MSCI Q4 2022 Earnings Call Transcript

Participants

Corporate Executives

• Jeremy Ulan, Head of Investor Relations and Treasurer
• Henry Fernandez, Chairman and Chief Executive Officer
• Baer Pettit, President and Chief Operating Officer
• Andy Wiechmann, Chief Financial Officer

Analysts

• Alex Kramm, UBS Group AG
• Toni Kaplan, Morgan Stanley
• Manav Patnaik, Barclays PLC
• Alexander Hess, JP Morgan Cazenove
• Owen Lau, Oppenheimer Holdings Inc.
• George Tong, The Goldman Sachs Group, Inc.
• Faiza Alwy, Deutsche Bank Aktiengesellschaft
• Craig Huber, Huber Research Partners
• Russell Quelch, Redburn Partners
• Greg Simpson, BNP Paribas
• Simon Clinch, Atlantic Equities

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the MSCI Fourth Quarter 2022 Earnings Conference Call. As a reminder, this call is being recorded. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]

I would like to know -- I'm sorry, I would like to now turn the call over to Jeremy Ulan, Head of Investor Relations and Treasurer. You may now begin.

[Jeremy Ulan, Head of Investor Relations and Treasurer at MSCI]

Thank you, operator. Good day and welcome to the MSCI fourth quarter 2022 earnings conference call. Earlier this morning, we issued a press release announcing our results for the fourth quarter 2022. This press release, along with an earnings presentation will be referenced 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 US GAAP, we also refer to non-GAAP measures including but not limited to 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 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. We will also discuss organic 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. Finally. I would like to point out that members of the media may be on the call this morning in a listen-only mode.

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

[Henry Fernandez, Chairman and Chief Executive Officer at MSCI]

Thank you, Jeremy. Welcome, everyone, and thank you for joining us today. In the face of significant global headwinds, MSCI delivered strong fourth quarter results to cap off another successful year. I'm on our fourth-quarter highlights. We posted organic revenue growth of 7% including organic subscription revenue growth of 16%, despite a reduction in our AUM and link revenue. This growth combined with our intense focus on expense management drove adjusted EPS growth of 13%. In terms of capital management, we repurchased more than $70 million worth of MSCI shares.

Should also note that our Board of Directors has approved increasing the dividend by 10% to $1.38 per share. For 2022 as a whole, we posted organic revenue growth of 9% including organic subscription revenue growth of 15%. We also achieved adjusted EPS growth of 15%. And our share repurchases total nearly $1.3 billion.

We delivered these results despite historic levels of market volatility which makes us cautiously optimistic about the year ahead. MSCI continues to benefit from our diversified all-weather franchise which allows us to thrive in all environment. In 2022, over 97% of our revenue from three recurring revenue streams, including recurring subscription revenue which was about 74% of the total, recurring AUM linked revenue, which was 21%, and recurring listed futures and options transaction-based revenue, which was about 3%.

While the external environment created tailwinds and more variability for AUM, our subscription and transaction-based derivatives business performed well through difficult operating conditions. We have once again demonstrated the balance, adaptability and resilience of our franchise which has enabled us to continue making critical investments in long-term secular growth areas. These investments are helping MSCI expand and enhance our solutions to meet the needs of an increasingly diversified and diverse client base. Baer will talk about our solutions in greater detail.

For now, I would like to explore the strategic backdrop for both our 2022 results and our 2023 priorities. MSCI continues to see enormous growth opportunity across product lines, asset classes, and client segments. At times like this, investors become even more reliant on high-quality data, models, analytics, and research to help them understand fast-moving market changes.

MSCI is constantly monitoring for signs of pressure that our clients could face from reduced budgets and longer sales cycles to increased layoff and fewer new fund raises. That being said, we are cautiously optimistic on the path forward. Our strategy continues to capture major structural shifts in the investment world.

For starters, indexed investing is increasingly popular across regions, asset classes and investor types. The reason is simple -- indexed investing gives investors an efficient mechanism to express their investment thesis and preferences and to focus on asset allocation. During periods of financial turmoil the unique strength of MSCI Index business become even more salient. We can offer one-stop shop for different types of investors across many layers, including asset classes, exposures, styles and investment themes.

I have spoken before about the massive potential of direct indexing in particular. I want to emphasize that, MSCI dramatically strengthened our direct indexing market position in 2022. For the full-year, we increased our total number of direct investing clients by 200%. The indexed investing trend reflects a broader shift to our outcome-oriented investment strategies. ESG investing is a big part of that.

As you know, ESG has become a hot button political issue, especially in the United States. However, political noise is different from investment reality, and the reality is that ESG risks are financial risks. That is why even as the parties and debate gets louder, investors continue to make ESG integration a priority. For example. The Index Industry Association recently surveyed investment fund companies across the U.S. U.K., Germany and France, an overwhelming majority of the respondents said that ESG has become more important to their investment strategy between 2021 and 2022. These findings are reinforced by client demand for MSCI's ESG solution, which has remained strong. No single issue has done more to elevate ESG than climate change. In 2022, climate risk became increasingly visible as countries around the world suffered from record heat waves, record drought conditions and record flooding.

What is true of ESG risk in general is true of climate risks in particular, they can be material financial risks. Investors understand that. For example, in a recent Deutsche Bank investor survey, more than three quarters of respondents said that climate change either is already having a severely negative impact on the global economy or will have such an impact over the next 10 years if left unchecked. Investors recognize that climate change is also not only at risk, but an opportunity.

Consider a recent report from the International Energy Agency on renewable technologies. The IEA now projects that the world will have "as much renewable power in the next five years as it did in the past 20". MSCI is determined to become the undisputed leader in climate-related investment tools. To support these ambitions, we continue to make key investments across asset classes and geographies. As a result, MSCI is now well positioned to help all types of clients achieve their net zero pledges.

In 2022, we saw especially strong growth in climate sales among non-traditional client segments, especially corporates, bank and traders, wealth managers and hedge funds. We have also developed innovative climate tools for private assets, an area where we continue to see tremendous possibilities for growth. One example is the carbon foot printing of private equity and private debt funds tool that we launched with Burgiss toward the end of 2021.

The key enablers for all of this remain our data and technology. MSCI's ongoing tech-driven data transformation is helping us improve the client experience in so many different ways. Last month, we expanded our strategic partnership with Microsoft to support our new MSCI One technology platform, which is built on Microsoft Azure. Just last week, MSCI announced another strategic partnership with Google Cloud to build an investment data acquisition and development platform. This new platform will make it easier for ourselves and our clients to translate world data into actionable insights.

As I mentioned earlier, the importance of our data, models, analytics and research only increases during periods of market turmoil. Our solutions play an essential role in helping investors navigate today's volatile landscape and build better portfolios. At the same time, MSCI's resilient, all-weather franchise continues to allow us to invest for the future, while maintaining strong profitability growth.

