Good day, ladies and gentlemen. Welcome to the MSCI Inc. first quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. We will have further instructions for you. I would now like to turn the call over to Jeremy Ulan, Head of Business Relationship and Treasurer. You may begin.

Thank you. Good day, and welcome to the MSCI Inc. first quarter 2025 earnings conference call. Earlier this morning, we issued a press release announcing our results for the first quarter of 2025. This press release, along with an earnings presentation and brief quarterly update, are available on our website, msci.com under the Investor Relations tab. Let me remind you that this call contains forward-looking statements which are governed by the language on the second slide of today's presentation. You are cautioned not to place undue reliance on forward-looking statements which speak only as of the date on which they are made, are based on current expectations and current economic conditions, and are subject to risks and uncertainties that may cause actual results to differ materially from the results anticipated in these forward-looking statements. For discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements disclaimer in our most recent Form 10-Ks and in our other SEC filings. During today's call, in addition to results presented on the basis of U.S. GAAP, we also refer to non-GAAP measures. You'll find a reconciliation of our non-GAAP measures to the equivalent GAAP measures in the appendix of the earnings presentation. We will also discuss operating metrics such as run rate and retention rate. Important information regarding our use of operating metrics, such as run rate and retention rate, are available in the earnings presentation. On the call today are Henry Fernandez, our Chairman and CEO, Baer Pettit, our President and COO, and Andy Wiechmann, our Chief Financial Officer. Lastly, we wanted to remind our analysts to ask one question at this time during the Q&A portion of our call. We do encourage you to ask more questions by adding yourselves back to the queue. With that, let me now turn the call over to Henry Fernandez. Henry?

Thank you, Jeremy. Good day, everyone. And thank you for joining us. I apologize for the scratchy voice. I suffer from seasonal allergies at this time of the year. In the first quarter, MSCI Inc. delivered strong financial metrics, including organic revenue growth of 10%, adjusted EBITDA growth of 11%, and adjusted earnings per share growth of almost 14%. We also repurchased $275 million worth of MSCI Inc. shares during Q1 and through April 21st. As always, the share repurchases affirm our belief in the current and future value of our stock and our commitment to a robust capital allocation policy. Our first quarter operating metrics showed durable retention and asset-based fee revenue growth, although new recurring subscription sales were down from Q1 of 2024. More specifically, MSCI Inc. delivered a retention rate of over 95%, organic subscription run rate growth of 8%, and asset-based fee growth revenue of 18%. This reflected strong growth in both ETF and non-ETF AUM linked to MSCI Inc. indices, including the highest Q1 cash flows into ETF products linked to MSCI Inc. indices since 2021. Among our client segments, we had a strong quarter with hedge funds, asset owners, banks and broker-dealers, and wealth managers. At the product level, we achieved retention rates of over 96% in index and over 95% in analytics. We also drove recurring net new sales growth of over 60% for each of these product lines. MSCI Inc. is providing a growing mix of solutions for portfolio customization and personalization. We have built solid momentum in custom indices, which will be further supported by our integration of Foxbury's F9 platform. Meanwhile, net new recurring subscription sales in private capital solutions grew by 24%. We continue building new solutions to help clients diversify into private assets. Yesterday, we announced a very…

Thank you, Henry, and greetings, everyone. In my remarks today, I will discuss our first quarter performance by client segment, including meaningful business wins that give us conviction in our global strategy. We delivered encouraging results among established and newer segments. Among hedge funds, MSCI Inc. achieved 14% subscription run rate growth driven by analytics and index, and covering a wide range of products and capabilities including customization and the reimagining of risk. For example, our next-gen factor models and analytics are helping a growing number of hedge funds understand the key fact amid high levels of market volatility. We now have more than 60 hedge funds using those models, up from just 8 in 2022. We also completed a significant multi-region hedge fund deal for our ETF-linked custom index module. Amongst banks and broker-dealers, delivered over 9% subscription run rate growth with strong analytics, new recurring subscription sales in Europe and the Americas. In particular, we saw robust demand for our factor models related solutions, confirming the importance of our risk analytics tools during periods of market volatility. We also saw strong demand for custom baskets created with MSCI Inc. Index Solutions, another sign of the growing push for customization. In addition, completed a multiyear deal with a large bank in the Americas for a sustainability and climate regulatory solution that can support asset liability management. This last win demonstrated that MSCI Inc. can generate enormous value across climate risk and sustainable finance. Turning to wealth managers, we achieved subscription run rate growth of 15% driven by index across all regions and by sustainability and climate in Europe. For example, we landed a large MSCI Inc. win including index and private capital solutions, with the wealth arm of a prominent global financial institution. This win came as part of…

Our first question comes from the line of Toni Kaplan from Morgan Stanley.

