MSCI Seeks to Generate More Income by Creating More Index Customization Based on Factors
Posted on 10/18/2022
MSCI Inc. is a data and index company focused on investors. MSCI is known for their benchmarks, competing against major index products such as FTSE and S&P. The lucrative, high margin business of indexes appears to have no ends. In fact, MSCI’s principal business model is to license annual, recurring subscriptions for the majority of its index, analytics, and ESG products and services for a fee due in advance of the service period.
MSCI is taking a gamble and creating a new set of indexes. MSCI calls them Institutional Client-Designed Indexes (iCDI), which aim to allow asset owners the choice to select initial index criteria for an iCDI, which can target ESG, Climate, Factor, Thematic, or any other considerations. Their selected iCDI solution can serve as an index for an indexed mandate managed by the asset owner internally or by a third-party asset manager.
MSCI is taking a gamble on creating a new set of indexes based on more factors vs. the traditional way asset owners such as pensions, endowments, and sovereign wealth funds have graded their performance. Often times benchmarks are used by investment committees, boards, and the public to see how well a strategy or organization is performing against its peers. The customization and myriad of factors could create widespread confusion and “benchmark” comparison manipulation on performance metrics, which often set the pay structure for investment staff at various global asset owners.
