MSCI has partnered with Microsoft to take the business, its products, its data functions, and its client relationships into the cloud.
“We see the inevitability of full cloud migration,” said Baer Pettit, London-based president and COO at MSCI. The firm has already moved DevOps into the cloud, but now it will seek to put all of its activities there.
Partly this is to generate efficiencies and therefore improve the firm’s bottom line. “But more important is to create a streamlined environment in which we can innovate at significantly greater speed,” Pettit told DigFin.
Making a supertanker agile
This is a big move for the asset-management world, given MSCI’s leading position as an index and data provider to the buy side, as well as directly to asset owners such as sovereign wealth funds and pension funds.
There is now $12.4 trillion of global equity assets benchmarked to MSCI indexes, including 85% of global equity funds, the firm says. Along with industry benchmarks such as its World Equity Index, MSCI produces bespoke indexes for products such as ETFs or for investors’ proprietary strategies. The data underlining indexes can be even more lucrative to the vendor, which also owns providers such as RiskMetrics (for fixed income) and Barra (for portfolio analytics).
MSCI and its competitors (Standard & Poor’s, FTSE Russell, and Stoxx) are coming under fire from disruptive startups, which are using nimbler tech stacks to make indexes fast, cheap, and easy to customize. To date, the size, credibility, and branding power of the incumbents has protected them from disruption.
Pettit doesn’t attribute the Microsoft partnership to that kind of competitive pressure, although he acknowledges it. But if MSCI’s vision for leveraging Microsoft to transform how it handles data, it could become agile enough to blunt the threat of disruption.
Building blocks for innovation
“Our teams have great ideas for financial markets and content,” Pettit said, “but our impediment has been the plumbing: it’s too slow or costly to cross-fertilize data and content the way we’d like.”
Some of those ideas include thematic indexes or data components for portfolios covering next-gen ideas such as smart cities or genomics, to name just two. “We want to combine new data from alternative sources with long-term, stable signals,” Pettit said.
We see the inevitability of full cloud migrationBaer Pettit, MSCI
To do so more effectively means tackling the problem of siloed data, including that held among acquisition companies. Microsoft is being tasked with helping MSCI upgrade its tech stack to take advantage of big data, analytics, and artificial intelligence.
What will change
He described the goals of the Microsoft alliance as touching on three functions, and two special areas.
First is product: collecting data and building risk models and indexes.
Second is client experience, to be guided by the firm’s chief technology officer, Jigar Thakkar—himself an ex-Microsoft developer who had led its creation of Teams videoconferencing.
Third is internal tools for business functions like accounting, finance, human resources and legal.
Pettit says he’s keen to deploy cloud solutions to two special categories.
First is ESG research. “We want to be creative in how we work with Microsoft to help corporations regarding ESG,” he said.
Second is localization of cloud for MSCI’s asset owner clients who are sensitive about where data is stored. “Large state-run or state-owned investors are concerned about security,” Pettit said. “Microsoft has client-specific cloud environments in Azure to meet those requirements.” Azure is Microsoft’s cloud-service brand.
But the bigger impact of MSCI’s move to delivering products via cloud will be on the asset-management industry, which will have to be able to engage this way to remain competitive. That means fund houses becoming cloud enabled and fluent in big data, analytics, and A.I.
“Our largest clients are taking steps to operate in a cloud-enabled way,” Pettit said. “This will move dramatically in the next year or two. We are on the cusp of a lot of change.”