Just one final note before I turn the call over to Baer. Earlier this morning, we issued a press release announcing that Baer has been appointed to the MSCI Board of Directors effective immediately. I would like to congratulate him on his well-deserved appointment. As many of you know, Baer and I have been close business partners for 23 years and he has been instrumental in building MSCI into what it is today.

Baer's unique skills, experience and strategic thinking will significantly strengthen the Board's effectiveness and ability to continue to create shareholder value. I would also like to be clear that my role is not changing at all. I have no plans or timetable to retire or step down as CEO or Chairman of the Board. I remain extremely engaged and energized by the company's tremendous growth prospects.

If anything, I am more excited today about our significant opportunities that I have been at any time in the 27 years that I've been leading this business. I look forward to continuing to partner very closely with Baer for many more years as CEO and President and now as fellow Board members.

Again, congratulations to Baer, whom I now will turn the call over to. Baer?

[Baer Pettit, President and Chief Operating Officer at MSCI]

Thank you, Henry. I'm excited to join the Board and serve our shareholders in this very important role. MSCI is in the midst of many strategic transformations. As President and Chief Operating Officer, I've developed the operational insights and strategic vision that I believe will bring a new dimension to the Board to help MSCI drive shareholder value and deliver on our growth initiatives.

Now I will turn to my comments on our quarterly performance. I'll begin by going over some of the highlights for the quarter, the steps that we took to manage in the current environment and some of our priorities for 2023. MSCI's continued ability to deliver strong organic growth and resilient retention during the quarter is directly linked to the investments that we have consistently made over the years both in good markets and in less supportive ones.

As we had indicated to you previously, with the backdrop of unprecedented market headwinds and volatility, we aggressively managed the pace of our discretionary spend and also made select headcount realignments to best position MSCI for 2023 and beyond and to preserve our ability to deploy our investments to the greatest opportunities guided by client demand.

For our 2023 investment plan, these areas continue to include climate, ESG, client design indexes, fixed income and the ongoing modernization of the client experience. To further illustrate the success of our approach, I will spotlight specific accomplishments during the quarter in Index, Analytics and climate.

In Index, we delivered 12% organic recurring subscription revenue growth and 95% retention, which was certainly reflective of the strength of our franchise, our strong client relationships and the investments we've made. In custom indexes, our subscription run rate grew 15%, as we continue to invest heavily in the development of our models, software and data to deliver custom indexes at scale. These investments have increased our index building capabilities, reduced turnaround time and strengthened our global support model, positioning us well to capture the enormous opportunities that we see ahead.

We are also benefiting from continued investments into our index derivatives franchise. In listed futures and options, we've delivered record full year revenue of $61 million, where we're benefiting from new product launches for Paris-aligned climate action and low carbon target indexes with exchanges, driven by ongoing asset owner demand to facilitate the net zero transition.

In addition, sales of structured products linked to our indexes were $23 million, growing more than 60% year-on-year for the full year. We remain excited by the opportunities in fixed income indexes, another long-term investment area for MSCI, especially in the current period where investors are focused on credit allocations now that they can earn higher yields with less duration.

At the end of December, fixed income ETF AUM linked to MSCI's proprietary and partner indexes was $46 billion, after attracting more than $19 billion of inflows during 2022. We believe our flanking strategy where we play to MSCI's strength in ESG and climate, as well as our ability to forge partnerships with key players in the fixed income space have all been growth enablers.

Let me now turn to Analytics, where we drove 7% subscription run rate growth, excluding FX. New subscription sales were lower versus a strong fourth quarter in 2021, while also experiencing higher cancels which were not so much reflective of higher cancel volumes, but rather from a few concentrated large client events. It's important to remember what MSCI is trying to achieve in Analytics.

We already have a large business in enterprise risk and performance, which drove about 60% of our new subscription sales. These tools can serve as large operating systems for investors to help investors in asset allocation decisions and in calculating and understanding their risk and performance attribution. We also offer tools for more targeted use cases such as our equity models and portfolio construction tools that clients can integrate into their investment processes and third-party vendors can integrate into their platforms. These offerings comprise roughly a third of our new recurring sales during the quarter. Throughout 2022, our Analytics growth came from both types of tools and we believe the same will be true in 2023.

The investments MSCI has made in modern, flexible distribution channels are enabling us to chip away at new opportunities, including with front office investment professionals and increasingly for climate use cases where we see a strong pipeline for the upcoming year. These include our investments in platforms such as Climate Lab Enterprise, where we have delivered over 15,000 climate reports throughout the year for our Analytics clients, since our launch in late 2021.

Our unique position of having our clients' portfolios loaded in maps represents a competitive differentiator. It has allowed us to help clients understand all the carbon emissions, as well as physical and transition risks associated with their holdings. As Henry indicated, climate remains one of the most attractive and tangible opportunities for MSCI as a firm to help the investment industry.

Across all MSCI product lines, we delivered $79 million of run rate, growing around 80% year-over-year, with momentum across all client segments and regions. Back in June, we launched our total portfolio footprinting tool, which helps clients measure portfolio-wide emissions across asset cases, including equities, munis, corporate bonds, sovereigns and private assets.

Since then, it's been a key enabler for closing several strategic deals with asset managers, banks, insurance companies and others. It's also enabled us to help clients align with emerging PCAP standards. We also continue to drive new wins with large asset manager and asset owner clients to help them with specific use cases, including TCFD reporting, climate stress testing and scenario analysis.

Following the recent launch of MSCI One, I wanted to make a few clarifying observations as to what we're trying to accomplish. It is not a new product or a standalone new platform to replace other products. It is instead a vehicle for integrating MSCI's world-leading content and analytics using software powered by Azure. We are now providing clients with a common entry point to access some of our key products and applications that they rely on day-to-day, including climate lab, RiskManager, ESG Manager and others, which we believe will also enable self-servicing, self-discovery and upsell opportunities.

In summary, the high-returning investments we made in 2022 and our rigorous financial management helped us execute successfully during the year. Our success provides a template for how MSCI will continue to operate and thrive in 2023 and the years ahead.

And with that, I'll turn the call over to Andy. Andy?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Thanks, Baer and hi, everyone. As Henry mentioned, we completed 2022 by delivering organic subscription revenue growth nearly 16% for the quarter and 15% for the full-year, outperforming our long-term target of low double-digit growth. In the face of market headwinds, our results reflect the durability of our franchise and the benefits of the consistent investments we've made into attractive high-growth areas.

In Index, subscription run rate growth was 12% in the quarter, our 36th consecutive quarter of double-digit growth. We've seen tremendous traction and healthy growth within our market cap-weighted modules, as our buy-side clients broaden their usage of our indexes and we continue to see the utility of our index content expand across a wide range of high-growth segments.

Across our Index subscription base, asset managers and asset owners together had subscription run rate growth of 10%, while hedge funds, broker-dealers and wealth managers together grew 17%. We also saw continued momentum in our investment thesis index offerings with non-market cap index modules collectively achieving a subscription run rate growth of 14%.