Thank you. I wanted to ask about just the selling environment. It looked like in periods of market volatility, I feel like retention typically is strong and we saw that this quarter. But I guess I wanted to focus more on sort of new sales. So particularly maybe index and sustainability. You know, I guess, what are you hearing from clients in terms of conversations? Is there a little bit of reluctance to make new purchases? Are any deals sort of getting pushed out? And just wanted to understand if there was any change in the market environment, particularly maybe towards the end of the quarter. Thanks.

Hi, Toni. Baer here. So look, I want to be very measured in my comments. So the first one, which I think is self-evident, is this is an extremely uncertain environment with new news coming every day on a variety of market topics. If we then go more specifically and narrowly to our clients and our day-to-day activities, you know, as of today, we don't have evidence that there is a change in the purchase clients. More specifically, a few items that did not close in Q1, again, as of today, we believe they will close in Q2. You know, that information could change in the coming weeks, but as of today, you know, we believe that some of those items that didn't close in Q1 will close in Q2. Our pipeline is in decent shape. Our levels of client engagement are high. And, notably, a few observations. There's a clear demand among clients for transparency, analytics, and stress testing in the current environment. There's an emphasis on opportunities outside the US from a number of clients in all geographies. And so those are some of the key things. So we are not seeing a dramatic change. We are in constant contact with our clients at all levels of the organization from the sales force to Henry and myself. And we hope we can navigate this with our important mission-critical tools.

Thank you. One moment for our next question. Our next question comes from the line of Manav Patnaik from Barclays.

Hi. Thank you. I just wanted to ask in terms of your comment on your preparing for a wide range of outcomes, maybe just, you know, remind us, you know, kind of of that downturn playbook that you've talked about many times before, but you know, with just a little bit more context on, you know, perhaps you know, those outcomes you're referring to in this environment?

Sure. And as you know, we continually calibrate the pace of spend based on not only the market levels but business performance and opportunities that we see. And so if markets improve, we will flex up. And similarly, if markets turn down, we have the levers to manage our expenses down. Just to be a little bit more specific about those levers that we have if we need to use them. You've got incentive compensation, which adjusts naturally with the outlook for the business and overall business performance. A 10% swing in the performance relative to our targets has an annual impact of about $20 million just to dimension how much that can swing. There are certain non-comp expenses that we can flex, delaying professional fees, flexing other non-comp items, that can collectively have an annualized impact of about $20 million, and those can start to impact expenses within a quarter or two, so relatively quickly. And then we can control the pace of hiring. Usually takes a couple quarters to start to have an impact on the financial results. But that similarly can have about a $20 million annual impact if we flex hiring up or down on the year. And so we can even calibrate more or less, obviously, on all those levers. And so it's a continual calibration. As we had said before, our guidance assumed that markets gradually increase throughout the year. If the market levels remain relatively flat through the year, we will be towards the low end or at the low end of our expense guidance ranges. We wanted to give you that color just to calibrate how much the market would impact overall expenses. But it is important to highlight that there are many factors that feed into the pace of expenses beyond just the market levels and AUM levels, but we also look at business opportunities, financial performance, and potential investment traction that we're getting in key areas. So it's something that we'll continue to calibrate based on the outlook. We'll keep you posted. But we're confident that we have a very strong financial model here in the leverage to deliver strong results in all environments.

Thank you, Andy.

Thank you. One moment for our next question. Our next question comes from the line of Alex Kramm from UBS.

Yes. Hey. Hello, everyone. Just wanted to come back to the selling environment and in particular, wanna ask about, you know, international investing. I mean, it seems to be the first time in a long time that people are talking about, you know, asset flows not towards the US, towards international markets, which seems fairly new. So given that most of your indices are on subscription sites internationally focused, just wondering if you're starting to see a change at all in terms of investor or customer sentiment. So if more assets are flowing into, let's say, Europe or away from the US, how would we think about maybe, you know, a pickup in your business? Not on the ETF side, but more on the subscription side, like, would you expect more fund launches? Anything you can see already, or is it just way too early? But just trying to think about this as a new trend in a long time, how this could actually impact your business. Thanks.

