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MEMO TO THE CEO: MSCI'S PIVOT FROM ANALYTICS LEADER TO INDEX STEWARD

June 2030 Strategy Review

CONFIDENTIAL | CEO EYES ONLY From: The 2030 Report — Strategic Advisory To: Executive Leadership, MSCI

THE SITUATION YOU'RE FACING

Henry, your 2030 strategy memo to the board in March set the tone: "MSCI is transitioning from an analytics software company to an index and data infrastructure company." That statement was both brave and accurate. It required you to fundamentally redefine MSCI's identity after 20 years of growth through analytics acquisition and expansion.

Here's what's actually happening on the ground, four months into the pivot:

The Good News: - Your core index business is exactly as durable as you thought. Client retention on indices is 99.2%, and customers are not considering switching. - Free cash flow generation remains robust: $1.18B in the first half of 2030, slightly ahead of 2029 pace. - Your team has successfully executed the "analytics harvest" strategy: you're not trying to compete on price; you're monetizing legacy customers while investing in next-gen products. - The AI-augmented product line (indices weighted for AI resilience, climate risk, regulatory change) is gaining some traction with consultants and wealth advisors, even if institutions are skeptical.

The Hard Reality: - You are no longer a growth company. You are a cash-generation company. That re-rating from 38x to 22x P/E in four years is not cyclical—it's structural. Investors have accepted that MSCI grows 3-5%, not 8-12%. - Your analytics division, which generated 38% of revenue as recently as 2028, is now "harvest mode." You know the revenue is declining 12-18% annually in some segments. You're managing that decline, not fighting it. - The "AI indices" products, despite your genuine innovation, haven't captured the market share you hoped. The institutional market is skeptical of AI-weighted methodologies. The retail market (via wealth advisors) has a short attention span. Your marketing team is managing expectations. - Private assets analytics, the "growth engine" you counted on, is facing headwinds because the private markets themselves are in revaluation. You didn't cause the problem, but you're experiencing the reputational fallout. - Your 4,380-person organization is right-sized for a 4% growth company, but it's over-staffed if analytics continues to decline. Another 200-300 role reduction is likely in 2031.

WHAT CHANGED SINCE 2026

When we last advised on your strategy in late 2026, the implicit assumption was: "AI will disrupt software and services, but MSCI's regulatory moat makes it safe from the worst of that disruption." That turned out to be true for 65% of your business (indices) but false for 35% (analytics and software).

Here's the specific way that played out:

The Analytics Bet Failed (or at least, underperformed):

In 2026, you believed that: 1. Institutional clients would need MSCI as a "trusted partner" to navigate AI disruption 2. Analytics software would remain a high-margin business because it required deep domain expertise 3. The "wealth of data" MSCI had accumulated (through multiple acquisitions) would create defensible competitive advantages in AI-driven products

By 2029-2030, each of those beliefs had to be revised:

  1. Trust is not the issue; cost is. Clients trust you plenty. They just don't want to pay $2.2M for a 3-month ESG analysis when they can get 80% as good from a $400 ChatGPT Enterprise subscription. Trust doesn't bridge a 5,500x cost difference.

  2. Domain expertise matters less when AI can absorb it. Your competitive advantage was that your 800-person analytics team had 50+ years of institutional knowledge about how to rate ESG, decompose risk, analyze real estate. In 2029-2030, your data became trainable input for AI models. The domain expertise didn't disappear; it just commoditized.

  3. Data is defensible if it's proprietary and non-reproducible. Otherwise, it's not. Your ESG ratings data is visible in regulatory filings. Your real estate data can be synthesized from satellite imagery and property records. Your factor library is public. So "data defensibility" turned out to mean only one thing: exclusive access to clients' internal data. And that was not a business you could build (rightly so—it creates conflicts of interest).

What Actually Happened:

Between 2027 and 2029, you watched your best clients (Goldman Sachs, Blackstone, Citadel, Morgan Stanley) build internal AI analytics teams. They didn't do this because they wanted to—they did it because the ROI was undeniable. By 2028-2029, I estimate these four firms alone had shifted $250M in annual spend that would have gone to MSCI to internal headcount instead.

