明晟 (MSCI) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MSCI Fourth Quarter 2011 Earnings Conference Call.

At this time all lines are in a listen-only mode.

Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions).

As a reminder, today's conference is being recorded.

I would now like to turn the conference over to your host today, Edings Thibault, Head of Investor Relations.

Please go ahead.

Thank you, Sean.

Good morning and thank you for joining our Fiscal year and Fourth Quarter 2011 Earnings Call.

Please note that earlier this morning we issued a press release describing our results for the fiscal year and fourth quarter 2011.

A copy of that release can be viewed on our website, at msci.com, under the Investor Relations tab.

This presentation may contain 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, which reflect management's current estimates, projections, expectations or beliefs, and which are subject to risks and uncertainties that may cause actual results to differ materially.

For a discussion of additional risks and uncertainties that may affect the future results of the Company, please see the description of risk factors and forward-looking statements in our Form 10-K for our fiscal year ending November 30th, 2010 and on our Form 10-Q for the third quarter of 2011.

Today's earnings call may also include discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EPS.

Adjusted EBITDA and adjusted EPS exclude the following -- third-party transaction expenses resulting from the acquisition of RiskMetrics, restructuring costs related to the acquisition of RiskMetrics, and non-recurring stock-based expense.

Adjusted EPS also excludes the amortization of intangibles resulting from acquisitions and debt repayment and refinancing expenses.

Please refer to today's earnings release for the required reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and other related disclosures.

We will be referring to run rate frequently in our discussion this morning, so let me remind you that our run rate is an approximation at a given point in time of the forward-looking fees for subscriptions and product licenses that we will record over the next 12 months, assuming no cancellations, new sales, changes in the assets and ETFs licensed to our indices, or changes in foreign currency rates.

Please refer to Table 10 in our press release for a detailed explanation.

Henry Fernandez will begin the discussion this morning with an overview of the fourth quarter, and then David Obstler will provide some details on our financial results.

In the case of financial accounting metrics, the discussion of the fiscal year numbers will focus on pro forma results, which assume the acquisition of RiskMetrics occurred at the beginning of MSCI's 2010 fiscal year.

Pro forma fiscal year 2010 includes MSCI's results for the fiscal year ended November 30th, 2010, and RiskMetrics' fourth quarter ended December 31st, 2009 and first quarter ended March 31st, 2010.

As a reminder, MSCI's acquisition of RiskMetrics took place on June 1st, 2010, the first day of MSCI's 2010 fiscal third quarter.

All operating metrics, as distinct from financial accounting metrics, have been restated to reflect MSCI's results on a combined basis during the comparable period in 2010.

That means all quarterly operating metrics reflect the calendar quarter or 12 months indicated, rather than the prior fiscal period.

I will now turn the call over to Mr.

Henry Fernandez.

Henry?

Good morning, and thank you all for joining us.

Earlier this morning, we reported 2011 revenue of $901 million, and adjusted EBITDA of $419 million, up 10%, and 17% respectively, from pro forma 2010.

MSCI's full-year adjusted EBITDA margin rose to 46.5%, from 43.7% in pro forma 2010.

MSCI's 2011 adjusted EPS rose 36% year-over-year to $1.85.

For the fourth quarter, MSCI reported revenues of $226 million, up 6% versus fourth quarter of 2010, adjusted EBITDA of $104 million, up 5% year-over-year, and adjusted EPS of $0.45, up 25%.

Our adjusted EBITDA margin was 45.8%, down from 46.4% in the fourth quarter of 2010.

Our fourth quarter run rate rose 7% year-over-year to $882 million.

The increase in the run rate was primarily driven by continued growth in the subscription run rate, offset in part by slower growth in asset base fees, including the fees from exchange-traded funds.

From an operating perspective, MSCI continued to perform well despite an uncertain and difficult operating environment globally.

We saw healthy growth in subscription sales.

And our cancellations continue to decline on a year-over-year basis.

Total sales for the year, for the quarter, I'm sorry, were $43 million, down from $46 million in the fourth quarter of 2010.

New recurring subscription sales rose 5% to $35 million.

