Full Description

MSCI Inc. (MSCI) is a provider of investment decision support tools, including indices and portfolio risk and performance analytics for use by institutions in managing equity, fixed income and multi-asset class portfolios. The Company’s principal products are its international equity indices marketed under the MSCI brand and its equity portfolio analytics marketed under the Barra brand. Its products are used in many areas of the investment process, including portfolio construction and optimization, performance benchmarking and attribution, risk management and analysis, index-linked investment product creation, asset allocation, investment manager selection and investment research.

The Company’s clients include asset owners, such as pension funds, endowments, foundations, central banks and insurance companies; institutional and retail asset managers, such as managers of pension assets, mutual funds, exchange traded funds (ETFs), hedge funds and private wealth, and financial intermediaries, such as broker-dealers, exchanges, custodians and investment consultants. As of November 30, 2008, the Company had over 3,100 clients across 64 countries.

The Company’s primary products consist of equity indices, equity portfolio analytics and multi-asset class portfolio analytics. It also has product offerings in the areas of fixed income portfolio analytics, hedge fund indices and risk models, and energy and commodity asset valuation analytics. MSCI’s products comprise index data, risk data and/or software applications. The Company’s software applications offer its clients sophisticated portfolio analytics to perform in-depth analysis of their portfolios, using its risk data, the client’s portfolio data and fundamental and market data. The Company’s products are marketed under three brands: MSCI, Barra and FEA.

Equity Index Products

The Company’s MSCI-branded equity index products are designed to measure returns available to investors across a variety of markets, size, style and industries. As of November 30, 2008, the Company calculated over 120,000 equity indices daily. During the fiscal year ended November 30, 2008 (fiscal 2008), approximately 2,300 clients worldwide subscribed to the Company’s equity index products for use in their investment portfolios and for market performance measurement and analysis. In addition to delivering its products directly to its clients, as of November 30, 2008, the Company also had 60 third-party financial information and analytics software providers who distribute its various equity index products worldwide.

The MSCI International Equity Indices are the Company’s principal index products. They are designed to measure returns available to international investors across a variety of public equity markets. As of November 31, 2008, the indices included 70 country indices across developed and emerging markets, as well as various regional composite indices built from the component country indices, including the MSCI Europe, Australasia and Far East (EAFE), MSCI World and MSCI Emerging Markets Indices. In addition, the International Equity Indices include industry indices, value and growth style indices and large-, mid-, and small-capitalization size segment indices.

MSCI Domestic Equity Indices are designed to measure the returns available to domestic investors in the United States, Japan and China public equity markets. Each of these domestic country index series includes value and growth style indices, and in the case of the United States and Japan, large-, mid-, small- and micro-capitalization size segment indices. Global Industry Classification Standard (GICS) was developed and is maintained jointly by the Company and Standard & Poor’s. The Company designed this classification system to respond to its clients’ needs for classifying companies into industries. Its equity index products classify constituent securities according to the GICS. The Company also offers GICS Direct, a product developed jointly with Standard & Poor’s. GICS Direct is a database of more than 37,000 active companies and 42,000 securities classified by sector, industry group, industry and sub-industry in accordance with the GICS methodology.

Equity Portfolio Analytics Products

The Company’s Barra-branded equity portfolio analytics products assist investment professionals in analyzing and managing risks and returns for equities at both the asset and portfolio level in equity markets worldwide. Barra equity risk models identify and analyze the factors that influence equity asset returns and risk. Barra equity products utilize the Company’s fundamental multi-factor equity risk model data to help its clients construct, analyze, optimize and manage equity portfolios. Its multi-factor risk models identify common factors that influence stock price movements, such as industry group and style characteristics, based on market and fundamental data. The risk data available in its products identifies an asset’s or a portfolio’s sensitivities to these common factors.