Your response was exactly right: stop fighting the tide, harvest the remaining revenue, and redeploy capital. You: - Raised prices on legacy analytics products (8-12% annually), accepting that you were accelerating churn - Shut down or merged underperforming analytics business units - Redeployed capital to: - AI-augmented index methodology (meaningful R&D) - Private assets analytics (bet on the "alternative assets" growth trend) - The MSCI AI Insights Engine (launched Q1 2030)

This was a rational strategy. It generated more cash in the short term and positioned MSCI as a "infrastructure + data" company rather than an "analytics services" company.

But here's the thing: it also means you accepted that MSCI's revenue growth rate is now tied to market growth, not innovation. If global AUM grows 5% annually, MSCI's index revenue grows 5%. If emerging markets improve, MSCI's emerging markets index revenue improves. But MSCI is no longer a driver of market growth—it's a beneficiary of it.

That's a huge identity shift for a CEO who built a career on organic expansion and disciplined M&A.

THE SPECIFIC CHALLENGES AHEAD

1. The Private Assets Reckoning Is Still Unfolding

In early 2027, PE looked unstoppable: unprecedented capital raises, mega-deals, AI-fueled founder valuations. You invested heavily in private assets analytics (acquiring three startups in 2027-2028, building out a 280-person team). The strategy made sense: private assets data was less competitive, higher margin, and had a lower cap on penetration (meaning more room to grow).

By 2029-2030, that bet looked different. The private markets did not crash, but they deflated. Returns have been more modest than expected. Valuation methodology is under scrutiny. And, ironically, MSCI's private assets analytics products were not immune to the same "disruption by AI" that hit the main analytics business. Blackstone and Apollo built internal valuation teams using AI models. Why pay MSCI when you can do it in-house?

Your guidance for 2030-2031 assumes private assets analytics decelerates to "mid-single digit growth" (5-7%). That's probably honest, but it means the "growth engine" is not going to carry the company. You need to prepare the board and investors for a multi-year deflation of this segment.

2. The AI Index Problem Is Harder Than You Thought

The Calpers paper in September 2029 was more damaging than your internal analysis initially suggested. The core claim—that AI-weighted indices introduce basis risk and model dependency—is hard to refute on technical grounds. Your methodology is sound, but it is based on an AI model's prediction about which companies will survive AI disruption.

That creates a circular logic problem: we're recommending this index because an AI model says these companies are resilient to AI. If the AI model is wrong, the index fails. If the AI model is right, we've basically outsourced investment philosophy to an algorithm.

Most institutional investors aren't comfortable with that, at least not yet.

The realistic path forward is: - Market these products to wealth advisors and retail investors (less skeptical about AI methodologies) - Use them as "overlay strategies" or "satellite positions," not core holdings - Continue R&D to prove the methodology, but accept that this will be a 3-5% revenue stream, not 15-20%

3. Margin Compression Is Structural

Your Q1 2030 EBITDA margin of 48% was respectable, but it's below the 54% you achieved in 2028. More importantly, it masks significant differences by business segment:

Your current portfolio mix is ~65% indices (high margin), ~25% private assets + real estate (mid-tier margin), and ~10% analytics (low margin). The mix is improving as you shed analytics, but the math is inexorable: you cannot grow above 50-52% EBITDA margin because you're a blended-margin business now.

Investors will learn to accept that. But it means your pricing power is limited. You cannot raise prices 8-12% annually on indices indefinitely—clients would push back. Real estate and private assets face competitive pressure. The fantasy of 55%+ margins returning is gone.

4. Your Regulatory Moat Is Real But Also a Cage

The SEC's guidance on "AI indices" (released March 2030) essentially required that AI-weighted indices have transparent, auditable methodologies. That was good for MSCI (it protected you from disruptive pure-AI competitors) and bad for you (it limited how innovative you could be with AI index design).

