Shareholders increase pressure on MSCI to spin off indexes

Stock exchange operators show growing interest in index business

Leading shareholders of MSCI are pushing the company to break itself up so it can split off its stock market index business and put it up for sale amid growing interest in indexing among stock exchanges, according to media reports.

Activist hedge funds ValueAct Capital, which owns an 8.3 percent stake in MSCI, recently saw its push for a seat on MSCI’s board rejected, in part because of its insistence the company split the index business off from its portfolio management software business and sell it, the Financial Times reports, citing ‘people familiar with the situation’.

The new move comes amid increasing ties between stock exchange operators and index businesses. NASDAQ bought US index provider Dorsey Wright & Associates for $225 mn earlier this week; last year, the London Stock Exchange paid $2.7 bn for the Russell indexes.

Independent Franchise Partners, another investor in MSCI, shares ValueAct’s opinion that the index business should be sold, the FT says, citing other people familiar with the thinking of the London-based value investor. And a third large shareholder has backed ValueAct’s push for a seat on MSCI’s board, though it’s not clear whether it supports splitting up the business, the FT adds, without identifying the shareholder.

‘ValueAct has a good track record of being a constructive board member,’ the shareholder says in an interview with the newspaper. ‘At MSCI, there are questions on whether a long-standing management is wedded to a strategy that doesn’t make sense, and ValueAct is very thoughtful about the questions it asks.’

ValueAct CEO Jeffrey Ubben says in a public letter to MSCI earlier this week that he first requested a board seat last August and that ‘the way the MSCI board handled our request for a board seat leaves us with serious concerns about the board’s independence from management and alignment with shareholders.’

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