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MSCI chief research officer touts AI revolution, transparency in private markets

Jovi Ho
Jovi Ho • 7 min read
MSCI chief research officer touts AI revolution, transparency in private markets
MSCI’s Lester: We wish to bring transparency to private markets to facilitate the investment process there in the [same] way that we’ve brought transparency to the public markets. Photo: Albert Chua/The Edge Singapore
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As Ashley Lester puts it, being the chief research officer at MSCI is akin to “being a kid in a candy shop”.

He adds: “We’ve got so much expertise across many different aspects of financial markets. Moreover, we have such [a] great client list that we can find out the relevant trends. We can be part of shaping how the investment community thinks about those trends.”

Despite MSCI’s dominance in global market data, Lester thinks the firm’s “fundamental expertise” and environmental, social and governance (ESG) research is still “underappreciated” by the world at large.

Speaking to The Edge Singapore in April, Lester points to two areas of interest that have punctuated his year as global head of research: expanding work around private assets and reshaping the investment landscape with advances in AI.

“MSCI started in equities; we do a lot of work in fixed income, but over recent years, we’ve acquired leading databases in real estate, and now private markets. We wish to bring transparency to private markets to facilitate the investment process there in the [same] way that we’ve brought transparency to the public markets,” says Lester.

See also: MSCI boss warns of climate risks

Private but transparent

At the moment, wealthy investors struggle to invest in private assets as they lack data on risk and expected returns, says Lester. “There’s a demand for more exposure to private assets [and] there’s a supply of talent willing to manage it; everyone benefits from being able to make that match. And one of the missing elements at the moment is transparency.”

In August 2023, MSCI announced the acquisition of the remaining 66% of The Burgiss Group for US$697 million ($942.3 million), completing a takeover that began with an initial investment in January 2020.

See also: MSCI's new Sustainability Institute aims to create real-world influence and action

MSCI invested US$913 million to acquire all of Burgiss, a New Jersey-based data, analytics and technology solutions provider for private asset investors. Its dataset covers over 13,000 private asset funds, representing US$15 trillion in cumulative investments across private equity, private real estate, private debt, infrastructure and natural resources in 195 countries.

Burgiss — and now MSCI — is the world’s leading data source on private asset returns, sourced exclusively from limited partners (LP), says Lester. “LP is private asset-speak for the people who are not the managers. Its importance is that it speaks to the net returns from investing in the various private assets in which the LPs have been invested.”

He adds: “Because these are coming to us from the end investors, they are not subject to the potential sources of bias, which you might be subjected to if you’re purely relying on the goodwill of the managers themselves.”

While Burgiss claims to have a global dataset, the private markets are currently even more US-dominated than the public markets, says Lester.

However, this is a “very dynamic space”, he adds. “There is enormous growth in Europe and APAC; there’s also growth across the types of investments being made.”

Lester says private credit, in particular, has seen “a lot of growth” since the Global Financial Crisis. “That has picked up even further in the last seven or eight years and was given, most recently, a further leg up as a result of increasing interest rates post-pandemic.”

He adds that private assets are often portrayed as a monolith, “but actually, there are many asset classes”.

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Job-changing AI

According to Lester, AI is going to change almost every job market. “I think it’s really important, socially, to ensure that the AI productivity dividend is retained, primarily in the form of empowering people to do more interesting and relevant work.”

He adds: “People shouldn’t fear for their jobs so much as think about how the job is going to become more interesting and more useful and more relevant.”

Speaking of jobs, Lester joined MSCI in May 2023 after founding systematic investments at Schroders. Based in London, Lester reports to Baer Pettit, president of MSCI.

This is not his first role at MSCI. He was last with the firm between 2013 and 2015 as managing director and head of fixed income and multi-asset class research based in New York.

Before joining MSCI, Lester was managing director and head of market risk analytics at Morgan Stanley. He also spent several years as an Assistant Professor of Economics at Columbia Business School and Brown University and served as a Graduate Economist at the Reserve Bank of Australia.

Lester predicts that AI will revolutionise investment management in theory and practice. “It’s going to revolutionise two sub-disciplines, specifically risk management and portfolio management and how they interact with each other.”

He points to the divide between fundamental and quantitative analysts. “There is often mutual incomprehension in the language that each other speaks, where the quants think that the other people are just storytellers and the fundamental people think that the quants are just impenetrable. So, there’s not much learning from each other.”

With AI, computers can now read and generate words. “That means we can fuse these quantitative and qualitative disciplines back together in a way that they haven’t been fused since quant was invented in the 1970s,” says Lester.

He adds that this will help analysts be better understood. “Now, you can tell stories that everyone can understand about emerging exposures in the news or what the effect of the release of ChatGPT is on stock performance; you can tell those intuitive stories that people understand with some hard signs and numbers to back them up.”

ESG research

As chief research officer, Lester oversees the work of some 450 researchers in over 50 cities worldwide. The researchers are roughly divided across three areas: risk modelling, MSCI indices and ESG and climate.

Last September, MSCI launched the MSCI Sustainability Institute, an investor education hub offering academics and policymakers access to sustainability data, metrics and models. Linda-Eling Lee, the former head of global ESG and climate research at MSCI, is the institute’s head and founding director.

MSCI then split Lee’s former role into two. Laura Nishikawa, a 13-year MSCI veteran, was made head of ESG research, and Oliver Marchand, former CEO and co-founder of Carbon Delta, was appointed head of climate research. MSCI acquired the Zurich-based climate change scenario analytics firm in 2019.

According to Lester, MSCI’s ESG and climate researchers continue to work “very closely together.” He adds that nature and biodiversity are “good examples of their overlapping interests”, but this is also a “multifaceted problem”.

A significant part of MSCI’s expertise in climate modelling also comes from geospatial modelling, adds Lester. “This is very critical in an area like nature and biodiversity, where there are questions about what we can do to help investors think about which companies are operating near environmentally sensitive areas or potentially involved in deforestation.”

Lester says sustainable investing, which saw a period of “enormous enthusiasm” some years back, has recently seen fund outflows amid international conflicts and politicisation in the US.

However, he emphasises that considering ESG factors remains crucial when assessing the risks associated with investing in a company or an asset. “We, at MSCI, will continue to sharpen the tools we provide to investors [for] thinking about the risks, and, potentially, what are the investible opportunities associated with the transition to the green economy?”

Up to investors

Is Lester keeping an eye on any market indicators this year? He says: “I’m fundamentally not a market timer. When I headed an investment desk, it was 100% systematic. Markets are very hard to time, and that’s fundamentally a professional activity.”

Instead, Lester looks at the trade-off between valuation and momentum. In some emerging markets, like India and Mexico, valuations are at or close to all-time highs. In other markets, like China, valuations are closer to historical lows.

He adds that all MSCI can do is provide the metrics, and it is up to investors to decide what to do. “But once you look at that metric, the question always comes: ‘Well, does the valuation metrics say that, therefore, it’s now time to get in? Or do the valuation metrics say there are ongoing issues in these markets which need further education before it’s time to get in?”

That, he adds, is up to the investment professionals. 

Photos: Albert Chua/The Edge Singapore

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