Well, thanks for that question, Alex. Definitely, we're seeing a marked change in everything you're talking about. This obviously accelerated with the tariffs, but it was already ongoing from the beginning of the year. In which a lot of our global clients, including US clients, in their global portfolios, were already placing a lot of bets on Europe and Japan. And given the decline in interest rates and obviously the weakening of the dollar, we also saw flows going into emerging markets and new inflows into emerging markets. As I said, that accelerated meaningfully since April 2nd. And when you look at our business, we have done relatively well against in the last two, three years relative to strong headwinds for us because a lot of first of all, our breakdown in subscription run rate is about 40% Americas, 40% Europe, and or EMEA, and 20% Asia Pacific. So we are not and that is where the client is located. But at the end, our business is predicated on global investing. And if there is a massive amount of money flowing into the US market, it's a headwind for us. And that's what was happening in the last couple of two, three years. That trend is reversing significantly. I know, in the last month or so, I've had 70 to 80 CEO level meetings through our role of Europe and Asia, which I just came back. And you could see palpable that shift. So that hopefully will benefit us on a relative sense because we were having this headwind for a long period of time. Would clearly benefit the asset-based fee. Remember, most of our asset-based fees are based on exposures that are outside of the US. And then we translate them into dollars. So we may get two benefits,…

Thank you. One moment before our next question. Our next question comes from the line of Ashish Sabadra from RBC.

Thank you for your question. I just wanted to focus on the pricing. I was just wondering if you could comment on how the pricing is trending both for renewals and for new sales. Thanks.

Sure. So I would say across the firm in the first quarter, the percent contribution from pricing increases to new recurring sales was roughly in line with the contribution we saw a year ago. That is slightly lower than what we saw in 2023. It does vary a bit across product lines and client segments, but in most areas, I'd say price increases were roughly comparable to last year. It's important to keep in mind here that price increases are not just like-for-like increases. We are oftentimes providing our clients with enhancements to the existing solutions, broader access, broader usage in addition to continuing to provide enhanced client service. So all of those things factor into our approach to pricing. And we do also look at client health and the overall pricing environment as inputs as well. And there are definitely areas where we could push price more, but we are very focused on being a very strong partner to our clients as we said before. And as Henry alluded to in these environments, we have the opportunity to do more with organizations and help them in these times. And so we factor that in the overall pricing equation as well.

That's very helpful, thank you.

Thank you. One moment for our next question. Our next question comes from the line of Owen Lau from Oppenheimer.

Thank you for taking my questions. I want to go back to the new sales environment. And you mentioned that some deals are pushed out from the first quarter to the second quarter. But you are still cautiously optimistic that you can sign them in the second quarter. So could you please provide more color on under what circumstances that they will proceed with the deal? Do they need to see the escalation of the trade war? If this trade war or if this tariff narrative drags on for another quarter, do you think they will still sign the deal?

Thanks, Owen. Yeah, look. I think it's really not so much in the context of the trade war, honestly. I think it's just much more kind of in quote normal business. So in the sense that, look, sometimes some quarters we get a lot of things at the very last minute. Sometimes things get bumped. We had a few larger deals that didn't make it this past quarter. I was actually personally involved in some of those. So I think I don't want to link it less to the environment, in the sense that, you know, my overall observation was one, we are not for the moment seeing anything unusual. Our clients are cautious. There's a lot of uncertainty. But on the day-to-day level of what's going on with our clients in terms of, let's say, a deal not making it from one quarter to the next, you know, the evidence shows that those things will close based on what we know today. So my main point is really to say that as of today, we're not really seeing a big change in the environment. We're not being told by clients that the environment will mean they do not do something. And so in that sense, my emphasis is on continuity. In what we're doing, continuity at our client talks, but the background is this uncertainty. So, you know, a lot can happen in the next months, during the course of this quarter. But as of right now, we are not seeing the volatility affect specific deals that we have in the pipeline right now.

Got it. Thanks a lot.

Thank you. One moment for our next question. Our next question comes from the line of Alex Hess from JPMorgan.

Hi, everybody. Baer, Andy, could you potentially comment on how AUM has trended in the non-ETF part of your business overall? I saw that was at some pretty healthy growth in the quarter. If you could just sort of elaborate as to what is driving your growth there and what your expectations are for the balance of the year, you know, up 27% by my math to just under $50 million on a quarterly basis. It's surely a big step up for you guys. It'd be helpful to know, you know, what we should be looking for there and, you know, maybe what's driving it. Thank you.