From the end of September through year-end, market appreciation contributed approximately $119 billion to AUM balances of equity ETFs linked to MSCI indexes. Although for the full year, we saw a net decline of $284 billion in AUM balances. Additionally, we were encouraged by the $23 billion of cash inflows into ETFs linked to our equity indexes during the quarter with roughly $15 billion of inflows into emerging market exposures and over $9 billion into developed market exposures.

Equity ETFs linked to MSCI ESG and climate indexes experienced inflows of $6.5 billion, representing approximately 70% market share. Flows into ETFs linked to MSCI factor indexes were more muted, but still positive with investor appetite more focused on yield and income where we have less presence than on other factors where indexes are more widely used, such as momentum and minimum volatility.

During the fourth quarter, the run rate basis points on AUM paid to us by ETF clients was flat year-over-year supported by a mix shift out of lower fee products. Despite the steady levels over the last year, we continue to believe the average basis points on AUM paid to us by ETF clients will gradually decline overtime, although we expect the declines will be more than offset by strong growth in assets.

In listed futures and options, we once again saw some of the natural hedges embedded in our asset-based fee revenue line, as traded volumes showed healthy growth against the choppy market backdrop. Looking ahead, if market levels continue to rebound and stabilize, we would hope this would be constructive to AUM-linked revenues from ETFs and non-ETF passive.

At the same time, futures and options volume and revenues may decline compared to the volatile period a year ago.

We continue to believe our opportunity is significant in licensing indexes for both AUM-linked ETF and non-ETF passive products, as well as in transaction-based listed derivatives products. In Analytics, subscription run rate growth was nearly 7% excluding FX. As Baer mentioned, we continue to gain traction in front-office use cases supported by tremendous strength in our factory analytics and our climate tools in recent quarters.

Additionally, our growth has been supported by firm-wide enhancements to our interfaces and progress in delivering broader, more flexible access to our content. However, as we have previously noted, we expect some lumpiness in the segment across both sales and cancels given the broad range of clients and use cases that we support. In our ESG and Climate segment, new recurring subscription sales grew 64% from the third quarter, as we saw some rebound in large-ticket deals in both ESG research and in Climate and tremendous traction in closing deals in EMEA.

Climate remains one of the most attractive growth engines for MSCI. Our firm-wide climate run rate reached $79 million, an increase of 80% from a year ago, reflecting exceptional growth across geographies, product offerings and client segments. Across all of our segments, we continue to see strong secular demand for mission-critical must-have tools and we continue to see a strong sales pipeline, although we remain cautious given the market backdrop. As we have mentioned previously in past periods of sustained equity market pullbacks, we can sometimes see slightly elevated levels of cancels and lengthening of sales cycles.

In connection with our downturn playbook, we continue to identify efficiencies to aggressively reposition our expense base to drive attractive profitability growth, while preserving investments in the most critical growth opportunities. As part of our regular review of our talent and our expense base in the fourth quarter, we took proactive actions to recalibrate our employee footprint, resulting in a $16 million severance charge, which was roughly $13 million higher than a year ago.

These tough actions have allowed us to preserve and even enhance our investment spending in certain key areas. This expense discipline coupled with our subscription revenue growth has enabled us to drive strong growth in adjusted EPS even through tough environments. The tremendous growth in our subscription base has been supported by doing more for our clients, continuing to penetrate newer, large addressable markets and capturing price increases, enabled by the continuous enhancements to our products and client experience.

During the fourth quarter, price increases contributed about 35% of our new subscription sales firm-wide across all products and more than 40% within index. We ended the year with a cash balance of $994 million, of which well over $600 million is readily available.

Free cash flow came in slightly below the low end of our previous guidance. We saw a small slowdown in client collection cycles as a result of extra approvals within certain clients, which we believe is related to the market backdrop, but we believe overall collections remain healthy and we see no issues around collectability. Our capital allocation framework which is focused on maximizing shareholder returns remained unchange.

We will continue to deploy our investment dollars towards the highest returning organic growth areas, return capital through a steady dividend that increases with adjusted EPS, opportunistically capitalize on share repurchases and pursue value-generative MP&A.

As Henry indicated earlier, we have decided to increase our dividend in the first quarter. We are not making any changes to our dividend policy or a broader approach to capital allocation. We have decided to shift our annual dividend increase from the third quarter, where we have historically announced the increase to the first quarter in order to more closely align with our annual planning process.

Lastly, I want to underscore that we also continue to actively evaluate and source bolt-on M&A opportunities, particularly in areas of unique content and differentiating capabilities such as private assets, climate and ESG, as well as fixed income. Lastly, I would like to turn to our 2023 guidance, which we published earlier this morning. Our guidance ranges reflect the assumption of continued volatility in financial markets, with overall equity market levels down slightly from current levels during the first half of the year and gradually recovering in the second half of the year.

Our expense guidance range reflects the efficiency actions we have taken in recent months and captures the investments we will continue to make in order to deliver growth. We expect normal seasonality in our expenses with $15 million to $20 million of elevated benefits and compensation-related expenses in the first quarter. I also want to highlight that our capex guidance reflects a continued high level of software capitalization as we continue to enhance our platforms and interfaces across product lines.

Our tax rate guidance highlights that we expect our effective tax rate to increase slightly year-over-year, primarily reflecting that we expect to receive a smaller windfall benefit in the first quarter as a result of where the share price is relative to the price at grant, as well as based on the amount of awards vesting. There could be pressure on year-over-year adjusted EPS growth in the first quarter due to the higher tax rate and the significant decline in average ETF AUM levels relative to the average levels during Q1 of last year.

Lastly, I want to highlight that our free cash flow guidance reflects the expectation of higher cash tax payments in 2023, as well as a slight degree of caution on client collection cycles based on the environment, consistent with what we saw in the fourth quarter.

Overall, we're well positioned for the year ahead and we're excited to continue to drive growth and differentiation. In periods of volatility and uncertainty, we believe MSCI is uniquely positioned to help our clients capitalize on unique opportunities and drive value creation. These are the times when MSCI thrives. We look forward to keeping you all posted on our progress.

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

Questions and Answers

[Operator]

[Operator Instructions] Thank you. Our first question comes from Alex Kramm from UBS. Alex, please go ahead.

[Alex Kramm, Analyst at UBS Group]

Yes, thank you. Good morning everyone. Starting off maybe on the retention side for a second here, that dropped I guess, from the 3Q to 4Q pretty decently relative to the last couple of years. I think if I look in history, it's probably more seasonal, but I'm just wondering if there's anything that you saw that gives you any sort of pause into this year. You mentioned the things on the Analytics side, but outside of that anything that gives you a little bit more pause as you think about the sustainability of results?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Yeah, hi Alex, it's Andy. So we -- as you know and you alluded to, we typically do have slightly lower retention rates in the fourth quarter given that it's our largest period of renewals. I would say, outside of Analytics and you can see this, the retention rates were reasonably strong. And if you look at full year retention rates even for Analytics, but across all product segments, the retention rates were actually quite healthy. I'd say it continues to highlight that our products really do benefit from the fact that they are mission critical in areas of long-term secular growth, which does create some resiliency.