By client type, our recurring subscription sales to our asset-owner clients and to our corporate clients were strong.

And we saw very good sales to alternative investment managers, including hedge funds, and funds of funds.

Sales to asset management clients and to banks remained steady during the quarter.

Our retention rate rose again to 85% from 82% a year ago, as total cancellations declined by 10% year-over-year.

As a reminder, it is important to look at our retention rate on a year-over-year basis because of the seasonality in our retention rate.

As you know, our retention rates decline typically on a sequential basis from the third quarter to the fourth quarter as a result of a greater percentage of our business that is up for renewal during that period in the fourth quarter.

For the full-year, MSCI's retention rate was 90%, up from 87% in 2010.

It is encouraging to note that that our cancellations continued to decline in both the third quarter and the fourth quarter of the year given that financial markets become more volatile, economic uncertainties increased, and our overall operating environment got more challenging.

With the growth in recurring subscription sales, and the decline in cancellations, therefore our net new subscription sales more than doubled from the fourth quarter of 2010 to $8 million.

That growth in subscription sales was partially offset by a $2 million decline in run rate resulting from the strengthening of the US dollar during the quarter.

Netting all of those changes, our subscription run rate at the end of the fourth quarter was $762 million, up 8% year-over-year, and 0.5% sequentially.

With that overview now, let us take a look at each one of our major product lines.

Our index and ESG business reported revenues of $101 million, up 11% from the fourth quarter, and a run rate of $389 million, up 10% year-over-year.

Total index and ESG sales fell 11% year-over-year to $50 million.

New recurring subscription sales rose 6% to $12 million.

Gains in sales of index products, especially benchmark and financial products, were partially offset by a decline in sales of ESG products.

Cancellations rose by $1 million to $6 million.

Our quarterly retention rate dipped slightly to 89% from 90%.

Index and ESG subscription run rate was $270 million, up 14% year-over-year, and up 2% from September 2011.

Asset-based fee run rate rose 2% year-over-year to $120 million, despite a decline in ETF assets under management linked to our indices.

The increase in run rate was driven by an increase in fees collected on other types of financial products, such as passive funds, and listed futures and options, which more than offset a decline in ETF run rate during that comparison period.

At the end of 2011, there were $302 billion of AUM in ETFs linked to our indices, down $32 billion, or 10%, compared to the end of 2010.

Over the course of 2011, we have experienced significant volatility in the level of AUM of ETFs linked to our indices.

We experienced a strong growth in the first half of the year with AUM climbing and peaking at $371 billion at the end of April, before bottoming out at $290 billion at the end of September.

AUM levels recovered modestly in the fourth quarter, rising $12 billion.

Most of the fourth quarter gains resulted from market moves, rather than net inflows, which were about $1 billion.

For the full-year, the average AUM in ETFs linked to our indices was $334 billion.

As most of you know, on the second business day of each month we publish the AUM of EFTs linked to our indices for the prior month on msci.com.

Those numbers will be posted to our website after the close of today's market.

But let me share them with you now.

At the end of January, just a few days ago, there were $334 billion in AUM in ETFs linked to our indices, up 11% from the end of the fourth quarter.

Approximately one-third of the increase in AUM has been the result of positive net flows into these ETFs linked to our indices.

During the quarter, at the end of the quarter, the average basis points in the EFTs linked to our indices dropped slightly from 3.1 basis points at the end of September to 3.0 basis points.

On a relative basis, the outperformance of ETFs linked to our US market indices, which accounted for 24% of the total AUM at the end of December, contributed to that modest decline in the average basis point fee.

Revenues for our risk management analytics business were $62 million, up 7% from the fourth quarter of 2010.

The risk management analytics run rate of $251 million grew 8% year-over-year.

Changes in foreign currency rates, especially the strengthening of the dollar against the euro during the quarter, reduced the risk management analytics run rate by $2 million.

Total risk management analytics sales were $14 million in the fourth quarter, down 11% year-over-year, but up 10% sequentially from the third quarter.

New recurring subscription sales were $12 million.

We experienced solid demand from asset managers, hedge funds, asset owners, and funds of funds, offset by weaker demand from banks, and broker dealers, where budget pressures remain intense.