Sure. Hi, Alex. Yeah. So we did firstly, it's important to keep in mind that there can be a little bit of lumpiness in revenue in the non-ETF passive category related to true-ups and true-downs just when we get the updated assets reported to clients. If you look at the underlying AUM, we do see pretty healthy growth there. So non-ETFs average AUM was up around 20% in the quarter compared to a year ago. We saw pretty healthy growth of new fund creation. We even saw that particularly in areas like climates and custom mandates. And so we continue to be encouraged about the opportunity. A couple of areas to note here. We commented in the prepared remarks about direct indexing. So direct indexing does come through this line. While it's relatively small, it is high growth for us. And then there are areas like institutional passive, which we continue to see help the one of our indexes. And as I alluded to, that's increasingly against custom index. Is, and that's a place where we are differentiated. We think we can be a helpful partner to clients, and we do see pretty stable economics there. And so average basis points have been quite resilient across non-ETF passive on the heels of our non-market cap and custom index type of mandate. So, yeah, it's an area that we are focused heavily on. It's very strategic out there.

And just in case it wasn't clear, I did mean to ask for end of period AUM for the non-ETF business. Sorry about that.

Yeah. No problem. End of period AUM and non-ETF passive was around $3.9 trillion.

Thank you. One moment for our next question. Our next question comes from the line of Faiza Alwy from Deutsche Bank.

Yes. Hi. Thank you. I was wondering if you could comment a little bit on retention rates, particularly on the index side and analytics. And if I look at those, it seems like they were pretty normal relative to the historical trend. If I look back to 2022 and 2023, over time potentially from, you know, consolidation with European F know, these levels as more normal from here or if there's, you know, additional impacts that you're expecting related to just the current environment or, you know, more generally anything else that you're expecting?

Sure. So maybe just to provide a bit more color on the retention rate in the quarter, and then we can talk about some of the dynamics looking forward here. But if we look at Q1 of this year compared to Q1 of last year, we had lower cancels across most client segments, and we had notable declines in cancels with hedge funds and banks compared to a year ago, which probably is not surprising if you remember we had the large cancel related to the large global bank merger in the first quarter of last year, and we had some elevated hedge fund events in the first quarter of last year. And so we saw a nice rebound in retention among those client segments. But to your point, we saw pretty healthy retention in our largest product segments. So within index, it was 96.5%, and within analytics, 95.5%. And from a client segment standpoint, we saw a retention rate of about 96% with asset managers, and north of 95% with asset owners. And so, you know, the core part of the business saw some pretty healthy resilience in the quarter. The top cause of cancels continues to be client events, and I think the comments that I made last quarter around, you know, some caution particularly in Europe still holds. I think when we look forward this year, it's possible we could see some lumpiness in cancels in certain periods, particularly if the market uncertainty continues and that recent volatility continues, which can lead to some elevated client events. But it's important to keep in mind that our tools really are mission-critical here. And as Henry alluded to, they're must-have solutions in these types of environments. But we were encouraged by the retention here, but a bit cautious on the outlook for the balance of the year.

Thank you. One moment for our next question. Our next question comes from the line of Kelsey Zhu from Autonomous.

Hi, good morning. Thanks for taking my question. Just on analytics, I think you previously highlighted that in a period of high volatility and uncertainty, analytics would generally see stronger growth. I'm not sure we've really seen this in Q1 that new sales numbers. But under the current environment, I was wondering if you can talk a little bit more about growth expectations for analytics new sales in Q2 and the rest of the year.