And I think you see that heavily in the retention rate for the full year. However, I would say we do remain cautious, as I've alluded to in the past, when we see a few quarters of sustained market pullback, we tend to see a pickup in client events, things like fund closures, desk closures, restructurings, other mergers. So despite the overall strong retention rates for the year, we are proceeding with a degree of caution and are pretty sober that we might see some clients pulling back a little bit in certain areas. So we are cautious moving forward here.

[Alex Kramm, Analyst at UBS Group]

Okay. And secondly and this is somewhat related, but first of all thanks for clarifying some of the moving pieces on free cash flow. I think some people are trying to read too much into what that means on the revenue side, which is kind of like my question. I know you don't guide revenues, but you highlighted again the long-term targets and history of delivering double-digit, I guess subscription growth look at the asset side for a minute as a base side for a minute? Anything that would change your view on that low double-digits as we think about 2023 given some of the starting off points and some of the cautionary comments you've potentially made a little bit just now?

[Henry Fernandez, Chairman and Chief Executive Officer at MSCI]

So, Alex, Henry, not at all I mean, obviously, on a tactical short-term basis in 2023, we've done well in 2022, we have a strong pipeline going into 2023, but there is the prospect of a global recession -- global softness. There is war going on in Europe, right? There is disruption in many markets, including the energy markets. We have to see if there is a real reopening of China or a return to lockdown. So, we remain cautious in the very short-term.

Beyond that, we remain extremely positive. The number of opportunities that we see at MSCI is increasing exponentially pretty much every day, whether it's custom indices, which we have high demand for whether it is direct indexing, whether it's climate risk in the context of Analytics, clearly ESG, climate as a whole, the work that we're beginning to do in private asset classes, enormous, so that should bode well for a continuation of our growth trajectory for the company in the years to come.

[Alex Kramm, Analyst at UBS Group]

Fair enough. Thanks, guys.

[Operator]

Our next question comes from Toni Kaplan from Morgan Stanley. Toni, please go ahead.

[Toni Kaplan, Analyst at Morgan Stanley]

Thanks so much. I wanted to take a step back and look at margins within the Analytics business, really stepped up a lot this year. I guess how are you thinking about investment in that business? Are you investing enough there? Just maybe talk about the drivers of the margin expansion and basically investment needs or growth opportunities?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Yeah, so similar to recent quarters, there have been several factors that have been contributing to the high Analytics margin. I would point out that we have been capitalizing a higher level of expenses related to the development work that we've been doing around things like our Climate Lab Enterprise, Risk Insights, broader enhancements that we're making to the capabilities in Analytics.

I would also highlight that many of the downturn actions that we've been taking end up hitting Analytics and that's not just directly within the segment, but when we take actions in corporate functions, a meaningful portion of those expenses are allocated to analytics.

And then I would highlight that the Analytics has benefited from the strong U.S. dollar as well, given the size of the expense base, a lot of the FX benefits that we've been getting have hit Analytics. And so there are a bunch of those more, I'll call it, technical or tactical factors that have impacted the Analytics margin and caused it to run up a bit here. But to your question around investments, listen, we continue to be very targeted with our investments in Analytics, so we are investing there. It is not one of our top investment areas, I think you're familiar with those areas where we are heavily focused on.

But within Analytics, we are focused on investing on those -- in those capabilities that support the broader MSCI franchise, as well as continuing to focus on investments in areas like the front office, so front on office content, including our factor models, how we go to the office on the equity and fixed income front office capabilities, as well as some of the broader interfaces and applications that not only benefit the analytics users, but also the broader MSCI franchise.

[Henry Fernandez, Chairman and Chief Executive Officer at MSCI]

I would like to add, Toni, if you don't mind, the -- clearly, there are parts of Analytics that we're putting heavy investments on like Climate Lab Enterprise, fixed income portfolio analytics, equity portfolio analytics and some of the content. But also for the benefit of everyone in this call, we also run a very disciplined, very rigorous Triple-Crown investment process in the company, in which each one of the product areas, each one of the client segment areas and some of the support areas when they come to -- in front of this investment process, they have to demonstrate elements of the Triple-Crown.

One is high return, high IRR, shorter-term paybacks and in areas of high multiple valuations for the company. So in the case of Analytics, they've been able to rationalize investment in some of the areas that I mentioned, but not in other areas, so they haven't gotten capital from us because of that, other areas like climate and ESG and custom indices and the like have gotten the capital.

[Toni Kaplan, Analyst at Morgan Stanley]

Perfect. I wanted to ask my follow-up on MSCI ONE. I know you recently launched that. Maybe just clarify -- I know you said it's not really supposed to replace an old product or be sort of a new standalone platform to replace other products. So I guess maybe help us with who the main users are there, what the opportunity is there, because I think it seems meaningful and I just want to understand it a little bit better? Thanks.

[Baer Pettit, President and Chief Operating Officer at MSCI]

Sure, Toni. Baer here. So look, I think the way to think about it is through a few different layers. One is, we clearly have a diverse range of calculation engines, which create kind of state-of-the-art analytics of various kind and outputs, which are distributed throughout the firm in different asset classes, etc. Then we have some traditional platforms and other distribution methods through files, etc that we've had. And then, we have sort of newer content that we're building.

So the way to -- the best thing about way to think about MSCI ONE is a combination of those traditional outputs of our -- if you like our calculation factory and sort of industry standard software that allows those to be presented in a more user-friendly way and brought together in a similar type of platform, which in turn improves both the user experience and users ability to manipulate that data to do -- to have greater flexibility and how they present it, etc.

So for sure, we think we're on a very important path forward here. It's incremental, as we move forward during the course of 2023, we think that the client impact of that will increase and we hope -- definitely hope and intend to continue to give you positive news and update around all of that. So I think there is maybe a -- how should I put it, a risk that we're understanding this somewhat and that's what I try to wanted to make some comments about it today. At the same time, we want to make sure that we are the delivery department and not the promise department in this area.

So as the year progresses, we'll make sure that as we bring out new functionality, new capabilities, new ways of integrating and our clients start using those more, we'll keep you abreast of that. But we're certainly very positive about it and we think that over time, this will really be a way that our clients start to think of MSCI in a different way as regards the flexibility and the ease of use of their day-to-day working with our content.

[Toni Kaplan, Analyst at Morgan Stanley]

Sounds great. Thanks.

[Operator]

Our next question comes from Manav Patnaik from Barclays. Manav, please go ahead.