Risk management analytics cancellations rose to $11 million in the fourth quarter, and our retention rate dropped to 81%.

For the full-year, cancellations declined 7%, and the retention rate rose to 90% from 86% in 2010.

As we have discussed in the past, risk management analytics sales tend to be bigger, chunkier, and more volatile than in any one of our other major product lines.

The same is true of cancellations.

In the fourth quarter of 2011, our largest cancel was driven by a client consolidation, a merger that had taken place a few years ago that eventually the client ended up consolidating, and the second largest cancel was the result of a bankruptcy that we all know about.

Both were in the banks and broker deal segment.

Based on our current pipeline, we do not believe that the fourth quarter increase in cancellations represents the beginning of any significant acceleration in cancellations in our risk management analytics product line.

We continue to work hard to cement our position as an innovation leader in multi-asset class risk analytics.

During the quarter we launched an upgraded version of the analytics underlined in our flagship risk management product.

The new version enhances our coverage of complex derivatives, increases our coverage of new fixed income instruments, and contains enhancements to our counter party credit risk capabilities.

We also upgraded the hardware underpinning our BarraOne product resulting in significant performance improvements.

Our portfolio management analytics business continued on its road to recovery.

Revenues were $30 million, down 3% from the fourth quarter of 2010.

Run rate, on the other hand, grew by 3%, to $118 million.

Recurring subscription sales were $4 million, up slightly from the fourth quarter of 2010.

Retention rates continued to recover, rising to 87% in the fourth quarter from 63% a year ago as a result of a 67% decline in cancellations.

For all of 2011, the retention rate in this business rose to 88% from 80%.

The reinvigoration of the Barra product line continues.

Over the course of 2011, we benefited from the launch of several new generation risk models, as well as from the launch in the end of 2010 of our new Barra Portfolio Manager Software Platform.

This product helped our overall sales figures and played a very important role in the increase in retention rates.

We have several more product launches scheduled for the first quarter, including upgraded functionality for Barra Portfolio Manager, a new global equity model, and two single country models.

There will be more to come over the balance of 2012, including more models, and further additions to the software Barra Portfolio Manager.

We are also pleased that the progress we are making in restoring our growth, our governance business to grow.

Revenues were $29 million in the fourth quarter, up 1% from the prior year.

Run rate increased 3% year-over-year, and 1% sequentially to $108 million.

Total governance sales rose 13% year-over-year to $9 million, led by sales of proxy research and voting products.

New recurring subscription sales rose 60% to $7 million as we saw growth in both of our major product lines there, ISS Institutional, and ISS Corporate.

In the latter category, we had strong sales of our new corporate compensation products.

One of the first decisions we made upon acquiring the ISS business was to invest in the sales force, and in account management, and we see that that decision is starting to pay off in the form of an 11% increase in 2011 total sales.

Cancellations in the business declined by 5% to $5 million, and our retention rate rose slightly to 81%.

For the full-year, our retention rate rose to 86% from 84%, as total cancels fell by 10%.

At the beginning of 2011, we noticed that we expected to make certain investments in our business over the course of 2011, mostly in the form of increased headcount.

We added a total of 330 new positions over the course of 2011, mostly in emerging market centers.

The primary focus of our investments were in the front office where we expanded our distribution capabilities and bolstered our client service and consultant services to clients.

And we also made investments in our product management and development areas, and our technology's functions.

By business, the biggest beneficiary of our new spending in 2011 were in index and ESG, in portfolio management analytics, and in risk management analytics.

We expect the pace of headcount additions to moderate in 2012.

To sum up, MSCI reported positive operating and financial results for the fourth quarter and full-year of 2011, despite the impact of increased economic uncertainty, weaker financial markets, and a challenging operating environment for most of our businesses.

We believe that the investments we have made over the course of 2011, and will continue to make some in the course of 2012, will position us very well to benefit from the strong secular growth drivers underpinning our business and will enable us over time to drive top line revenue growth.

I will now turn it over to David Obstler for some additional comments.

Thank you, Henry.