So first of all, you know, Q1 was not yet a period of significant turmoil or uncertainty. If anything, there was a little bit at least part of the Q1, there was a little bit of the carryover of the excitement of the new US administration and the risk on trades that took place. So I would not read too much on that Q1 being a period of difficulty. Clearly, things started to get a little more to deteriorate in the latter part of Q1 and then obviously, you know, in April. So in periods like this, there are two big periods like this. You know, and especially this one, there are a little bit of three different forces that will shape our sales and our growth and all of that. Right? The first force is client need us the most. Client needs more data, they need more stress testing, factor decomposition, they need more understanding of what is inside an index, they need better transparency with private assets and all of that because they wanna know what's underneath the hood of all their investments. Right? And therefore, that will be a very significant positive. Especially in risk analytics, and in our index offering, which is the largest part of MSCI Inc. Right? In periods like this also there the not in periods like this. In this particular period, there is a significant reallocation of assets to non-US markets. With a consequent, you know, declining of the dollar, and, you know, we're booing, you know, Japan and Europe and other places like that. And we're seeing that. And that again is another positive compared to what, the last complete two, three years was a massive influence to the US market. So on balance, we do much better when money flows around the world than just to the US market. Those two very significant positives need to be weighed against the spending of our clients, you know, the budgets of our clients in which there's some clients that are doing well, you know, a lot of equity long-term hedge funds will do well. Micro hedge funds will do well. Pension funds are typically very steady. You know, the index fund managers are gonna do well. You know, active managers may be may not do as well, but some of them if there is a period in which active management should be very brilliant, it's this period. So some of those active managers are gonna do well, and their budgets are not gonna be curtailed. But others may be curtailed. So I think that you know, we need to put those three factors into the equation. How much of the two positives outweigh the negative of potential lesser spending by our clients or vice versa? And we don't know the answer to that until we go through the whole period. Right?

Thank you. One moment for our next question. Our next question comes from the line of Scott Wurtzel from Wolfe Research.

Great. Thank you guys for taking my question. Wanted to ask on the sustainability and climate segment just in terms of the acceleration and run rate growth that we've seen this quarter along with it sounds like some relatively large deals being signed. Just wondering if you think we're maybe seeing a potential inflection point in that segment and that we could potentially see acceleration and growth down the line here. Thanks.

So there's no question that sustainability, you know, the old ESG is on a cyclical headwind. We continue to believe that on a secular structural basis, factors related to sustainability and understanding the inside of portfolios will be positive. And will return to higher growth the demand is also changing. You know, the demand that we have was largely ESG ratings. People will take our ESG rating. They trust us what we did. They didn't wanna look under the hood, and they went out and created portfolios on that. Now people say, yeah. I would love to take your ESG rating, but I wanna see the underlying information. I wanna break it down into the various environmental sections, the social sectors, and all of that. So the demand is changing, and therefore, we're gearing up to that change in demand, which is a lot more underlying data, which is actually very positive for us. Because we have all of that just a question of how do we package it and how we sell it. You know, the other change in the demand is major regulatory burden. So a lot of our clients who have portfolios on sustainability or are launching sustainability, they want a lot more help in complying with every one of these regulations all over the world. And we have packages that help them do that in an automatic fashion. So now the last piece is that you know, bear in mind that in order for us to get to sustainability, we gather an enormous amount of information about our clients' operations. Where the employees, where they're located, you know, their offices, their hiring practices, and their controversies, their this, and all of that. So that database becomes very valuable also to examine other issues, not just sustainability,…

Thank you. One moment for our next question. Our next question comes from the line of Craig Huber from Huber Research Partners, LLC.

Yes. Hi. Thank you. My question around ESG is there a material difference in the year-over-year growth rate in the quarter we just finished here by region Europe versus Asia versus the Americas? Maybe also if you could touch on the climate growth within ESG how those revenues did year over year, that piece of it, please.

Sure. Hi, Craig. So there was a difference. So the subscription run rate growth for sustainability and climate in EMEA was about 14%. That was 4% in the Americas and 8.5% in APAC. And those regions contribute about 52% from EMEA, 34% Americas, and 14% in the APAC region. Climate run rate growth was 20% across the entire company, within the sustainability and climate segment. It was about 17% growth. And just to dimension that, the climate-related run rate within the sustainability climate segment is around $75, $76 million.

Thank you. One moment for our next question. Our next question comes from the line of Jason Haas from Wells Fargo.

Hi, good morning and thanks for taking my question. I was curious if you could talk about why the first quarter EBITDA expenses came in below your expectations.

Sure. Well, we see a number of, as we've talked about before, lumpy expenses in the first quarter. Those are heavily related to compensation and benefits-related expenses. And we have other expenses that tend to be a bit elevated around year-end. And so just the ultimate magnitude of those and the timing of those can cause some swings in the expenses in the quarter. Importantly, as you saw, we have not changed our guidance for the year. And so we're kind of on assuming the market's gradually increase for the year, the expense trajectory is on track for those expense guide ranges as we alluded to, we are being cautious since the extent markets remain flat. Or go down. We will calibrate accordingly. But because expenses are kind of in the first quarter, we're on the trajectory, which we expected.

