Baer Pettit: Yes. So, look, I don’t think there is a dramatic change. We had a few large deals that didn’t quite make it this quarter. We didn’t do quite as well as we would have liked in fixed income this quarter. But actually, we have got a really good pipeline there and that business is going from strength-to-strength and so it’s a little bit of a mixed bag. So, I don’t think we don’t see anything dramatic. We would like to do a little better than we did this quarter for sure. We have got a decent pipeline, including some of the larger deals that I alluded to in my earlier comments to Owen, I think it was. So, I think overall, we are working the pipeline. We would like to see the growth a bit higher than it is here, but we don’t expect anything dramatic from where we are right now.
George Tong: Got it. Very helpful. Thank you.
Operator: The next question comes from Faiza Alwy with Deutsche Bank. Please go ahead.
Faiza Alwy: Yes. Hi. Thank you. So Andy, I wanted to just put a final point on expenses and investments. You mentioned some favorability this quarter. And I know you have maintained your expense guide, but you have talked about being measured also and that there are further downside levers and upside levers. So curious, has anything changed over the last few months as it relates to your investment spending relative to the expenses that you are incurring and how you are viewing that for the rest of the year?
Andy Wiechmann: No, nothing too significantly. As I said, we did a roll forward of the ETF AUM assumptions that underlie our guidance at the beginning of the year to where we are now. Clearly, the markets performed a bit better in the first quarter than we had baked into the original guidance, but we continue to have this cautious outlook and assume that the markets will pull back a little bit here in the short-term and then rebound in the back half of the year. And so, I would say, the overall view on expenses and pace of spend is generally consistent with where we started the year. I would say we continue to have that degree of caution here, and we have moderated the pace of headcount growth, although you probably saw we continue to grow, and that’s in the key areas, the key growth areas for the firm.
Henry Fernandez: Let me just add something because we keep – we have referred a number of times to our outlook in terms of asset values, equity asset values. And I want all of you to understand that there is no magic. We don’t have significantly better insights than you have about what could happen to equity values in the foreseeable future. The emphasis on this is that we manage our expense base, is that we manage our investment plan. And therefore, when we say we are predicting the following, it’s in order to give you a sense of what is our mindset in order to manage our expenses and our investment plan. We want to be in a position that if we get positively surprised that the equity values are higher than we thought they would be, we can rapidly do an upturn playbook and invest more.
But what we don’t want to be is going into a difficult environment with a bloated expense base and having to radically alter our expenses and our investments and the like. So, that’s a little bit of the mindset of what we are trying to do here. But there is no – we don’t have any major insights that the market will go down in the second quarter or the third quarter. We just use this as a mechanism to manage our expense base.
Faiza Alwy: Understood. Thank you for that. And then just a follow-up on the climate side, you mentioned obviously slowing new sales on the ESG and climate segment, then you mentioned the political environment in the U.S. and some regulatory uncertainty in Europe. It sounded to me – my takeaway is that that’s more on the ESG side as opposed to the climate side. But curious if that’s the right takeaway and any further color you might have on that.
Henry Fernandez: Yes. So, that’s a good question. First of all, you also have to look at the ESG and climate sales in the context of an overall caution environment or cautious environment of spending by our clients all over the world because they are – they don’t know the direction of equity values or financial markets. They don’t know yet when interest rates are going to start peaking, what the level of potential slowdown or rotation may be etcetera, etcetera, right. So therefore, any product line will have to take into account that the overall spending of clients is more cautious now than it has been in the last 12 months or so. So, secondly, with respect to ESG and climate, yes, a lot of the – some of the political issues in the U.S. are referred to as ESG.
But when you really hear the politicians, sometimes they are referring to social issues in ESG, and sometimes they are referring to oil and gas or climate risk issues and the likes of that. So, the caution about the U.S. market, even though you hear it as ESG alone, it varies. If you go to Florida, a lot of it is about social and the ESG. If you go to Texas, a lot of it is about the environmental part or the climate part of ESG. So, we think that the institutional demand will increase on climate in the U.S. and across the board, but the individual retail demand may be a little bit slower. In Europe, climate is – the climate tools are in demand all over the place because Europe, as we all know, is a leader in trying to figure out how to decarbonize their economies, how to increase renewable efforts.
And they are pushing the asset managers to take climate into account. So, 68%, 70% growth rate on climate is not bad. It slowed down clearly from a year ago, but we are very, very optimistic about the prospects of climate tools in the world for us.
Faiza Alwy: Great. Thank you.
Operator: The next question is from Craig Huber with Huber Research Partners. Please go ahead.
Craig Huber: Great. Thank you. On the climate front, can you just tell us quickly, if you would, what data and what analytical tools, you guys think you have in climate that really sets you guys apart from your peers out there? And obviously, you talk about long-term. You think your climate run rate will eventually get larger than the rest of ESG. So, what really makes you stand out from a data standpoint and tools from climate?