[Manav Patnaik, Analyst at Barclays]

Thank you. Andy, I just wanted to get back to the retention rate comments you made, the drop I guess particularly in Analytics. Can you just give us some color around, I guess, where those cancellations or the drop came from? And were they more kind of one time closures in nature? I know you said you're being a little bit more cautious going into 2022, but just trying to understand how -- what that is and how that might continue into 2023?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Sure, sure. Yeah, thanks, Manav. So Baer noted this in his prepared remarks, but the cancels weren't so much reflective of a higher frequency of cancels across the board in the segment, but rather a concentration of a few large ones. On those few large ones, there were some competitive dynamics and some client event-related dynamics at play. And as we've mentioned in the past, we do expect some continued lumpiness in both sales and cancels within Analytics and potentially some impact from the environment.

So more broadly, we are really encouraged by the momentum and improving competitive position. We continue to see in the strategic focus areas that we're focused on in Analytics like equity and fixed income portfolio management tools or climate tools or enhancements to content and capabilities.

And we are committed to the long-term growth targets that we've got for the segment of high single digits, which actually we're quite close to in the fourth quarter, the subscription run rate growth on an organic basis close to 7% and the revenue was 9.5% excluding FX. So it was a quarter that demonstrated some of the lumpiness, but overall we continue to be encouraged by the momentum we see in the segment.

[Manav Patnaik, Analyst at Barclays]

Got it. Thank you. And then Henry or Baer, I guess just a broader question. Just trying to -- I mean I think someone get it, but I thought I'd take the opportunity. Just trying to understand the cloud and technology strategy here, the recent Google announcement versus your key partnerships you already have with Microsoft. Just trying to appreciate the differences in each of those agreements and what to look forward to?

[Baer Pettit, President and Chief Operating Officer at MSCI]

Thank you, Manav. So the -- first of all, I mean, one of the major impetus and investment in our firm is in our data and technology platforms. MSCI in the past -- in the recent past was a very large data processing company. We took third-party data and run it through risk models, factor models, indices and the like, mix methodologies and the like where MSCI has become starting with ESG business, now with climate and private assets and so on and so forth is a large data building in our company in addition to data processing company.

So we are now the original source of a lot of data in addition to sourcing data from third parties. And all of that needs to be distributed to our clients in a very effective way. So we have basically three partnerships that we're trying to work and expand and specialize on. The first one clearly has been the Microsoft partnership in Azure, in which they're helping us with the data processing part, processing large amounts of data, especially in our risk systems and all of that, index systems, etc. And the partnership there also will help helping us on their software and how do we use their software to build products like in power behind and obviously, we announced the MSCI ONE is a partnership with them etc. So that is Microsoft and that continues to deepen and strengthen.

And second one that we announced is Google and the Google Cloud. That partnership is about Google helping on build data, collect data, organize data, index data in this data building transformation that we're going through and then run all of that data through their cloud as well. So that is definitely -- there's always a component of cloud computing, but the push here is data building. As you know, Google is one of the largest data building and data processing companies in the world. Everyone focuses on the search engine, but there's a search engine won't be as good at all without the underlying data. And the third partnership is South Lake, which is in the distribution of our content, our beta in a very effective way with our clients, so we're trying to strengthen and deepen that in our relationship [Indecipherable].

[Manav Patnaik, Analyst at Barclays]

Thank you very much.

[Operator]

And now we have a question from Alexander Hess from JP Morgan. Alexander, please go ahead.

[Alexander Hess, Analyst at JP Morgan Cazenove]

Yes, hi everybody. I'd like to step back and maybe look at the firm-wide ESG and climate run rate growth, which remain pretty resilient despite the U.S. political headlines and then maybe in Europe, some of the SFTR implementation noise. I wanted to know maybe stepping back high level, what do you see sort of as the big opportunities, the big sort of regulatory and market tailwinds and headwinds as well and how we should think about maybe ESG and climate's ability to grow over the next few years?

[Henry Fernandez, Chairman and Chief Executive Officer at MSCI]

So let me provide some quick comments and then pass it on to Baer. First of all, as I said in my prepared remarks, there is a lot of political football here going on, on ESG and eventually we'll get to climate as well. And -- but the first point is our ESG business has nothing to do with political ideology or political philosophies. Our ESG business is totally grounded on the fact that ESG or non-financial risks are material investment risks and material financial risks in a company, things that we're doing right now, corporate governance, right? The governance of the company and the auditors and all of that and $60 plus-billion market cap now, if nobody tells you that's political and that's not investment risk, then I don't know what it is investment risk.

So that is very clear what we're doing and therefore we don't know of any single client in the world that at least we haven't heard of that they're not looking to integrate this non-financial risk environment in governance and social issues into their investment processes and we are the preferred provider of tools to them.

Secondly, clearly, there is a lot of regulations around the world and a lot of our clients are trying to figure out how do they respond to that regulation, especially in Europe by far but also in the U.S. to the SEC proposals. So there is a little bit of a pause by clients and certain purchaser has to -- because they're trying to determine what are the right sets of data and tools and risk that they need to do to incorporate into their products. So that's been a little bit of the blip that you see in the sales, much less so the political component.

But Baer, anything else on this?

[Baer Pettit, President and Chief Operating Officer at MSCI]

I think you've covered it well, Henry. I think the only other element is clearly the -- you mentioned the regulatory element on our clients, which has been notably a complex one for funds in Europe and the EU. So that is something that we're very focused on and working with our clients on. Equally, there will doubtless be an increase of regulation on the providers of data information ratings of ESG clearly which would include us.

And I think in that instance, we don't view that as something which is a particular risk to the business. We believe that we run a very high-quality business that we've been structured with a view that as an index, some form of further regulation could come to us and as a reminder, our legal entity in the U.S. that issues ESG ratings is already a registered investment adviser and we're confident about the way that, that is run and I'm actually in contact with regulators related to that.

So I think overall, it's clearly an environment which is very noisy and complex from a number of grounds, but that doesn't in any way compromise the scale of the opportunity which remains very real. And in many regards, precisely this regulatory complexity is something which we believe we can benefit from as a provider of high-quality data and adjacent research and services.

[Alexander Hess, Analyst at JP Morgan Cazenove]

Thanks. And then as a quick follow-up, maybe can you speak a little bit to the opportunity in Paris Aligned benchmarks and climate transition benchmarks with the index franchise, is that a meaningful opportunity going forward?

[Henry Fernandez, Chairman and Chief Executive Officer at MSCI]

Absolutely. So we're clearly benefiting from our leadership role both in ESG and climate and our market share in such indexing and related ETF products is very high and it's been consistently so. There are some questions related to flows in the short run, but we're -- if you look at I'm very confident that if you look back on this in a number of years' time that this will be a moment that passes.

And the fact of the matter is that with all categories of investors globally, this is an enormous transition they have to go through. There they will clearly do so through active management, but equally they will need to do so by allocating capital on a timely basis through rule through indexes, through rule based portfolios that indexes serve as a benchmark and underlying for, so we only see this category is growing. And you mentioned certain specific methodologies, those will continue to grow as will many customized versions of things which serve specific investors' specific need. So we certainly view it as an important and growing category.