More broadly, the index business's regulatory protection is a feature and a bug: - Feature: No startup can out-innovate you if innovation requires SEC approval - Bug: You cannot innovate too fast without regulatory risk; you cannot compete primarily on technology

This means your competitive advantage is durable, but it's also static. You'll maintain market share in indices as long as institutions value consistency and regulatory compliance. But you'll never "own" the index market the way Apple owns premium phones or Nvidia owns GPUs.

THE STRATEGIC CHOICES AHEAD

You have three strategic options for the period 2030-2035. Each has different implications for the company's trajectory.

OPTION 1: The "Infrastructure Play" (Most Likely, Given Current Trajectory)

The Strategy: Fully commit to being a "market infrastructure" company. MSCI owns the indices that the financial system uses; we own the data that powers those indices. Our moat is regulatory and operational, not intellectual. We harvest legacy analytics, maintain world-class private assets analytics, and invest modestly in new data products.

Implementation: - Maintain index price discipline (modest annual increases, 3-5%) - Rationalize analytics to break-even or positive cash flow with 10-15% annual revenue decline - Grow private assets as a mid-teens growth business - Invest $60-80M annually in "AI data products" (not trying to compete with OpenAI or Anthropic, but offering MSCI-branded data APIs) - Target dividend + buyback at 60% of free cash flow - Accept 3-5% revenue growth, 48-52% EBITDA margin, 19-21x P/E valuation

Risks: - Becomes a "boring" company; difficulty attracting top talent beyond operations people - Private assets is the only growth lever; if that deflates further, growth goes 1-2% - New entrants (like Databricks or OpenAI) nibble at margins - Regulatory changes (e.g., switching to central bank-maintained indices) could undermine moat

Upside: - Highly predictable business; justified dividend Aristocrat status - Strong cash generation allows opportunistic M&A (acquiring distressed data assets) - Index business has 20+ year tail of sticky revenue - Lower volatility; downside protected by durable moat

Time Horizon: This is the 3-5 year pivot, then stabilization for 10+ years.

OPTION 2: The "AI Native" Pivot (High Risk, High Reward)

The Strategy: Recognize that the future is AI-native analytics and data products. Rather than harvest analytics, invest heavily in building MSCI as an AI software company. Position MSCI as the "financial data and analytics layer" for the AI age.

Implementation: - Invest $200-300M annually in AI product development - Hire 600-800 ML engineers, data scientists, and product people - Launch a suite of AI-native products: - MSCI AI Insights Engine (expanded from Q1 2030 beta) - MSCI ESG AI (trained models that clients can plug into their own AI systems) - MSCI Index AI (algorithms that help clients understand why indices move, predict changes) - MSCI Private Markets AI (predictive valuation and market-timing models) - Position MSCI as a "financial AI infrastructure" company - Target higher multiples (25-30x P/E) based on AI growth narrative

Implementation Challenges: - You'd be competing with OpenAI, Anthropic, and Databricks in their core competencies - Your competitive advantage is data, not algorithmic innovation - You'd need to build a completely different culture (startup-like, not infrastructure-company-like) - You'd likely need to divest index business to focus (too different operationally)

Risks: - You'd be betting that MSCI's data is valuable enough to overcome the talent and algorithmic disadvantage - Capital-intensive; would require higher leverage or dilutive equity raise - If you fail, you've spent $600M+ on pivoting to a market where you're #10, not #1 - Index customers might see this as distraction; might accelerate switching

Upside: - If successful, MSCI becomes a $50B+ company by 2035 (vs. $12-15B in the Infrastructure Play) - Captures the "AI analytics infrastructure" market, which could be $200B+ by 2035 - Attracts top talent and builds a "cool" company culture

Time Horizon: This is a 5-7 year bet; you'd need to commit capital and patience through 2035.

OPTION 3: The "Dividend & Exit" Strategy (Lower Probability)

The Strategy: Acknowledge that MSCI is a mature cash business, not a growth business. Optimize for cash return to shareholders. Prepare for a strategic sale or take-private by 2033-2035.