MSCI reported revenues of $226 million in the fourth quarter of 2011, and $901 million for the fiscal year.

MSCI's fourth quarter revenue growth was driven by a 10% growth in index and ESG product revenues, and a 7% growth in risk management analytics revenues.

These gains were offset by a 3% decline in portfolio management analytics revenues.

By type of revenue, subscription revenues grew by 7%, asset base fees grew by 9% year-over-year, and non-recurring revenues fell by 35%, or $3 million.

By segment, performance and risk revenues grew by 7% year-over-year to $198 million in the fourth quarter, and governance revenues increased by 1% to $29 million.

Overall, adjusted EBITDA expenses, which exclude depreciation and amortization, non-recurring stock-based compensation, and restructuring costs rose 7% year-over-year to $122 million.

Our compensation costs rose by 8% to $85 million.

During the fourth quarter, we reduced our annual bonus accrual to reflect the slowdown in our growth in the second half of the year, resulting in a roughly $3 million reduction in compensation expense in the fourth quarter.

Our non-compensation expense rose 4.5% year-over-year to $38 million.

We generated $104 million of adjusted EBITDA in the fourth quarter 2011, an increase of 5% from the fourth quarter of last year.

Our adjusted EBITDA margin declined to 45.8% from 46.4%.

On a segment basis, performance and risk adjusted EBITDA grew 7% to $97 million in the fourth quarter, and the adjusted EBITDA margin was flat at 49%.

Governance adjusted EBITDA fell to $6.7 million from $8.4 million, and the margin declined to 23.4% in the quarter from 29.6% last year.

For the fiscal year 2011, we reported adjusted EBITDA of $418 million, an increase of 17% from pro forma 2010.

MSCI's adjusted EBITDA margin rose to 46.5% from 43.7% last year.

Performance and risk adjusted EBITDA rose 19% to $387 million, and governance adjusted EBITDA declined 3% to $31 million.

We incurred $11.5 million of other expense in the fourth quarter, most of which was interest expense related to our debt.

Our interest expense declined versus the fourth quarter of last year as we realized the benefits of lower levels of outstanding debt, and lower interest costs resulting from the re-pricing of our debt during the first quarter of 2011.

During the fourth quarter, we repaid $38 million of our term loan facility.

The repayment is expected to trigger a decline in MSCI's applicable margin above LIBOR to 2.5% from 2.75% when MSCI files its annual report for fiscal 2011.

That should result in a decline in our interest expenses by 25 basis points.

Our effective tax rate in the fourth quarter was 36.6%.

For fiscal 2011, the tax rate was 34.2%.

The fiscal year 2011 tax rate benefited, amongst other things, from the recognition in the third quarter of two non-recurring tax benefits discussed in our last call, totally $4.2 billion.

Excluding those benefits, the fiscal tax rate for 2011 would have been 35.7%.

At the close of 2011, our operating tax rate, excluding discrete items, is approximately items, is approximately 36% to 36.5%.

Fourth quarter GAAP diluted earnings per share was $0.36 per share, up from $0.25 per share in the fourth quarter of last year.

Our adjusted earnings per share, which is a non-GAAP measure, that excludes the after-tax per share impacts of restructuring costs, non-recurring stock-based compensation, the amortization of intangibles, transaction expenses, and debt repayment and refinancing costs was $0.45 per share, up 25% from $0.36 in the fourth quarter of last year.

MSCI's fiscal GAAP EPS, diluted EPS for the year, was $1.41, up from $0.81 per share in the fiscal year of last year.

Our fiscal 2011 adjusted EPS was $1.85, up 37% from last year.

During the fourth quarter, MSCI generated $80 million of operating cash flow, up from $62 million in the fourth quarter of last year.

our operating cash flow for the fiscal year was $255 million, up from $183 million last year.

Capital expenditures were $6 million in the fourth quarter, and $23 million for the full fiscal year.

We will be making investments in our physical infrastructure in 2011.

One of the key drivers of this is the shift in our New York offices.

Because our lease is expiring at our present location, we will consolidate our two New York operations into a single facility in the third quarter of 2012.

