as sustainable? And then maybe just as we look through the year, should we expect more of a margin increase at the beginning versus the back half where maybe some of the COVID items return? Thanks.

Henry Fernandez — Chairman and Chief Executive Officer

That’s a great question, Toni. And it cuts to the heart of what we’re trying to do at MSCI, and that is to navigate a pretty tight rope between maintaining and enhancing even though modestly, our margin levels, and at the same time, heavily investing in the critical growth areas that our clients are crying for new tools, such as, obviously, climate change now, which is increasing dramatically; obviously, overall ESG; the demand for indices with an investment thesis around them, it’s off the charts; clearly, understanding the risk of people’s portfolio, especially factor risks, such as the transition from value to growth or cyclical to growth investing; and of course, the private asset classes. So we are entering a period at MSCI of major, major demand from our existing clients and the newer client segments that we’re penetrating, such as wealth, corporates, insurance companies for a lot more tools coming from MSCI. So let me turn it over to Andy to see if he can give us a little more insight into how all of that plays into the dynamics of the growth of the EBITDA expense line.

Andy Wiechmann — Chief Financial Officer

Yes. Thanks, Henry. And good question, Toni. Maybe if I can provide a little bit more color from a financial standpoint and underscore some of the points that you’ve made and Henry made.

We are coming off a year, as you said, where expenses were lower than we anticipated. They were brought down by COVID-related impacts like T&E being lower. We also very actively went to the downturn playbook in the middle of the year, and the ABF rebounded faster than we were able to begin reinvesting in the business when we went back to the upturn playbook. So that did depress the expense base in 2020.

To your point, if you look back to 2019 and extrapolate through to what our guidance is for 2021, you’ll see there’s a more normalized trajectory across the two years. Looking forward and taking into consideration a couple of factors that set into our guidance, firstly, there will be some rebound in T&E and COVID-related costs, but we don’t anticipate it will be a full normalization. So there will be some continued benefit going forward. And obviously, that can change and adjust depending on how the pandemic unfolds here and we return to the pace with which we return to a normalized working environment.

The other thing that is important to remember here is, as I mentioned in my opening remarks, our guidance assumes markets remain relatively flat. And so we’ve put an expense guidance range here that assumes relatively flat market levels. If market levels do rebound significantly and show a sustained improvement or the markets increase significantly and show a sustained improvement, we will go to our upturn playbook likely and expenses could be higher. Similarly, we could see, if the markets pull back significantly for a sustained amount, we could be lower than the expense guidance.

And so it could go either way. One of the things we wanted to do with the guidance this year was show you what the guidance is based on current market levels to give you the heads up that it could change if they swing one way or the other. The other point of note, I would say, factors in here is there is some implicit FX pressure embedded in the expense growth as well, where the U.S. dollar has depreciated relative to most foreign currencies relative to average rates for 2020.

And so that puts some pressure on the expense growth as well, and that’s something we’re keeping a close eye on. But I think overall, to Henry’s point, we are extremely focused on continuing to invest in key initiatives and key investments that are going to continue to extend the duration and improve the trajectory of our growth profile going forward. And so that will be a top priority, and we will continue to calibrate it throughout the year.

Henry Fernandez — Chairman and Chief Executive Officer

Toni, given the importance of this question, let me just add one more comment here. And that is we have, in the recent past, began to look at EBITDA expenses in two major categories. Expenses that are required to continue to run the business, and EBITDA expenses that are really investment, significant investment into areas of growth. And given that — given the nature of our company as an IT company, the vast majority of our investment gets expensed immediately upon execution and the revenues come in a year or two or three years later.

So what we have done, and continue to do in this space, is basically strangle as much as we can and squeeze as much as we can the EBITDA expenses of running the business to free up more and more capital for investments that go into changing the business. In sort of rough numbers, over time, we’ll give you a more precise analysis of this. Our change to business expenses, which are really investments in the operating expenses of the company for example, the EBITDA expenses of the company, are somewhere in the low to mid-teens percentage of the total EBITDA expenses. We’re trying to move that to the mid- to high teens in 2021 and beyond.

Hopefully, someday in the next two to three years, those can be in the 20s. So that a meaningful percentage of what people think of expenses are really investing. You have seen the acceleration of growth in many aspects of our business, especially ESG, futures and options and fixed income and all of that, which are beneficiaries of this investment that we have made one or two, three years prior to getting the acceleration of growth.

Andy Wiechmann — Chief Financial Officer

Henry, let me just add one last point to make sure everyone’s aware of, and I know most of you incorporate this into your models. But given the swings we saw both on the top line and the expense line in 2020 throughout the year, the expense growth and margin could fluctuate quarter to quarter throughout 2021, just given the relative comparisons year over year.

