MSCI (MSCI) Q3 2025: Asset-Based Fee Run Rate Jumps 17% as Index Franchise Deepens Moat

2025-10-28 | By EarningsIQ Research

MSCI’s third quarter showcased accelerating asset-based fee momentum and record index-linked AUM, underpinned by innovation in AI-powered products and new client segments. The firm’s rapid expansion in private assets and active ETFs signals a widening competitive moat, while management’s conviction is reflected in $1.25 billion in buybacks and a new $3 billion authorization. With robust product pipelines and AI-driven scale, MSCI is positioning for multi-segment growth despite EMEA softness and climate headwinds.

Summary

• Index Franchise Drives Growth: Asset-based fee performance and recurring subscription sales highlight deepening institutional adoption.
• AI and Private Assets Fuel New Product Momentum: Rapid rollout of AI-powered tools and private credit solutions expands addressable market.
• Capital Allocation Signals Confidence: Aggressive buybacks and new $3B repurchase plan reinforce management’s long-term conviction.

Performance Analysis

MSCI’s Q3 performance was defined by double-digit organic revenue growth and record asset-based fee (ABF) run rates, signaling strong demand for its index franchise and analytics solutions. Total run rate growth exceeded 10 percent, with ABF run rate up 17 percent, largely due to record assets under management (AUM) of $6.4 trillion in products linked to MSCI indices. ETF-linked AUM reached $2.2 trillion, while non-ETF AUM hit $4.2 trillion, demonstrating broad adoption across segments.

Recurring net new subscription sales were particularly robust in index (up 27 percent), with the Americas contributing 43 percent growth. Analytics recurring net new sales rose 16 percent, driven by hedge fund demand for risk and equity factor models. Sustainability and climate solutions delivered 8 percent subscription run rate growth, with climate products outpacing sustainability offerings. Private capital solutions contributed $6 million in new recurring subscription sales, and real assets saw stabilizing retention trends. Retention rates remained strong across all segments, with index at nearly 96 percent and sustainability and climate at almost 94 percent.

• ETF-Driven Fee Acceleration: $46 billion in Q3 ETF inflows fueled ABF run rate growth, reinforcing the index franchise’s centrality to asset managers and market makers.
• Segment Diversification: Analytics, private capital solutions, and real assets all reported improved sales and retention, mitigating cyclicality in any one area.
• Innovation Payoff: New product launches—especially in AI-enabled analytics and private credit tools—generated $25 million in year-to-date sales, with $16 million from recently launched index products.

Capital allocation was assertive, with $1.25 billion in share repurchases during the quarter and a new $3 billion authorization, reflecting management’s confidence in the business’s intrinsic value and future growth trajectory. MSCI’s operating leverage and high incremental margins provide flexibility to reinvest in innovation while maintaining profitability.

Executive Commentary

Strategic Positioning

1. Index Franchise as Core Value Engine

MSCI’s index business remains its economic anchor, with record-high AUM and expanding ETF-linked product penetration. The firm’s ability to drive recurring sales in both ETF and non-ETF vehicles, alongside new launches in active ETFs, cements its role as a “mission-critical” provider for asset managers, market makers, and wealth platforms. Customization and factor-based products are creating new monetization paths, while high retention rates underscore the stickiness of MSCI’s indices in client workflows.

2. AI-Driven Product Innovation and Cost Efficiency

AI adoption is permeating every layer of MSCI’s operations and product development, from data capture to custom index construction and risk modeling. Management made AI usage mandatory across its workforce, yielding “hundreds” of avoided hires and tens of millions in cost savings. AI-powered product launches contributed $15–20 million in sales this year, and the pipeline is set to accelerate as AI scales data, model development, and client delivery. The firm expects AI to drive margin expansion and operating leverage, with incremental savings redeployed into growth investments.

3. Private Assets and Credit: Expanding the Moat

MSCI is aggressively building out its private capital solutions (PCS) franchise, leveraging proprietary data and AI to develop transparency tools, credit assessments (in partnership with Moody’s), and new benchmarks for private credit funds. Recent launches include a private credit factor model, a proprietary taxonomy (MSCI PACS), and dozens of private credit indices. While not yet a major revenue driver, management is “very bullish” on the secular trend of institutional and retail capital flowing into private credit, positioning MSCI as an indispensable data and analytics provider for both LPs and GPs.