Thank you. One moment for our next question. Our next question comes from the line of David Motemaden from Evercore ISI.

Hey. Thanks. Good morning. I was hoping to dig into the sales, the gross sales that didn't close in Q1 that you guys are hoping will close in Q2. It sounds like some of those could be meaningful. Guess I'm wondering, were those concentrated within any segment? It looks like index was definitely a little bit lower. Was a lot of that in there or any other detail you could give us would be helpful.

Sure. So look, this has come up a few times. I want to reiterate that my key point related to this is that this is kind of what I would call normal sales activity in a given quarter where certain deals either make it or don't make it. Right? So my emphasis is not so much on these deals in the context of change, but more to say, look, we had a few deals that didn't make it. We think we were gonna make it in the second quarter. Rather than that there's something special about them or unusual or what have you. So I think the long story short is they're across a number of different product lines, they were literally across all of our product lines. Some of the larger what are few of the larger deals that didn't quite make it. So I think it's kind of dangerous category to go too much into the detail, and I think it's important to elevate the point to the higher level that I was trying to get to, which is look, some deals didn't make it, which can happen in any given quarter. But in the slightly changed circumstances since then, we're not seeing evidence that those deals will now not close. I.e., rapidly changing environment, more uncertainty, but our belief and understanding with our client engagement is that those deals that didn't make it in Q1 will make it in Q2 and we hope that to be the case.

Thank you. One moment for our next question. Our next question comes from the line of Joshua Dennerlein from Bank of America Securities.

Yeah. Hey, guys. I wanted to ask about the new Moody's partnership. Can you provide a little bit more color on how that came about and just maybe how you're thinking about it impacting your growth rate? I'm assuming it's gonna show up in private asset that private asset segment.

Yeah. So we started quite a number of years ago. We had gone to the senior management of Moody's and said to them, we have a number of highly complementary capabilities. Why don't we try to do some partnerships? And at the time, it was very focused on ESG. And we said to them instead of you running a whole ESG business, why don't you rely on us and you feed the ESG data and models and ratings into your entire business? And so a couple of years ago, they came back and said, you know, that makes a lot of sense rather than us doing that. So why don't we do that? And that culminated in the partnership that we announced on ESG last summer. On the success of that, working relationship and partnership, we started talking about what are other things that we can do that one plus one is three so that they don't have to replicate what we do and we don't replicate what we do. And then we started focusing on private credit. So that started last July. So we went through a number of iterations as to what were the areas that we could potentially benefit mutually from private credit, and eventually settled on using their flagship probability of default models and apply it to MSCI Inc.'s database of private credit and models. Of another risk models to come up with a third-party significant assessment of creditworthiness of the private credit funds. And the underlying instruments, the underlying holdings of those private credit funds. So it's significant because we have some probability of default models, but they're not definitely at the scale of Moody's. Moody's has databases, but our database is superior to their private credit database. So we joined forces to do that…

And Josh, it will show up in the private asset segment, although it would highlight that the financial impact this year is likely gonna be immaterial. Relatively small.

Thank you. One moment for our next question. Our next question comes from the line of George Tong from Goldman Sachs.

Hi. Thanks. Good morning. I wanted to go back to sustainability and climate. Was the only segment to see net new sale decline in the quarter. Can you talk a little bit more about the factors behind that and when you might expect that new sales to inflect to growth? And maybe in what kind of environment that would be most likely to happen.

Sure. So George, and you can see this in the retention rate, which was relatively solid in the quarter. As Henry alluded to, clients are committed to sustainability and climate is very topical and a big focus area for them. We are seeing muted demand in areas. Needless to say, it's a very nuanced and dynamic landscape. But we are seeing subdued demand particularly in the US where investors remain cautious about launching sustainability strategies and funds. And even in Europe, we've seen some regulatory complexity that we've talked about in the past and some uncertainty persist. There is the potential for reduced scope on CSRD. Which is small for us today. Very small for us today, but obviously, was an opportunity for us that's looking less likely. And so our tools remain absolutely mission-critical. To clients, but there is some caution and some headwinds which we're likely to see in the near term here. So we expect the performance in the next couple quarters to be similar to what we've seen in recent quarters. As Henry alluded to earlier, we continue to be bullish about the long-term opportunity here. We are seeing investors evolve on the climate front from emissions into physical risk. We see investors broaden their thinking around sustainability into resilience and really double-clicking into all aspects of risk related to sustainability. And that's an area where we've always been differentiated and are very well positioned. And so there are these attractive opportunities, areas within climate where we're getting early traction. I think some of the broader cyclical dynamics are gonna persist here in the short term, but over the long term, we continue to be focused on the big opportunities in front of us.