[Alexander Hess, Analyst at JP Morgan Cazenove]

Thank you.

[Operator]

Our next question comes from Owen Lau from Oppenheimer. Owen, please go ahead.

[Owen Lau, Analyst at Oppenheimer]

Thank you for taking my question. I want to go back to your guidance, could you please talk about your assumption above of the market trend to come up with your free cash flow guidance. Do you expect the market to go up, stay flat or to go lower from here? And then on the expense side, could you please talk about the walk of the adjusted EBITDA expense build from 2022 to 2023? And what does it take to go to the low end of the guidance? And also what does it take to get to the high end of the guidance? Thank you.

[Andy Wiechmann, Chief Financial Officer at MSCI]

Sure. Sure, so a lot in there, I'll try to unpack it in a logical fashion here. So firstly, on the market assumptions that underlie all of our guidance. So we are assuming that market levels declined slightly from their current levels through the first half of the year and then rebound in the second half of the year and so that assumption is underlying every piece of our guidance. You alluded to free cash flow. I do want to make a comment around our free cash flow guidance more generally, just to underscore that we are being cautious on it.

If you look at the full year of 2022 relative to 2021 and even the fourth quarter of 2022 relative to the fourth quarter of 2021, we saw a pretty healthy growth in free cash flow. Although if you remember, after the third quarter, we actually increased our free cash flow guidance. We made that change feeling confident about the strong momentum we had seen in collections. To be frank, we probably got a bit of ahead of ourselves on that one and we actually saw a bit of a slowdown in collection cycles in the fourth quarter. And so we are making that same assumption of caution around collection cycles for 2023 and as a result, we have a degree of caution on our cash flow guidance for this year.

On the expense guidance piece, I don't want to get too specific here, but I want to underscore that and you saw this in the fourth quarter, actually the last six months or so, we have been taking very tough actions in our expenses and identifying efficiencies to be able to continue to invest. So we are being very measured on our pace of expense growth, we're continuing to find efficiencies. You saw we took some significant actions on the severance front in the fourth quarter and so that has a meaningful impact on the expense base, although we are continuing to invest in key areas.

And so despite those efficiencies and continued actions on the headcount front, we are planning to grow our investment spend in 2023 by 13% and that's more than double the overall expense growth. And so we are in our guidance assuming that we continue to be quite disciplined in a number of areas, especially for the first half of the year, but we are continuing to grow headcount and invest in those key investment areas, those key growth areas for us as a firm.

[Owen Lau, Analyst at Oppenheimer]

Got it. That's super helpful. Thank you, Andy. And then I want to go back to the Google partnership, the Google Cloud partnership. Henry, could you please talk about maybe the potential incremental revenue and expense opportunity for this partnership? I mean it would be great if you can even give us some more specific examples so that we can better understand the value creation of this partnership? Thank you.

[Henry Fernandez, Chairman and Chief Executive Officer at MSCI]

So look, I can't at this point give you any numeric analysis of the revenue or profit or any of that, too early to tell. What is very key is that in us becoming a very large data building company, we need to use the most advanced methods and protocols and technologies and all of that and this partnership with Google will give us that. And for example, one specific area that we're focused on right now is asset location, so in order for us to be the best, undisputed leader in climate, we need to have understanding of every manufacturing facility every mine, every office of every single company in the world, whether it's private or public company. So being able to work with Google in gathering that information through Google maps and Google's geospatial services and the like will put us at a significant advantage there, that would be clearly one example of that.

Another example clearly is the -- in the work that we're doing in our private assets. There is a lot of data that we're collecting from GPs and LPs and all of that and we need to figure out how we index the data, organize it and the like. So the way to think about us if you want to compare us to, obviously, to the work that Google does is that everyone focuses on the search engine of Google, right and that's at the top.

But on the search engine is clearly data, so think about our investment tools, whether it's indices, methodologies and ratings and risk models and the stress testing models and all that, the equivalling of search engines, like the equivalling of algorithms. And then underneath that, they have to be a base of data that is large, whether it's third-party data or our own data that is large and that's what we're trying to build with that.

[Owen Lau, Analyst at Oppenheimer]

Got it. Thank you very much.

[Operator]

And we have a question now from George Tong from Goldman Sachs. George, please go ahead.

[George Tong, Analyst at The Goldman Sachs Group]

Hi, thanks. Good morning. You mentioned it's possible you'll see higher cancels and longer sales cycles during protracted periods of market volatility. Can you elaborate on where in your subscription businesses you're seeing most sensitivity to the macro environment and conversely where you're seeing most resilience?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Yeah, I mean it's very much a general comment that I made. You can see in the retention rates that with the exception of the lumpiness we saw in Analytics in the fourth quarter, actually retention rates have remained quite resilient. I think you've heard us made comments in particularly last quarter that we saw some slowdown in sales cycle and in ESG. I'd say that the point that I would underscore is, it's going to be dynamic across the board. So I don't think it will be necessarily concentrated in one product area or region or client segment, but these are things that just as the environment remains choppy and volatile and large financial organizations start to implement cost controls, it can cause slowdowns across the Board.

And so we're just baking in our color and our commentary here a degree of caution, although, I do want to underscore that our pipeline is -- it remains quite healthy and the overall size of the pipeline is quite large and we are having an active dialogue and engagement and healthy discussion with our clients. It's just we've seen in past cycles that we should be prudent and cautious in our outlook.

[George Tong, Analyst at The Goldman Sachs Group]

Got it. That's helpful. You've taken actions to recalibrate headcount and expenses as part of your downturn playbook. Can you talk about how much further runway you have for expense reduction, what kind of levers you have remaining? And would you say the majority of your cost rightsizing actions are now behind you?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Yeah I would say and I alluded to this in a prior question, it's important to really underscore that the tough actions we've been taking are really to enable investment. And so as I alluded to, we plan to continue to invest at a pretty healthy rate in those key investment areas and we're going to continue to have an intense focus on efficiencies throughout the year. Beyond the proactive actions that we took in -- on the severance front and I alluded to this in the past, we've continued to slow down and even stop hiring in certain less critical areas.

We've been very selective about the areas where we are adding people. We've imposed certain expense controls in areas like T&E and other professional fees. But it is important to underscore, we have numerous levers at our disposal and we haven't fully flexed the downturn playbook nor does our guidance reflect that we're flexing fully our downturn playbook. We can stop hiring in certain areas, implement hiring freeze is closing backfills. We have degrees of freedom on the non-comp side.

As you know, our incentive compensation will move with the performance of the business, so it is a constant calibration and something that we're going to continue to proactively manage. But we are being cautious in implementing cost controls, but we do have many more levers if we need to flex down further, including slowing down investment, which hopefully we don't have to do, but that clearly can help us manage expenses.