Toni Kaplan — Morgan Stanley — Analyst

That’s great. I wanted to also ask how important to you is or was the IHS partnership that you had? Is your expectation that they will not be working with you in the future because they’ve announced the combination with S&P? I know you were working with them on fixed income liquidity risk solutions and thinkFolio but maybe there were other areas, too. So can you outline what opportunities you were working on with them? And if those can be replicated by partnering with another provider like Bloomberg, for example?

Henry Fernandez — Chairman and Chief Executive Officer

That’s another great question. We have a very focused and strong strategy at MSCI of working in partnerships with others in the industry. And whether it’s client partnerships, obviously, that will be the highest impact to people who have different kinds of data or different kinds of technology or different distribution systems. We believe strongly at MSCI in an open architecture system for the benefit of clients.

So the area that you will see us working extremely hard in building partnerships across the whole spectrum. And when you think about our M&A, sort of think the vast majority of our time and effort in M&A is what we call MP&A: mergers, partnerships and acquisitions. So IHS Markit has been one of those key relationships that we have built. In the context of the merger between S&P Global and IHS Markit, I have had discussions with the CEOs of both companies in which they intend to preserve and enhance the nature of this partnership for us to have products together and for the clients.

Toni Kaplan — Morgan Stanley — Analyst

That’s great. Thank you.

Operator

Thank you. Our next question comes from the line of Manav Patnaik from Barclays. Your line is now open.

Manav Patnaik — Barclays — Analyst

Thank you. Maybe kind of a follow-up to that. But Henry, I was just wondering the way the markets have been pretty much just going up despite COVID. There’s also been a lot of M&A around your areas of focus, ESG, data, generally speaking.

How is that influencing or changing the way you look at your build versus buy decisions or even just your MP&A framework?

Henry Fernandez — Chairman and Chief Executive Officer

Good question, Manav. I think the strategy continues the same. And we are in the highly enviable position at MSCI that our organic investment opportunities are vast and they yield incredible returns. And the reason is that they have built at the margin on top of an existing infrastructure.

We could see that in Estate and Index, and we’re beginning to see it in ESG. And obviously, in analytics, we’re still building some capabilities, so the returns are lower than Index and ESG, but it’s still in the high double digit, the internal rates of return. So therefore, we are stretched for investment given the objectives that we have on the margin of the company. So therefore, we’re very focused on organic investment.

We do not really need any significant acquisition at this point to get us to where we want to be in the company. That doesn’t mean we don’t look at everything and analyze everything. We are trying to step up our activities in small bolt-on acquisitions in data and tools and technology and the like, particularly in areas like fixed income and, of course, private asset classes, et cetera. But those will be more smaller and bolt-on and therefore, we continue to have major focus on organic investment.

The other thing that we like about that is because we want to do the opposite of what others are trying to do. We want to stay extremely focused on our strategy with a very empowered and entrepreneurial culture in which people can innovate, we can have better client interaction, better client services and all of that. And therefore, we don’t want to become a sort of financial data conglomerate or financial investment tool conglomerate, made up of a lot of divisions and those divisions being run by administrators. We want to do the opposite.

We want to have a highly integrated company run by entrepreneurs with high levels of innovation and high levels of investment and obviously, preservation of an enhancement of margin. We think that’s a winning strategy for us.

Manav Patnaik — Barclays — Analyst

Got it. That makes sense. I appreciate that. And just in terms of the upcoming IRD, I mean you talked about disclosures and so forth.

You guys have always given quite a bit of color. I was just curious, like what should we be — what are the main, I guess, agenda points on the upcoming IR day that we should be looking forward to?

Henry Fernandez — Chairman and Chief Executive Officer

Well, not to steal any thunder from the 24th, so we can get everyone to show up, right? I think what you’re going to see from us is a continued focus on the mission of the company, the strategy, the demand that we see from all the client segments and the needs from clients, therefore, the organic investment plan that is attributed to that, the integrated franchise between the different product lines and all of that. And I think the area that you will see even more change in this Investor Day is our incredible push into technology and data. In the past, we at MSCI have always thought of the investment tools first and technology and data enabling the investment tools. We want to start thinking the reverse.

What can technology and data open up for us to create even more investment tools for the world? So there will be a segment on that as well.

Manav Patnaik — Barclays — Analyst

Got it. Thank you very much.

Operator

Thank you. Our next question comes from the line of Alex Kramm from UBS. Your line is now open.

Alex Kramm — UBS — Analyst

Hey good morning everyone. This maybe too detailed on the analytics side. But I remember a few years ago, when you were still breaking out portfolio management and risk, there was a time that portfolio management was very weak and you cited quant funds as an area of weakness. There’s been a lot of stories recently again how poor performance in quant has been in 2020, and this environment clearly doesn’t work for them.