As a result we will be spending approximately $25 million to $30 million on facility build outs in 2012, the largest of which is New York, with approximately $10 million to $12 million of that paid for by our landlord.

As a result, we expect our gross capital expenditures to be around $50 million in 2012, and the net spend to be in the range of $33 million to $40 million.

It is of importance to note that this level of capital expenditures does not represent a new norm, and we would anticipate a drop in CapEx in 2013.

We ended the fourth quarter with $1.1 billion of total debt outstanding, of which roughly 40% is swapped in fixed rate instruments.

We also had $393 million of cash, cash equivalents, and short-term investments on our balance sheet.

Finally, our quarterly weighted average fully diluted share count was $122.5 million, up from $122.3 million in the third quarter, and from $121.2 million in the fourth quarter of last year.

With that, we will be happy to take any questions that you might have.

Operator?

Thank you.

(Operator Instructions).

Our first question comes from [George Mills] from Credit Suisse.

Please go ahead with your question.

A couple of questions.

Starting off on the retention side, Henry I think you called out two sort of one-time or non-recurring events on the risk side.

Do you happen to have the retention rate X those two losses?

And then, also, can you comment a little bit about the retention rate in the index business?

I know we have to look at it year-over-year, and it is seasonal, but it seemed a little bit weaker given the strength that you have seen over the first three quarters.

Can you comment a little bit about what you saw there?

Yes.

Those two losses accounted for approximately $2.5 million, which would have increased the retention rate by a couple percentage points on an annual basis.

On a quarterly basis I believe that would be about 4% or 5%.

And on the index side?

On the index side, David correct me, but I think the retention rate that we are showing is combined, index and ESG, and what it is, currently the slight decrease on the combined retention rate, George, is mostly attributed, if not all of it attributed to the ESG retention rate, rather than the index business, the index subscription business which remains pretty healthy.

What happened was, just to put something in context, was when we acquired RiskMetrics, RiskMetrics had recently made a variety of acquisitions in the ESG space.

We spent the better part of the last part of 2010, and the first part of 2011, consolidating products and rationalizing the operation, and that resulted in certain clients that cancel their subscription, some of which was things that we wanted to induce given the new product lines, and some of it, obviously, was voluntary.

So, that is --I would not read too much into that drop in the retention rate on the index business.

And we believe that the drop in the retention rate in ESG was temporary and is now back to more normal levels.

The benchmark business itself had relatively flat cancellations in the fourth quarter of this year versus last year, which means on a growing business, actually, the retention rate would have increased in the data and benchmark side of the business.

George Mills.

Okay.

That is very helpful.

And then just last question, can you talk a little bit about the selling environment, and maybe talk a little bit about what you are seeing in the US versus Europe.

I think, George, we are putting it into context.

We started the first two quarters of 2011, up until April or May, feeling pretty good that the environment and the budgets of clients were beginning to relax and things were gradually begin to be better for us.

And then sometime in May, I think it was, the sovereign debt crisis in Europe began to raise its head.

And then from then on, from May through September, the selling environment became pretty challenging and difficult, but we kept selling on a healthy basis during that period.

Importantly, a lot of what we had in the pipeline during that period, all the way to December, a lot of it was delayed so the challenging environment caused delays in the selling of products rather than outright deletions from our pipeline during that period.

That trend continues in January, so there is no fundamental change.

As to geographic areas, we actually have done okay in Europe relative to the environment.

Our levels of sales are being satisfactory, I will call them.

They are not, you know, bad in any sense.

And that has been a positive surprise for us.

And sales into the US have been healthy and a little stronger than the expectations because clearly the recovery of the US market, but they are not on any kind of strong base at all.

As far as client segments, clearly the banks and the broker dealers are challenging for us, and for anybody else who is selling into them, both in sales and in cancels.

And we saw a recovery at the end of December in sales into hedge funds, so risk management analytics which was good because of what we pointed out in the third quarter.

And our sales of hedge fund transparency products, this is as a result of the Measurisk acquisition that we made in December of 2010.

Those began to gather pace, and they are largely to funds of funds, and other investors in hedge funds.

And we feel pretty good about that product and those sales.