Baer Pettit: Yes. So, I think there is a variety of things. And of course, we would be very happy to also take this offline because it’s a longer discussion. But fundamentally, it’s the breadth and depth. It’s what we cover in terms of climate – companies, excuse me and securities. It’s our modeling of climate, including some of our more sophisticated indicators like implied temperature change. And in physical risks, the competitive landscape is such that it’s a little checker depending on what part of the market you are in. But those are some of the highlights. But it’s obviously – it’s a large question, which we would be very happy to spend more time with you offline.
Andy Wiechmann: Yes. And Craig, if you don’t mind, I just want to underscore one point, which I think you know, but it is really an important differentiator for us. That be $4 million of climate run rate cuts across all product segments for us. And so the ability to offer solutions across almost every part of the investment process really differentiates us from other providers out there. So clearly, index is a big part of it, which I know you are aware, but our leadership in index is more generally. And our leadership in climate caused us to be a leader there. Our ability to provide climate risk insights across analytics where we have the clients’ portfolios, we are helping them with risk already really give us a leg up on anyone else trying to do climate risk at a portfolio or an enterprise level.
And then in areas like private assets, just given our capabilities and unique data we have on that front gives us a real leg up. So, the total franchise that we have is a real competitive advantage that I want to make sure people don’t lose sight of.
Craig Huber: Thank you for that. My second question, you obviously kept your cost guidance unchanged here. Often, companies when they go into a much tougher – what they think is a tougher environment, will cut their cost base significantly. I am curious, given your added cautionary comments right now, you did not though cut cost outlook for the year. Was it – is the environment basically how you were thinking it was, say, three months when you put out your initial guidance because again, you did not trim your cost outlook?
Henry Fernandez: Okay. I think we are extremely comfortable with our cost base, our expense base, which we divided up into running the business expenses on what we call change the business expenses, which is the more pure investment plan. We have preserved in the last few quarters the vast majority of our investment plan. And we have done that by squeezing around the business expenses in a variety of ways to free up resources, okay. So, we are very, very comfortable. We believe we have scaled the expense base of the company to the operating environment, to the cautious operating environment that exists today, even with a lower operating environment that exists today. In the event that it dramatically moves down, we have a lot of levers that we can apply.
But if anything, we believe that the probability of us triggering an upturn playbook is probably higher than downturn playbook, but we don’t know. I mean obviously, we have to see what happens in the next few quarters. So, we are extremely comfortable. The other thing to remind everyone is that MSCI is a very diversified client base – a diversified franchise. We tend to not focus on that. It’s diversified about client segments from asset owners, to asset managers to – from wealth managers and banks and insurance companies on our corporates and hedge funds and banks, the regions of the world. We are doing well in EMEA right now, relatively well in EMEA, to the Americas, to the Asia-Pacific region. The product lines and public assets, equity and now fixed income and private assets and ESG and climate has overlaid to all of what we do.
We have a lot of performance tools. We have a lot of risk tools. We have different forms of pricing whether it’s subscription, whether it’s AUM, whether it’s transaction and then volumes like in futures and options. We have a very diversified employee base. 65% of our employees are spread a lot, half of them are so big emerging markets of the world, 35% are in developed markets. So, whenever there is an issue of labor tightness or increases in expenses and wages in a particular location, we hire in other locations. We have a lot of hedges between dollar versus non-dollar and the like. So, that’s why we are very comfortable with this expense base because of the nature of the franchise that is diversified and the nature of our cautiousness going into the market.
Craig Huber: Great. Thank you.
Operator: The next question comes from Russell Quelch with Redburn Partners. Please go ahead.
Russell Quelch: Yes. Thanks having me on. And I appreciate what you are baking into guidance in terms of asset values. But wondering to what degree the guidance assumes lower retention rates to come on subscription revenues in the rest of the year and particularly in Q4, please?
Andy Wiechmann: Yes. I would – as you know, the subscription base is slow-moving beast. And so even adjustments to the retention rate around the hedges or sales don’t have a meaningful impact in the current year. So, I would say the bigger impact for this year is really around asset-based fees.
Russell Quelch: Okay. Cool. Thanks Andy. And then just following up from that sort of related, what are you assuming you can do on pricing to offset any increase in cancellations or inflation in the cost base, please?
Andy Wiechmann: Sure. Yes. I would say that price increases continue to be at a higher level than they have been in recent years, and they continue to contribute a larger percentage of new recurring sales. We have been successful with capturing price increases with clients. And we actually, in the first quarter, probably even saw a slightly higher contribution to recurring subscription sales than we even saw last quarter. I would say we will continue to be measured on this front and ensure that we are delivering value to our clients in connection with price increases. But where we are delivering value, we will continue to extract price and seem to be getting traction with it.
Russell Quelch: Okay. Good stuff. Thanks.
Operator: The next question comes from Greg Simpson with BNP Paribas. Please go ahead.
Greg Simpson: Hi. I appreciate you taking my questions. And can I just ask if you can share some thoughts on the potential implications of AI for MSCI longer term? What are you doing today? What applications are you exploring actively? I know it’s a broad question, but just would be interested to hear your thoughts there.