So just curious, is a quant fund still a very big area for you guys? Maybe you can give us some updated numbers. And are you seeing weakness in that client segment?

Baer Pettit — President and Chief Operating Officer

Yes. Alex. I don’t have the numbers, there seems to be an echo on my line. Sorry, can you hear me?

Alex Kramm — UBS — Analyst

Much better now.

Baer Pettit — President and Chief Operating Officer

Yes, I’m sorry. Yes. So I don’t have the numbers in front of me. But directionally, I would say that when you look at the equity analytics and the rest of the enterprise risk aspects of the business, there’s no very explicit patterns that have been very stable over time.

So the latest characteristic, I would say, is clearly in factors, we have grown very strongly in terms of their contribution to the Index business. The quant funds generally on the larger end of the scale, we’re doing very well with. That’s a limited number of very large players. But I would then say that the smaller hedge funds, which are mixed range of strategies, continue to be a challenge for analytics but if you look even further forward, I would say that this definition of the simple split between quants and non-quants is something which we think has changed over the years.

And what we’re seeing, particularly with kind of the next generation of clients is precisely the integration of quant tools or quant overlays into a lot of traditional portfolio management. But I don’t know, Andy, if you have any specific numbers on that in front of us. We can always follow-up with you, Alex. But I think the long story short is there’s definitely not a sort of a negative pattern here.

We’re not seeing quants as being anything unusually an outlier type of number. And on the more sophisticated quants, we’re doing well.

Andy Wiechmann — Chief Financial Officer

Yes. No, I’d underscore that, Baer. I think from a retention standpoint, hedge funds are below average, and it’s largely attributable to the smaller hedge funds. And as Baer said, we do have success selling and growing within a lot of the larger hedge funds across products that we offer.

I’d say the one other segment, just to provide a little bit more color on retention and analytics, that we felt pressure in 2020 was around banks. And so we did have some, particularly one large cancel among a bank, which depressed the retention rate across Analytics.

Alex Kramm — UBS — Analyst

OK. Great. And then quickly, other topic. China is something that we keep on hearing about.

And obviously, with some of the restrictions, there’s been a lot of news around your index inclusions, etc., which is I know this is normal course of business for you. But my more important part of this question is, how does this kind of impact your China strategy in general? I mean that region is obviously growing rapidly and opening up for financial market participants. So I think you definitely have your eye on that region. So does that noise create headwinds right now in being able to to grow with potential clients in the region? And maybe you can remind us how big China is as well.

Henry Fernandez — Chairman and Chief Executive Officer

Yes. So we are neutral to any of these geopolitical issues that take place in the world. Our main focus is always to serve the needs of global investors to invest in all regions of the world, including, obviously, emerging markets, which are higher risk than other regions. We tried to, therefore, stay away from all the politics and all the theatrics that take place there.

Secondly, we continue to believe that China, as the current second largest economy in the world and the opening up of its financial markets, is going to present vast opportunities for investors in the public market and the private market. Obviously, equity investment is opening up dramatically. Bond investing, given the high yields here and the appreciation of renminbi, will continue to be a major attraction for bond investors, especially sovereign bond investors and the like. We are very focused on continuing to expand our business in China to grow our cross-border business, so to speak, between global investors going into China, our business of helping Chinese institutions invest outside of China and in the domestic markets of China as well.

And in this case, China, including obviously, Hong Kong. So our business is still small in the sort of $15 million to $20 million range, something like that, in terms of run rate coming di
rectly from China. Obviously, there is global investors who are focused on investing in China through our indices and our risk models. But we think that the opportunity is enormous, and we are very focused on building a strategy and expanding our footprint there, especially this year, in order to continue to capitalize on that significant opportunity and obviously continue to stay away from the geopolitics.

And we’ll have to comply with executive orders or legislation or whatever that comes our way, and that creates a lot of work for us. But overall, the big picture is nobody can really, at this point, negate the huge importance that China has and will have in portfolios around the world.

Alex Kramm — UBS — Analyst

Very helpful.

Andy Wiechmann — Chief Financial Officer

Just to provide a little bit more product color around it. Our largest product traction in China is around analytics, where we have had quite a bit of traction and continue to grow. And as Henry said, as we build out our fixed income front office capability, a range of security coverage as well as analytic capabilities around private assets. We’re bullish about the continued opportunity on the analytics.

But we’re extremely excited, I think, given our small base and the enormous opportunity in some of the other products like ESG, where we’re starting to get some real traction as well as on the index side for the reasons Henry highlighted. So we very much view many layers of growth on the China front.

Alex Kramm — UBS — Analyst

Thanks again.

Operator

Our next question comes from the line of Owen Lau from Oppenheimer. Your line is now open.