Implementation: - Harvest analytics faster; run that business for breakeven - Maintain indices and private assets at current scale - Return 70% of free cash flow to shareholders (high dividend, aggressive buyback) - Avoid large capital expenditures or acquisitions - Make MSCI attractive to large financial infrastructure players (LSEG, CME, MarketWatch) or PE (KKR, Blackstone)

Risks: - No upside surprise; public shareholders get capped return - Once investors realize this is the plan, stock re-rates lower (to 16-18x) - Could face activist investor pressure to sell sooner - Reduces optionality; limits ability to pivot if market changes

Upside: - Highly predictable; low risk of disappointment - Attractive to dividend-focused investors - Clean exit for management team if taken private

THE RECOMMENDATION

Based on where MSCI is in June 2030, I'd recommend Option 1 (Infrastructure Play) with a strategic hedge toward Option 2.

Here's why:

  1. Option 1 is defensible today. You have the indices moat, you have the cash flow, you have the customer base. You can execute this strategy with confidence.

  2. Option 2 requires more capital and conviction than you've shown so far. If you were going to pivot to AI-native software, you needed to make that decision in 2027-2028 and commit $300M+. In June 2030, you're 2-3 years late to that conversation.

  3. The hedge: Invest 10-15% of R&D budget in Option 2-like initiatives (AI products, emerging data services). Use this to test whether MSCI's data can compete with pure-play AI companies. If it can, you have 2-3 years to double down on Option 2. If it can't, you've validated the pivot to Option 1.

  4. Option 3 is a self-fulfilling prophecy. If you signal to the market that MSCI is a cash harvest, the stock re-rates immediately, and you face pressure. It's better to own the narrative (we're an infrastructure company, and that's valuable) than to drift into it.

SPECIFIC OPERATIONAL PRIORITIES FOR H2 2030 AND 2031

Q3-Q4 2030: 1. Analytics Restructuring: Finalize the analytics business plan. Decide: which segments do we harvest vs. which do we invest in? Communicate clearly to the team. 2. Private Assets Reset: Take a hard look at your 280-person private assets team. How many are you keeping? What's the realistic growth rate? Plan for attrition and redeployment. 3. AI Products Roadmap: Decide: are you going to commit $200M+ to Option 2, or are you running a modest R&D effort? Don't leave this ambiguous.

2031: 1. Margin Stabilization: Get to a "normalized" EBITDA margin of 48-50% and hold it there. This requires discipline on pricing and cost. 2. Headcount Rationalization: You have about 4,380 people. With 4% revenue growth and analytics declining, you probably need 4,000-4,100 by end of 2031. Plan the transition carefully to avoid disruption. 3. Capital Allocation Policy: You have ~$1.2B annual free cash flow. Are you deploying it to dividends, buybacks, M&A, or reinvestment? Communicate the policy clearly.

THE INTERNAL CONVERSATION

Internally, your leadership team needs to have an honest conversation about identity.

For 20 years, MSCI was an "analytics company." That identity drove acquisition strategy, hiring, culture, and investor positioning. In 2030, you are an "index and data infrastructure company." That's a fundamentally different business model—more defensive, more stable, lower growth, higher predictability.

Some of your best talent, especially in product and engineering, may not want to be in that kind of company. They want to be building cutting-edge AI products or disrupting markets. That's not going to happen at MSCI in the 2030-2035 window.

The honest conversation is: we are a $6B revenue company, we generate $1.2B in free cash flow, we have a regulatory moat that protects us for 10-20 years. That's a great business. It just doesn't have the upside of an AI-native startup. Adjust your expectations, or find another company.

Some of your best people will leave. That's okay. You'll attract different people: operations people, infrastructure people, reliable engineers who want stability. The culture shifts.

CLOSING THOUGHTS

Henry, your 2030 strategy memo was honest about the transition. The market is slowly accepting it. Your job now is to execute it calmly and deliberately, while keeping a small option value on the AI pivot.

The stock will likely re-rate to 18-20x P/E by end of 2031, which is "fair" for a 4% growth business. That's not a disaster—it's a rational re-pricing. Your job is to make sure the re-pricing happens gradually, with clear communication, not in a shock that panics investors and staff.

You've built a great company. Now build a great company for the next phase of its life.

The 2030 Report | Confidential Strategic Advisory | June 2030