Our next question comes from Robert Riggs with William Blair.

Please go ahead with your question.

Hi.

Thanks for taking my question.

It may be just an extension off of that last question on the sales force.

Henry, you have made some investments in headcount there.

You said that the headcount overall, hiring will moderate a little bit in 2012.

Can you just kind of comment in general about your plans for hiring as far as the sales force goes?

And then as an extension of that, recent successes that you have had with the sales force, can you bucket or maybe point out some trends?

Are you having success because in general you think you have more effective coverage, have recent hires ramped to fuller rates of productivity, or are you really starting to benefit from the new product introductions?

Thanks.

That's a good question.

And I think one of the biggest benefits in 2011 in the growth in our headcount investment in the client organization was in retention.

We purposely invested significantly in headcount in our client service centers that are mostly, if not largely, located in emerging market centers.

And that client service investment has helped us establish a strong dialogue with clients that have closed up for renewal, being able to service them at a higher level of performance that we had in the past, and on the like, and that has helped us maintain a fairly healthy rate of renewal.

If anything, in certain product lines the retention rate that we have, especially in certain index products, are historically high levels, which is not what you would have expected in an environment like this.

And, therefore, we are very pleased with that.

Another type of investments we have made are in what we call consultants, which are people that are located in financial centers -- London, New York, Hong Kong, and the like, that are people that help us train clients, educate clients in the use of analytics products, not so much index products but analytics products, and that has helped us retain clients and increase the retention rate.

With respect to sales, we benefited, we opened up a sales presence in Toronto and Canada.

We stepped up efforts with Korean clients.

We actually opened up an office in Korea a couple of weeks ago and we made an announcement press release at the time.

So, what we are trying to do is, marginally, go into clearly new areas where we believe customers have budget to spend, and those are the markets whose economies are doing better than not, and the countries that are doing better than not, such as Canada.

So, that has been, we have benefited from that as well.

Those are some of the efforts on the sales side.

On the products side, a lot of the investment in products that we have made in the last six months are not yet on the sales numbers and on the sales pipeline because obviously there is a lag effect on that.

So, for example, we are making some investments, no large, but we are making some investments in performance attribution for their risk management analytics business, in the modeling of alternative investment for risk management for pension funds, and fixed income instruments for a lot of our asset managers, and in high volume processing for our wealth manager clients.

And that is another area, you know, wealth management has been a good area for us to expand sales and we have been pretty happy with the performance on that.

And lastly, I would like to emphasize, again, that in the last two quarters there have been two products that compared to the first two quarters of the year that we outperformed in our expectations.

One is the hedge fund transparency risk product, again, otherwise called Measurisk; that is the acquisition we made.

And that is risk management accountability for investors in hedge funds.

And the second product was back, I think, in the early summer.

We launched a new executive compensation data service and analytics out of ISS, and that has been a phenomenal success for us on a relative basis, in the last two quarters, and we expect both of those products to continue well in 2012.

Great.

Thanks for the detail.

Anything else, David?

Anything else to add to that, David?

Yes.

I think with this compensation line we sold about $2.5 million the second quarter out, so we are experiencing some pretty strong momentum in that area.

Thanks guys.

Our next question comes from David Togut with Evercore Partners.

Please go ahead with your question.

Thank you.

Good morning David and Henry.

Good morning.

Good morning.

Can you bracket, David, your 2012 headcount growth target, and also give us a breakdown of what parts of the business the new employees will go into?

We don't put headcount targets out, but as Henry mentioned, we have been investing in a combination of our front office, sales and distribution, our product creation, and our IT and other infrastructure support, with the concentration in investing in the emerging markets, except for the client-facing and sales organization that focuses more on the financial markets.

And, we see more of that in 2012, as Henry mentioned though, at a lesser rate of growth than we had in 2011.

And the other thing is that our plans for 2012 in terms of headcount growth, and obviously a moderation from the levels of 2011, we are going to take them a quarter at a time depending on the performance of the business in each quarter, given the environment.

If the environment gets better, we will expand a little more, if the environment stays about the same, we will be more restrained on that effort.