[George Tong, Analyst at The Goldman Sachs Group]

Very helpful. Thank you.

[Operator]

Now we have a question from Faiza Alwy from Deutsche Bank. Faiza, please go ahead.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Yes, hi. Thank you. Good morning. So I wanted to talk a little bit more about ESG. Give us a sense of the new subscription sales that you signed on this quarter, how much of that is just a seasonal acceleration from 3Q to 4Q? Or are you seeing sort of sales cycles and as you alluded to that last quarter that those had increased a little bit. Are you seeing further increase in those sales cycles or are things sort of normalizing from your perspective?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Yeah and I think you could see this in the past and this is the case across most product areas, but as you alluded to the fourth quarter does tend to be a strong quarter for us. I would underscore that ESG and Climate had a very strong year overall and when you drill into it and we've alluded to this, climate within there continues to grow at an incredible growth rate and is making a more meaningful contribution to the overall segment. And so that is something that is helping to fuel some momentum.

Just to put a finer point on that $45 million of the $79 million of climate run rate is actually within the ESG and Climate segment and that is growing at close to 80%, so that's helping to drive some of the momentum we've seen. As Henry alluded to earlier, there are many layers and dimensions of growth in ESG and climate across a wide range of solution serving various objectives and a wide range of use cases. And we're seeing that the thinking around how to integrate ESG continues to evolve, the regulations continue to evolve.

And as a result, investors in spots are being more measured in their buying decisions. And so I think there is some element of that, there's some element of the market backdrop that are helping to contribute to the fact that the pace of sales in ESG and climate is likely to fluctuate up and down based on all those dimensions that I alluded to.

Overall, we continue to see very healthy growth and strong demand, but for those reasons we think the growth rate will be a little bit dynamic and the sales could be a little bit dynamic quarter-to-quarter. I would highlight that because you asked about it, some of those sales that we did see slip from the third quarter that we alluded to on the last call, we were successfully able to close a lot of those and we had particular strength within EMEA. I think that just speaks to some of those dynamics that will fluctuate up and down over time. But overall, we continue to be very, very encouraged about the overall demand for the products, it's just a very dynamic engagement and discussion with our clients.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Understood. Thank you. And then just a follow-up on, I guess capital allocation. Are you assuming -- I think your interest expense guide is a little bit higher than I was anticipating. And I'm curious if you're expecting to maybe incur higher debt to buy back shares or sort of what's embedded in your free cash flow guide as it relates to capital allocation?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Yeah, so the interest expense guidance does not assume any incremental financings for the year. One thing that is driving the interest expense slightly higher is our floating rate term loan A. So we have a $350 million term loan A, which is floating rate and so we do have some expectation of rate increases and higher rates for the year, which factors into that interest expense guidance.

So that's what's embedded in our guidance, but I'd say more broadly no change to our approach to capital allocation. We are mindful of the overall financing market and rate market. And so we will overtime as our leverage starts to come down, look for opportunities to raise capital, but given where rates are right now, we're not in a rush to do that and we think we're in a strong capital position to continue to be very opportunistic on the MP&A front, as well as on the repurchase front if there continues to be volatility in the market.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Great, thank you so much.

[Operator]

We have a question from Craig Huber from Huber Research Partners. Craig, please go ahead.

[Craig Huber, Analyst at Huber Research Partners]

Great, thank you. I wanted to focus first if we could on the recurring subscription part of your business in indexes, obviously, the numbers continue to be extremely strong there. But maybe just talk a little further if you would about the sales cycles there, your sales pipeline, client budgets? I mean, is there anything there that you're feeling a little less positive about stuff particularly sales cycle?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Yeah, I would say you've actually seen remarkable strength on the index subscription business that we have with the index subscription revenue line. It's been quite encouraging given the backdrop to your point, where we've been having very constructive discussions within our more established client segments like asset owners and asset managers and I mentioned we saw subscription run rate growth within that segment of 10%, which is quite healthy. And we've also seen -- continue to see strong dialogue and engagement with hedge funds, wealth managers, broker dealers, where we saw that elevated growth that I alluded to.

Similarly, from a product lens standpoint, we are having strong momentum within our market cap modules. So our market cap modules actually had strong growth of about 11% in subscription run rate and we saw outsized growth within some of our non-market cap modules relative to that. And so across the board, we've seen a healthy dialogue and momentum and it's not only with these newer high-growth segments but doing more for existing clients.

And so at this point, we haven't seen a lot of impact from the environment, although we are conscious that the index segment tends to have a shorter sales cycle and so there could be some impact, but right now it's overall very, very healthy dialogue.

[Craig Huber, Analyst at Huber Research Partners]

Great. My follow-up question, you talked a lot about the enhancement you guys made in the Analytics products. So I'd like to hear further on the fixed income side of things, what you guys are -- the investor is spending to do in there, were you really focused on within the fixed income area please?

[Baer Pettit, President and Chief Operating Officer at MSCI]

Sure. So look, this has clearly been a multiyear effort where we have continuously improved everything that we're doing, where we had some important wins on fixed income in the last few quarters and clearly, we can't go into individual client names here because it's not what we do, but we're I think at a really important inflection point where we have some pretty significant deals in the pipeline and those deals are ones which we hope if we can get a few of them done, they should have really positive knock-on effects for our credibility in this asset class and then hopefully become kind of a virtuous circle.

So I would say that across the teams, people have never felt more positive than today about what we're doing in fixed income. As you know, this has not been a fast thing, this has been more of an oil tanker than a speed boat. But I really hope and I think I've got good grounds for believing so that during the course of this coming year, we should be able to really show that we're making a lot of progress in fixed income and starting to win some pretty serious investors over to our fixed income analytics.

So in short, I don't think it's one thing, I think it's a compound over various sub asset classes in fixed income, different types of analytics, so it's what we're doing across the board. And I really do think we're in a great place to have a strong year for 2023 in fixed income.

[Craig Huber, Analyst at Huber Research Partners]

Great, thank you.

[Operator]

Our next question comes from Russell Quelch from Redburn Partners. Russell, please go ahead

[Russell Quelch, Analyst at Redburn Partners]

Yeah, thank you gents. Just wanted to come back to the Analytic business to start. Can you pin down exactly what's driven the heightened growth in the last couple of quarters? I know you've made a few comments to this already, but is it new product? Is it tech enhancements to existing products? Is it pricing? I'm trying to get a bit of a sense as to is this structural or cyclical growth. And just kind of linked to that, how does it get decided if climate-related product revenues get booked in ESG and Climate or Analytics? So I just want to check there's been no shift in the revenue allocation, which is flattering the growth in the analytics segment?

[Baer Pettit, President and Chief Operating Officer at MSCI]

Look in some, the analytics product line, we have been revamping their strategy and the hub or the core is continued work on enterprise risk and performance. And we make some good progress there, but the growth rates are not dramatically different than they were before. The growth areas are in three elements that we're pivoting towards. One is the front office, so equity portfolio analytics and fixed income portfolio analytics along the lines of what Baer was mentioning, those are high growth areas for us.