4. Diversified Client Penetration and Segment Expansion

MSCI’s client segmentation strategy is driving outsized growth in hedge funds, wealth managers, and asset owners, while the asset manager segment saw a record Q3 for new recurring sales. The firm is deepening relationships via integrated solutions that span analytics, index, climate, and private capital, with recent large deals across the globe. Wealth managers and fast money segments are targeted for further expansion, especially as private assets become a larger allocation in portfolios.

5. Capital Allocation and Shareholder Returns

Management’s conviction in MSCI’s long-term prospects is reflected in $1.5 billion in year-to-date buybacks and a new $3 billion authorization. The company expects to fund repurchases through a mix of free cash flow and incremental leverage, maintaining its target leverage ratio. Leadership views current valuation as an opportunity, signaling confidence in sustained EPS compounding and strategic execution.

Key Considerations

Q3 marked a decisive shift in MSCI’s tone and trajectory, with management signaling the “dawn” of renewed growth after prior quarters of softness. The quarter’s results highlight a convergence of innovation, client diversification, and capital discipline that is shaping the company’s multi-year outlook.

Key Considerations:

• AI-Driven Scale: AI is not only accelerating product development but also delivering immediate cost savings and operating leverage, with the potential to free up resources for further innovation.
• Private Credit Opportunity: MSCI’s build-out in private credit analytics and benchmarking positions it as a first mover in a structurally growing asset class, though revenue impact is still nascent.
• Segment Diversification: Growth in hedge funds, wealth managers, and asset owners is mitigating cyclicality in the traditional asset manager base and broadening the addressable market.
• Capital Allocation Discipline: Aggressive buybacks and stable leverage targets indicate management’s confidence in intrinsic value and future cash flow generation.
• EMEA Softness and Climate Headwinds: Slower recovery in EMEA asset managers and continued pressures in sustainability and climate segments warrant monitoring, though offset by strength in Americas and index-linked climate monetization.

Risks

Key risks include continued softness in EMEA asset management demand, potential cyclicality in net new sales, and the pace of monetization in private assets and climate. Regulatory shifts around sustainable finance could impact climate segment growth, while competitive threats from new entrants leveraging AI remain a long-term consideration. Management’s plan to reinvest AI-driven margin gains rather than bank them as profit may limit near-term margin expansion.

Forward Outlook

For Q4, MSCI guided to:

• Expense growth at the low end of the prior range, reflecting higher AUM-linked expenses.
• Free cash flow outlook raised, driven by business growth and tax benefits.

For full-year 2025, management maintained a constructive outlook:

• Continued focus on innovation and new product launches to drive recurring sales across segments.

Management highlighted several factors that will shape the outlook:

• Persistent strength in index and analytics pipelines, especially in the Americas.
• Stable overall market backdrop, with ongoing product innovation offsetting segment-specific headwinds.

Takeaways

MSCI’s Q3 results highlight the power of its index franchise and the accelerating impact of AI-driven innovation. Segment diversification and new client penetration are offsetting regional and product-specific headwinds, while disciplined capital allocation underscores management’s long-term confidence.

• Asset-Based Fee Engine: Record AUM and robust ETF inflows are driving high-margin, recurring revenue and reinforcing MSCI’s core economic engine.
• AI as a Moat Expander: AI is delivering both cost efficiencies and new product momentum, positioning MSCI to scale faster and defend its data and analytics franchise.
• Watch for Private Credit and GP Solutions: Early-stage investments in private assets and GP-facing products could unlock significant upside as these offerings gain traction.

Conclusion

MSCI’s third quarter marks a strategic inflection, with accelerating index momentum, AI-driven product launches, and assertive capital returns. While EMEA and climate segments remain watchpoints, the company’s multi-pronged growth strategy and operational leverage support a durable long-term compounding profile.

Industry Read-Through

MSCI’s results signal that index and analytics providers with proprietary data and AI-driven innovation are positioned to capture outsized share as asset managers, wealth platforms, and private capital allocators seek transparency and scalable tools. The surge in ETF-linked AUM and active ETF adoption points to a structural shift in investment products, while the build-out in private credit analytics foreshadows broader industry demand for benchmarking and risk tools in alternatives. Competitors lacking proprietary data or lagging in AI integration risk falling behind as clients demand faster, more customizable solutions. The industry’s move toward recurring, subscription-based revenue models continues to deepen, with operating leverage and disciplined capital allocation as key differentiators.

MSCI Financials Indexes AI Private Assets Sustainability ETFs Analytics