And as we said, we have a balancing out in terms of putting a meaningful part of our investment in sales and client service, for new sales and retention purposes, because those investments stay back right away.

It is a very quick return on that.

And then the investment in people that are building new products, that typically is a lag of a year or two, or three, in terms of building up the sales on those new products.

So, we tend to be cautious about those in environments like this, clearly; but we are committed that on a year-over-year basis, we continue to put up, put new products and new services to clients, even if obviously the environment is difficult.

Can you give us some insights into non-comp expense for 2012, particularly SG&A?

Again, we don't give guidance, but we have, as a matter of course, worked on controlling our non-comp expenses in our largest areas -- market data, IT infrastructure, etc.

We will continue to do that in 2012.

We would not see much of any kind of meaningful or significant growth in non-comp expenses in 2012, with the exception of the occupancy line, especially because in our New York office we are currently in two locations.

We are losing the lease in the headquarter location by August.

We made an announcement that we are moving to 7 World Trade Center, hopefully sometime in July, in a phased approach.

And, therefore, for most of the year we are going to have double rent.

And that is going to obviously show up on the financial statement.

It is all factored into our budget and our analysis, but that will obviously increase the non-compensation expense lines by a bit.

Yes.

We allocate our, Henry mentioned our occupancy up into our cost items, so that will be spread, and are working on a number of other cost initiatives in the other non-comp areas to help pay for that increase in occupancy.

Our next question comes from David Scharf with JMP.

Please go ahead with your question.

Great.

Thank you for taking my question.

Henry, maybe circling back, another sort of high level question about the market out there.

If we set aside, just directionally, where the market has been going in the last few months, and set aside even the dislocations in Europe right now, how should we be thinking about the secular growth, and how it looks for the core index business in current market and volumes that we are seeing now actually end up being a new normal?

I mean, I know we all want to believe that once some of the overhangs out there are removed, that market volumes will pick up, but as we think about the kind of demand out there, particularly on the index side, should we be focused as much on kind of the current volume outlook in whether or not this is a new secular benchmark?

Or should we just be looking at kind of nearer-term fund formations?

Yes.

Look, I think it is a good question, and we actually spent a good amount of time within the company trying to differentiate strongly what is secular and what is cyclical.

And, I think, starting with the overall business, when you look at the totality of our business, the secular demand for what we do is, theoretically, is strong, and getting a lot stronger.

And the two crises that we have had, the financial crisis of '08/'09, and the sovereign debt crisis, have in hand that secular demand for what we do.

And that is [revitalization] of investments, asset management, risk management, governance, ESG, and so on and so forth.

So, we are pretty comfortable that that kind of fundamental demand, even in a new norm of a lower growth world is pretty good for us.

If anything, a low growth environment is going to put intense amount of pressure on asset owners and asset managers on fees to asset managers of all types, and the transparence of those fees, and the transparency of the return, and the risk that investors are taking with the asset owner's money.

And a lot of clients have come to us and said that they need more tools from us to be able to understand what the actual performance of people are, and the attribution of that performance, and the risk that those people are taking on that performance in order to pay for alpha, and not to pay for beta.

That is kind of a way to look at it.

So, that puts even a more added benefit to the secular demand of what we do.

When we look at our various businesses, clearly that theoretical demand is heavily pitched right now, or pinched I should say right now, by the budgets of clients in which they will like to get a lot of our tools, and get them in significant numbers, but they cannot face the reality of the financial constraints that they have in their business, and therefore they make room for us, many of our client's budgets are flat-to-down, and our share of their budget is increasing.

And they make room for our tools, and they have to squeeze somebody else to do that.

What we believe is that as the world recovers, even in a lower growth environment, those budgets are going to get relaxed.

Maybe not totally to pre-'08 levels, but they get relaxed.

And as they get relaxed, a lot of this bottled up demand for our products and services are going to start increasing the pace of activity for us, clearly at a higher level than what we have today.

With respect to index itself, I think there is a little bit of a tradeoff that may happen over time between sort of benchmark data sales.

We see that continuing, but clearly the rate of fund launches and new product launches, and the like may slow down given the environment.