Second is climate risk with Climate Lab Enterprise and the third area, which we just launched a whole bunch of products is more content. We launched a protocol insights and the like. And so, we're hoping that the 60% of the run rate which is central risk continues to grow at a reasonable pace, but the acceleration of the growth will come from those three pivots that I mentioned.

[Andy Wiechmann, Chief Financial Officer at MSCI]

And Russell, there's no shifting of run rate from ESG and climate to the Analytics segment. There are some climate and ESG focus tools that are analytics tools that are showing up in the segment like our Climate Lab Enterprise and some of our ESG reporting capabilities, but those are not shifting, those have always been there.

[Russell Quelch, Analyst at Redburn Partners]

Okay, okay. Thank you. And then just as a short follow-up, the basis point fee charge on the AUM in the Index business that was notably up in Q4 versus Q3 to 2.54. Is that a lagged effect from lower AUM in previous quarters? I'm just wondering, should we expect that to fall again as AUM stays higher in Q1?

[Henry Fernandez, Chairman and Chief Executive Officer at MSCI]

Yeah, I would say it was impacted by flows out of lower fee product, so there was that mix impact. We saw a very small impact from a positive fee adjustment as well. Despite the steadiness that you've seen over the last year, I do want to underscore that we do expect the average basis points to continue to decline gradually over time, as we've seen over the last, call it, eight to 10 years or so, although we do expect the assets to increase at a faster growth rate and continue to be bullish about the growth in the ETF front, but we do expect fees to gradually come down over time.

[Russell Quelch, Analyst at Redburn Partners]

Got it, thanks very much.

[Operator]

We have a question from Greg Simpson from BNP Paribas. Greg, please go ahead.

[Greg Simpson, Analyst at BNP Paribas]

Thank you. I think you mentioned price increases being 35% to 40% of new subscription sales firm-wide in the fourth quarter. Could you provide some color around how this compares versus history? Do you get the impression that you're increasing pricing more or less or similar to some of your competitors in Index and ESG?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Sure yeah, I don't want to comment on what our competitors are doing, but I would say that, yes, we are generally increasing prices more than we have in the past. The 35% contribution from pricing to new subscription sales across the subscription base and the 40% plus that we are seeing in Index, the contribution within Index from price increases, those are about five-plus percentage points higher than what we've seen in the recent past.

And so yes, price is contributing more than it has in the past. I would just underscore that we are -- in our price increases, we are heavily focused on delivering value together with the price increases. And so we're continuing to enhance the content that we deliver to our clients, the capabilities, the functionality and the overall client service that they are getting. We do recognize that our growth is heavily going to come from our existing clients and we want to do it in a constructive fashion. But given the overall pricing environment and cost environment, we are increasing prices more than we have in the past.

[Greg Simpson, Analyst at BNP Paribas]

Great, thank you. And then just quickly on the real estate business. New sales were down year-over-year, is there anything in particular to call out in what is maybe a trickier backdrop for real estates? And more broadly, how is RCA progressing since your acquisition?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Yeah, I mean its similar message to what we've seen in the past, which is things are progressing well in the segment. I would highlight that our -- some of our portfolio services are getting a lot of traction and lot of interest. Investors in particular are focused on understanding what is driving the performance and the risk in their portfolios. And so, we're seeing strong engagement there.

On the data side, including the RCA data, we do see some pressure from the backdrop to your point. There are aspects of the RCA business and the data that we have that are used as part of transactions in the real estate space and we have seen a slowdown in transaction volumes across the space. But you can see the overall growth rate on an organic basis at 12% is still pretty good and we think there are some environmental impacts going on given the backdrop in the real estate space, but we continue to be quite encouraged about the long-term opportunity there.

[Greg Simpson, Analyst at BNP Paribas]

Thank you.

[Operator]

And we have a question from Simon Clinch from Atlantic Equities. Simon, please go ahead.

[Simon Clinch, Analyst at Atlantic Equities]

Hi, everyone thanks for taking my question. I want to just get your perspectives please on, I guess, the opportunity in the futures and options line, which today they're still relatively small in the context of your overall Index business. I mean how should we think about the structural growth opportunity here for that? Obviously, the larger it is, the more diversified benefits you'll see during times of risk and I imagine that's quite a desirable thing to have? Thanks.

[Henry Fernandez, Chairman and Chief Executive Officer at MSCI]

Yes, so there are three legs of any large and successful Index business, the active management, the fees that we charge to active managers, what we call the subscription business; the fees that we charge to passive managers, both in any wrapper ETF or institutional passive or own some mutual funds. And the third leg is the licensing of indices into all sorts of derivative products, some of them are lifted like futures and options and some of them are unlisted such as swaps and options and structured products that investment banks make.

We are very, very intent and focused on building that third leg. What you see and that we comment on is the listed futures and options and there's still a lot of runway for us to continue to grow in new products. We have a lot of listed futures, we're now focused on our listed options franchise and are pushing new initiatives in that front, more to come on that. And while you don't hear us often, although there were comments earlier today on this, is the structured products and the other forms of OTC derivatives and that is -- those are growing very nicely and there's still the ground floor where we can achieve it.

[Simon Clinch, Analyst at Atlantic Equities]

Okay, that's really useful. Thank you. And then I guess, just lastly, on the environment for M&A and bolt-on acquisitions, could you just give a sense of how rapidly that's changing? And thus, I guess, just give us a sense of the opportunities you have ahead of you?

[Andy Wiechmann, Chief Financial Officer at MSCI]

Yes, yes. So listen, you know and you see this on the repurchase front, we are an organization that likes to be contrarian and opportunistic. And so in these environments, there are potentially opportunities to acquire companies that otherwise wouldn't be available. And so we are seeing some early-stage companies that need growth capital. They're finding that the growth capital is more expensive or tougher to find than it was in the past and so as a result, they are open to partnerships, investments, even acquisitions in certain instances.

And so we're being very proactive in looking for those opportunities and think they can be instrumental in helping to accelerate those strategic opportunities in our key focus areas that we've talked about in areas like private assets, climate, ESG, fixed income, broader technology and data capabilities. So yeah, it's an intense focus for us right now.

[Operator]

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to MSCI's Chairman and CEO, Mr. Henry Fernandez. Please go ahead.

[Henry Fernandez, Chairman and Chief Executive Officer at MSCI]

Well, thank you, everyone for joining. As you can hear in our commentary, we continue to see strong demand for our solutions. We continue to invest significantly in large growth opportunities that are ahead of us and preserve and enhance profitability growth in the company. We're very excited about this momentum, especially in such areas like climate, where we are determined to become the undisputed leader. Thank you, everyone and we look forward to a continued dialogue with all of you.

[Operator]

[Operator Closing Remarks]