MSCI’s governance revenues hit by declines in proxy research, voting

Index firm MSCI’s governance revenues, essentially the former Institutional Shareholder Services (ISS) business it acquired as part of RiskMetrics, were hit in the third quarter by declines in proxy voting and research.
“Compared to pro forma third quarter 2009, governance revenues declined $1.2m, or 3.7%, to $30.3m (€22.2m),” MSCI said in its third-quarter earnings report.
Gains in corporate compensation advisory services “were offset by declines in proxy research and voting” as well as forensic accounting services.
Over the nine-month period, pro forma governance revenues fell by $5.1m – 5.1% – to $95m.
The “run-rate” – forward-looking fees for the next 12 months – for the governance segment in August 2010 was $105m. That’s 7.2% down on the 2009 figure of $113.9m.
The numbers came as MSCI reported that its overall third-quarter net income halved to $10.3m from $20.9m last year. The firm’s operating revenue rose 86% to $202.7m. RiskMetrics, which it bought for $1.55bn earlier this year, added $77m.MSCI operates in two segments, Governance and Performance & Risk.
The latter unit – comprising index and ESG (environmental, social and governance) products, risk management analytics, portfolio management analytics, and energy and commodity analytics – saw revenues rise 58.4%, to $172.4m.
At the time of the acquisition, MSCI Chief Executive Henry Fernandez made clear that the ISS business was “non-core” to the merged entity. But company insiders say senior management now see the merits of the business.
“MSCI’s growth is supported by long-term, secular trends including the increasing allocation of capital to global markets, the increasing need to measure, manage, and report risk, the increased emphasis on sound corporate governance practices, and the growth of passive investment vehicles,” said Fernandez in the earnings statement.
“We intend to continue to invest in creating new products and capabilities for our clients so that we can take advantage of the opportunities these trends offer us.”