Barra Aegis is the Company’s equity risk management and analytics system. It is a software application for equity risk management and portfolio analysis that is powered by its equity risk data. It is deployed by the client as a desktop application. Barra Aegis is an integrated suite of equity investment analytics modules, specifically designed to help clients actively manage their equity risk against their expected returns. It also enables clients to construct optimized portfolios based on client-specified expectations and constraints. Barra Aegis also provides a factor-based performance attribution module, which allows clients to analyze realized returns relative to risk factors by sectors, styles, currencies and regions. Barra Aegis tools also help clients identify returns attributable to stock selection skills. In addition, using Barra Aegis’ automation tools, clients can back-test their portfolio construction strategies over time.

MSCI’s Equity Models Direct product delivers risk data to clients for integration into their own software applications. The risk data in Equity Models Direct is also available via third-party providers. Based on their investment processes, clients select the risk data that suits their needs. The Company offers its risk data from several Barra risk models. The single market equity risk models identify a set of factors most able to explain the risk of portfolios in that market, such as the United States equity model, version 3 (USE3), which models risk for United States equity assets and portfolios, and its UKE7 model, which models risk for United Kingdom equity assets and portfolios.

The Company’s global equity risk model utilizes factors that best explain risks associated with multiple-country equity investing. Barra integrated model (BIM) provides a detailed view of risk across markets, asset classes and currencies. It begins by identifying the factors that affect the returns of equity and fixed income securities and currencies in many countries worldwide. These factors are then combined into a single global model that can forecast the risk of a multi-asset class, global portfolio. The Company’s short horizon equity models, designed to forecast risk over a period of one to six months, provide portfolio managers and analysts with responsive risk forecasts.

Multi-Asset Class Portfolio Analytics Products

The Company’s multi-asset class portfolio analytics products offer a framework for monitoring investments in a range of asset classes across an organization. The products are based on multi-factor risk models, value-at-risk methodologies and asset valuation models. They enable clients to identify, monitor, report and manage potential market risks from equities, fixed income, derivatives and alternative investments, and to analyze portfolios and systematically analyze risk and return across multiple asset classes. Using these tools, clients can identify the drivers of market risk across their investments, produce daily risk reports, run pre-trade analysis and optimization, evaluate and monitor multiple asset managers and investment teams, and access correlations across a group of selected portfolios. The Company has two products in this area: BarraOne System and Barra TotalRisk System. Clients access BarraOne through Internet, using their desktop browsers. This product includes modules for risk allocation and risk budgeting, and historical as-of analysis of portfolios. Clients install TotalRisk on their own information technology infrastructure. This product includes simulation modules that enable clients to perform historical and Monte Carlo value-at-risk calculations.

Other Products

The Company’s other products consist of energy and commodity asset valuation analytics for investors, traders and those hedging investments in these asset classes and fixed income portfolio analytics products to facilitate the investment processes of fixed income investors. The Company’s energy and commodity valuation products are software applications that offer a variety of quantitative analytics tools for valuing, modeling, and hedging physical assets and derivatives across a number of market segments, including energy and commodity assets. These software applications are not provided with any market data or index or risk data. These products are branded FEA and include products, such as @Energy, VaRworks and StructureTool. Barra Cosmos enables global fixed income portfolio managers to manage risk and optimize return in a multi-currency, global bond portfolio. This adaptable product integrates specific bond, derivative and currency strategies to reflect each user’s investment style, while monitoring the overall risk exposure of the portfolio. Barra Cosmos is deployed by the client as a desktop application.

The Company competes with Dow Jones & Company, Inc., FTSE International, Ltd, The McGraw-Hill Companies, Inc. (Standard & Poor’s), Russell Investment Group, STOXX Ltd., Nikkei Inc., Nomura Securities, Ltd., Tokyo Stock Exchange, Inc., Applied Portfolio Technologies, Axioma, Inc., FactSet Research Systems, Inc., Northfield Information Services, Inc., Wilshire Analytics, Algorithmics and RiskMetrics Group, Inc.