MSCI Inc. Reports Record Revenues for Third Quarter 2008

Business Wire, Oct 2, 2008

The three MSCI indices with the largest amount of ETF assets linked to them as of August 31, 2008 were the MSCI EAFE, Emerging Markets and US Broad Market Indices. The assets linked to these indices were $40.4 billion, $31.8 billion and $10.4 billion, respectively.

Equity Portfolio Analytics: Revenues related to Equity Portfolio Analytics products increased 14.3% to $33.7 million in third quarter 2008 compared to the same period in 2007. The year-over-year increase reflects new subscriptions to our proprietary equity risk data accessed directly and bundled with Aegis.

Multi-Asset Class Portfolio Analytics: Revenues related to Multi-Asset Class Portfolio Analytics increased 33.8% to $8.9 million in third quarter 2008 compared to the same period in 2007. BarraOne revenue growth remained strong due to sales to existing clients as well as new client additions led by orders from asset managers and asset owners. The EMEA region was particularly strong reflecting demand for centralized risk reporting tools.

Other Products: Revenues from Other Products decreased 8.0% to $5.8 million in third quarter 2008 compared to the same period in 2007. The decline reflects a decrease of 59.0% to $0.7 million in asset based fees from investment products linked to MSCI investable hedge fund indices offset, in part, by an increase of 17.5% to $3.4 million for our energy and commodity analytics products and a 3.6% increase to $1.7 million for fixed income analytics. The decline in investable hedge fund indices revenues reflects lower asset based fees from investment products linked to these indices, caused by market depreciation and investor withdrawals.

Operating Expenses

Operating expenses increased 23.2% to $72.9 million in third quarter 2008 compared to third quarter 2007. Excluding expenses related to the founders grant (as described below), operating expenses increased 14.2% to $67.5 million in third quarter 2008, with increases in compensation and non-compensation expenses of 19.2% and 9.3%, respectively. Expenses associated with replacing services currently provided by Morgan Stanley were $7.8 million (including $0.6 million of depreciation expense) in third quarter 2008 compared to $5.1 million in second quarter 2008. The allocation expense for cost of services provided by Morgan Stanley was $3.9 million in third quarter 2008 compared to $5.8 million in second quarter 2008 and $7.0 million in third quarter 2007.

Compensation expense in third quarter 2008 includes $2.4 million of expenses attributable to staff hired to replace Morgan Stanley services. In addition, the increase compared to third quarter 2007 reflects higher compensation costs for existing staff and new hires including personnel hired in emerging market centers. The non-compensation expense increase reflects expenses of $5.4 million (including $0.6 million of depreciation expense) related to replacing Morgan Stanley services, $0.5 million associated with being a public company and $0.6 million from expenses associated with the July 2008 secondary equity offering. These expenses were offset by a $3.1 million reduction in the expense allocation from Morgan Stanley.