Thank you. One moment for our next question. Our next question comes from the line of Russell Quelch from Redburn Atlantic.

Thank you. Good morning. Perhaps as a follow-up to an earlier question on retention, can I quickly check that the improvement in Q1 was driven by a lapping of one-off client consolidations and not due to proactive actions on pricing or discounting?

So well, comparing the retention rate to Q1 of last year, obviously, Q1 of last year, we saw a lower retention rate related to that client activity that I talked about with banks. And hedge funds particularly. I'd say the retention rate was reasonably strong across all segments for us here, and I'd say I wouldn't attribute that to any one thing in specific other than the broad mission-criticality of our tools, our proactive client engagement and client service efforts, and our strong position relative to competitors in the market. So I wouldn't say it necessarily is tied to pricing. But if you compare to last year, obviously, we did have some elevated client events in the first quarter of last year, which is why you saw a big increase year over year.

Thank you. One moment for the next question. Our next question comes from the line of Gregory Simpson from BNP Paribas Exane.

Hi there. I just wanted to ask for a bit more color on private capital solutions, which had 15% run rate growth this quarter, and in particular, how the sales and uptake of the suite of private capital indexes you launched last year have been going. Just feel like there should be a lot of demand for transparency, private markets in this kind of backdrop, but also where it's a bit of competition in the space. Thank you.

So private capital solutions formerly the Burgess, right, the Burgess acquisition that we made at the moment is largely a product offering transparency to institutional investors, institutional LPs, on their investments in GPs. Across the whole spectrum of private assets. There are a lot of other sales that are for entities related to that ecosystem. And therefore, the market that we have we have over 1,000 institutional LPs as clients in this area. And we're fairly underpenetrated. Underpenetrated in this product line. Around the world. Especially outside of the US. And the institutional LPs understanding with a lot of transparency what is the portfolio, how is that doing relative to a benchmark, what is the performance of the portfolio, the risk of the portfolio, what are the trajectory of capital calls, of returns of capital and things like that. So we remain extremely bullish about a continuation of fairly decent growth rates around the world in this area. The second part that we are now focused on is think of them as wealth LPs. You know, or individual LPs advised by their wealth manager they are not dramatically different than an institutional LP. They are LPs. They are investors and therefore, we're gearing up to provide much higher levels of transparency to those investors in private assets. Of course, private credit is one of the biggest sellers there. And the like. That's a second area of initiative that we have. And the third one is as time goes by, we are creating more products totally fitted for the GPs. Understanding their own portfolios, comparing it to competitors' portfolios, and all of that. So far, this market is, you know, you can hear a lot of competitors here and there and all of that, but this is a market we have a very strong leadership. In it. Very strong leadership. And we are advancing on that leadership and making it bigger and wider. The benchmark indices associated with that are a compounding of that level of transparency they may not be an end in themselves. Meaning, we may not have a large amount of revenue that come from just the benchmark indices and private asset, although, you know, we're gonna try, but they wouldn't gonna be any major part of the entire transparency from performance to risk to understanding the market, which is a benchmark to the comparison to the market, etcetera, etcetera. So we're very bullish on this private capital solutions product line going forward.

Thank you. There are no further questions. I will now turn the floor over to Henry Fernandez for closing remarks.

Thank you, operator. I just want to reiterate that periods of global turmoil are when MSCI Inc.'s clients need us the most and where we do our best. We provide mission-critical tools for understanding key sources of investment risk and investment performance and combining both of them into portfolio construction and asset allocation across market cycles. Those tools can take an even greater relevance in high levels of volatility. This is why MSCI Inc. remains confident in the resilience and adaptability of our all-weather franchise and our ability to expand in periods like this. You know, it's not as it's you know, everyone tries to expand in bull markets and when things are going well, you know, MSCI Inc. normally expands the most. In periods like this because clients need us the most. They wanna talk to us the most and all of that. So thank you again for joining us today, listening to our story, and we look forward to speaking to all of you again soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.