Owen Lau — Oppenheimer & Co. Inc. — Analyst

Good morning. Thank you for taking my question. I think last quarter, MSCI launched — correct me if I’m wrong on these numbers, launched 22 proprietary fixed income indices and the total was 40. I think this quarter, I think Baer mentioned that the run rate was about 10% in 2020.

So it looks to me the pace that has been quite strong in this area. Could you please talk about the pipeline in the fixed income products? Are you still in the investing mode to introduce more products? Or do you think you have most of the products you like and are focused more on the sales and distribution so that investors can feel in the runway pretty soon? Thank you.

Henry Fernandez — Chairman and Chief Executive Officer

I see. Yes. So I think what I can tell you on fixed income indices is that our monetization of fixed income indices is made up of our own indices and the partnerships that we have with others. So therefore, a big part of our success thus far has been in ESG and climate change fixed income indices in partnership with Bloomberg and Barclays.

And that has had a significant run rate. A lot of assets have gone into those ETF and a significant amount of run rate associated with that. We are building partnerships with others as well that have fixed income indices for us to support them with the content of ESG and climate and factors and the like. In addition to that, we obviously have started building our own proprietary fixed income indices in areas that we believe that have high potential as well.

And that’s why you see us launching, and that’s what the first[Audio Gap]the run rate on our own proprietary fixed income is still very, very small because we’re just getting going on this and the like. In terms of the product span, we, for sure, have ambitions to create a very large number of products, MSCI label fixed income indices in a lot of different varieties. We will try to avoid being in the issuance weighted type of indices, the market cap weighted type of indices and focus enormously on the things in which we have proprietary and value-add content. So factors such as ESG, such as climate and thematic investment fees.

Owen Lau — Oppenheimer & Co. Inc. — Analyst

Got it. That’s very helpful.

Andy Wiechmann — Chief Financial Officer

I would highlight, we do have a very healthy pipeline of new opportunities, Owen. So I think you’ll continue to see, hopefully, new ETFs and other passive products launched on our indexes. And we’ve got a healthy pipeline also of subscription-type deals on the fixed income index side. So it’s very early days this year.

As you know, we just launched our indexes about a year ago, but we continue to see pretty healthy demand.

Owen Lau — Oppenheimer & Co. Inc. — Analyst

Got it. That’s very helpful. And then my next question is, I understand that most of the demand of your ESG products come from like investors, like asset managers and asset owners. I think, Henry, you mentioned that your traction on corporates, it’s quite strong.

I think you have 80 clients right now, if I remember correctly. Do you think the recent Nasdaq Board Diversity and Disclosure Proposal can further accelerate the demand of your ESG products from corporates in the United States? Can you talk about your recent conversation with them in terms of subscribing into more MSCI ESG offerings, maybe both within U.S. and outside U.S.? Thank you.

Henry Fernandez — Chairman and Chief Executive Officer

Yes. So I think there are potentially two different things there, if I understood the question correctly. On one hand, what you have is a whole range of fixed income product offering from indices to fixed income risk models to fixed income analytics, liquidity and all of that, that are geared initially toward the asset managers that focus on fixed income and some asset owners. The plan there is to expand that offering to insurance companies, which obviously, as you know well, are very heavy investors in fixed income products around the world.

So that is our entry into that client segment that traditionally has been more difficult for us because we haven’t had a very expansive fixed income product line. So we’re very hopeful that we can expand significantly into life and property and casualty insurance for their own account with respect to fixed income indices and analytics. And that will have also an overlay of value add in terms of ESG, in terms of climate and in terms of factors and in terms of themes because that’s where we can differentiate ourselves[Audio Gap]climate change. That’s very separate, right? And the strategy there is that as climate change, particularly and ESG in general is getting more and more focus and attention on behalf of investors, a lot of corporate clients have come to us and say, how can you help us? How can we understand the kind of disclosures that are required for the ratings to understand where we stack up relative to the rest of the industry? What kind of data should we be producing? How do we transmit that data to investors? And all of that.

So what we’re doing, the initial cut of this thing is to make sure that we sell the ratings and the industry data to corporates, and therefore, we have established a corporate sales force to do that. We’re working with partners to figure out if there is a mechanism by which we can create a technology platform for a lot of this data to be easily transmitted between investors and the providers of capital and the users of capital and all that. So we see significant potential of expanding into the corporate suite, the issuer suite. And when we say corporate, it’s just not only corporations, it’s also other issuers of fixed income instruments.

For example, we see a significant way to expand in that client segment, starting with a lot of their demands for ESG understanding, climate change understanding, the data that they need to produce, the way that they need to look at their ratings and so on and so forth.

Owen Lau — Oppenheimer & Co. Inc. — Analyst