And that may, or may not, have an impact on sales of benchmarks.

But we also see the money we are making on asset management which continues at an institutional level and at the [F] level, and therefore creates two engines of growth for that.

The third component is that, which is not big, and I don't think it is going to be big in the near future, but we continue to make inroads on generating revenues on derivative products, and on futures, options, structured products, and the like.

That, obviously, is not a large number for us, but it adds up over time, and that is the third leg of the index business that we are trying to develop over the years.

Our next question comes from Bill Warmington from Raymond James.

Please go ahead.

A question for you on, if you could update us with respect to the volume of cross-border institutional mandates in the US you are seeing, and how your success rate is trending there?

You know, we don't specifically track on a quantitative basis, or a frequent basis, the amount of cross-border investments per se in the institutional landscape.

When we do look at the data, there are two or three things that are very clear, and that is despite the volatility in emerging markets, the allocation of pension fund money to emerging markets continues on a unabated.

Even at times when people thought that the emerging markets were inflated, because people make strategic asset allocations to asset classes, and it is very hard for them to time it, so they do it whenever they feel that they need to make the strategic reallocation of assets.

So, we see that continues unabated.

Secondly, there continues to be a trend for looking at the equity investment processes of these asset owners on a global basis, not on a US vs.

developed market vs.

emerging market vs.

global small-cap basis, and therefore in the past we have talked a lot about the increasing number of institutional clients for us in the United States that are adopting our ACWI IMI benchmark without any biases of merging, or developed, or domestic, or international, and the like.

That continues on a healthy clip.

The benefit of that is that eventually the asset manager that is managing those assets, or the asset owner, is going to come back to us for more data regarding all of that, including more domestic US indices on the part of MSCI, which in the past hasn't been our forte in the US market, for more emerging market data, for more, and clearly more, global small-cap data.

So, that is another trend.

I think the way I would place it to you in the institutional part of our business, not the retail, but institutional part of our business that I just don't see any slowdown or regression on the pace of globalization of people's portfolios, especially the allocation to emerging markets.

Our next question comes from Suzi Stein with Morgan Stanley.

Please go ahead with your question.

Hi.

Can you talk in general about the adoption of portfolio analytics over the past few years, and your expectation of how that continues to play out?

Have you converted customers that were more inclined to buy the products to begin with, so future sales could be more challenging?

Or do you think the opportunity is still abundant?

I think, Suzi, in the last 12 months the story of the Barra business has been, one, relatively high levels of retention compared to 2010.

A lot of that was a fairly active dialogue with our clients as to the roadmap of our analytics product, our software, and our new models, and a description of what we are trying to achieve.

There has been a lot of thought leadership in the form of research seminars, and a lot of sort of advice, so to speak.

Not advice, but a lot of description of what we are doing in our models and the like, and the impact of our models in the way they are managing their portfolios, and so on and so forth.

So, that has helped on the retention.

The sales have remained at a good level, so that has been good news in 2011, compared to 2010.

But they haven't accelerated dramatically either.

So, the net new has been very high because of the drop of the significant decline in cancels.

We have, I think I mentioned, 3% growth in run rate.

We expect that that will continue to remain steady or accelerate with the launch of a lot of new products.

So, a lot of the money we are making currently, the incremental sales we are making are our models, and the benefits of BPM have not been fully flushed out in our sales because, obviously, the first release of BPM was a good release, but it was for risk analysis.

We are now, I think this month in February, we are doing a major release of BPM that is going to include quite a lot of new functionality and then we are going to do another release towards the end of the year.

So, therefore, on the software side, that is going to help us increase the base of sales in that market.

The opportunity continues to be good.

We believe that the overall market opportunity for index, and risk management analytics, is much larger than for equity portfolio analytics.

But we are hoping that this business can go back to more of a pre-'07 growth rate that we have enjoyed in the past.

I am not showing any other questions in the queue.

I would like to turn it back over to Mr.

Fernandez for closing comments.

Well, thank you very much everyone for joining us, and we would be more than happy to take individual questions from anybody if you so desire.

Thank you.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude the conference.

You may now disconnect.

Good day.